Malaysia's Hong Leong Financial Group (HLFG) and Japan's Mitsui Sumitomo Insurance Co (MSI) on Friday agreed to merge their non-life insurance businesses. At the same time, HLFG will sell a 30% stake in its life insurance business to MSI. The agreement is made up of two separate transactions, together valued at M$1.6 billion ($492 million), according to sources familiar with the deal.
Andrew Zeissink, managing director and head of financial institutions for Asia-Pacific at HSBC, which advised HLFG, told FinanceAsia that the merged entity will become the second largest general insurance company in Malaysia after Kurnia Asia, measured by gross written premiums.
"Hong Leong benefits from the increased scale of its non-life operation and Mitsui gains access to a substantial life insurance business," he said. The new, bigger firm will have a leading position in fire and marine cargo insurance in Malaysia.
Hong Leong Assurance (HLA), a wholly owned subsidiary of HLFG, will merge 100% of its general insurance business with MSIG Malaysia (MSIG), a unit of MSI, in exchange for a 30% stake in the new enlarged MSIG entity. Sources say the 30% stake is valued at about M$620 million. New MSIG shares corresponding to the 30% stake will be issued to HLA Holdings, the parent company of HLA, and a wholly owned unit of HLFG, according to a statement on Friday.
MSIG, advised by BNP Paribas, will also enter into a new bancassurance agreement with Hong Leong Bank for the distribution of general insurance products throughout the bank's network of 185 branches in Malaysia.
The second leg of the deal has HLA Holdings divesting a 30% holding in HLA's life insurance business to MSI for M$940 million in cash.
"It's a good deal for Hong Leong. The price it receives for its life business is significantly higher than the implied value of the stake held by the listed company, HLFG," said one source, without going into detail.
After the transactions, the Japanese company will own 70% of the non-life business and 30% of the life insurance operations; while the Malaysian company will have 70% of the life business and 30% of the non-life operation.
"The enlarged entity will be more robust and resilient, and poised to better compete and lead in the marketplace," Raymond Choong, HLFG president and chief executive, said in a statement. "Our customers will benefit from the combined distribution strength, more sophisticated product development and technical expertise," he added.
MSI managing executive officer Masaaki Nishkata stressed that the alliance with HLFG will help MSI grow its life insurance business in Asia, and said the firm hopes to "leverage on our collective brand strength, expertise and combined force to make further inroads in Malaysia". He was quoted by Malaysia's local press as saying that the financing for the purchase of the 30% stake in HLA's life insurance business will be generated from internal funds.
On its own, MSI doesn't have a licence to sell life insurance in Malaysia -- unlike its major competitor Tokio Marine, which does.
Choong said the partnership will enable HLFG to focus on expanding its life business, "harnessing MSI's strength in marketing, distribution and product innovations".
Final approvals for the deal from regulators and shareholders are expected by the fourth quarter of this year. Hong Leong shares were suspended on Thursday afternoon after rising 1.3% to M$8.38 during the day, and are expected to resume trading today.
"This is the biggest insurance deal ever in Malaysia. It demonstrates the attractiveness of Malaysia's insurance market to international insurers," said HSBC's Zeissink.