Japan’s Tokio Marine Acquires Australian IAG’s Indonesia, Thailand Insurance Firm

The Headquarters - Photo by Tokio Marine

JAKARTA (TheInsiderStories) – Japan’s Tokio Marine Holdings, Inc. announced that it has entered into a definitive agreement to acquire Indonesia and Thailand insurance businesses of Insurance Australia Group Ltd., (IAG) which predominantly comprises of Safety Insurance Public Company Limited in Thailand.

President and Group CEO Tokio Marine Tsuyoshi Nagano said in a statement on Tuesday (19/06), its unit Tokio Marine & Nichido Fire Insurance, will buy IAG’s 80 percent of PT Asuransi Parolamas in Indonesia and 98.6 percent stake in Thailand’s Safety Insurance.

Tokio Marine forms part of Tokio Marine Holdings, Inc., the largest property and casualty insurance group in Japan, with operations in 38 countries.

The total consideration is approximately AUS$525 million (approximately 42.8 billion Yen). These acquisitions are expected to be completed in sequence subject to regulatory procedures required in respective countries.

According to Nagano, the acquisition is part of Tokio Marine Group expanding its international business as the driving force of the Group`s growth strategy. Tokio Marine Group is aiming to pursue strategic M&A initiatives in both developed and emerging markets to achieve this objective.
He said, Asia and other emerging markets, its present contribution to the total profit of our international business remains at around 10 percent.
“We aspire to significantly expand our business in these markets with high growth potential through acceleration of our strategic M&A initiatives to achieve further diversification of our global portfolio, which is stated as one of the key initiatives of our current Mid-Term Business Plan “To Be a Good Company 2020” announced in May 2018,” said Nagano.

IAG’s Managing Director and CEO Peter Harmer in a separate statement believed Tokio Marine is an ideal owner given its experience in the region for the two insurance units.

Separate to the transactions with Tokio Marine, IAG has reached an agreement to sell its 73.07 percent interest in AAA Assurance Corporation, based in Vietnam. All transactions are expected to conclude in the financial year ended 30 June 2019, subject to regulatory approvals or notifications.

Harmer said, an after-tax profit of at least $200 million is expected to be identified in IAG’s FY19 results from the combined transactions, after allowance for related costs and foreign currency translation reserve effects.

As a result of the sale agreements, the consolidated Asian businesses in Thailand, Indonesia and Vietnam will be identified, for accounting purposes, as discontinued operations in the FY18 results, and comparative figures for FY17 and 1H18 will be restated accordingly.

IAG’s interests in Malaysia and India will continue to be treated as associates. Impact on capital position the sale proceeds from Thailand, Indonesia and Vietnam will be a contributory factor in determining future capital management initiatives.

IAG is a general insurance group, with operations in Australia, New Zealand, and Asia. The Group provides a range of personal and commercial insurance products, primarily motor vehicle and home insurance.

IAG also has interest in general insurance joint ventures in Malaysia, India and China. IAG has two customer facing divisions – Consumer Division and Business division being responsible for sales, service, and brand and marketing execution.

Last May, Indonesia has enacted regulation on Foreign Ownership of Insurance Companies, which came into force on April, 18 and confirms a maximum threshold for foreign ownership of an Indonesian insurance company of 80 percent.

Insurance companies that are currently subject to foreign ownership in excess of the 80 percent limit will be exempt from this requirement, provided that their respective existing foreign ownership percentages will amount to the maximum individual cap on foreign ownership of each of the relevant insurers.

If insurance companies fail to comply with the rules, they will be subject to administrative sanctions by FSA ranging from written warnings to business license revocation.

However, as the Financial Sevices Authority (FSA) has already been applying many of the features of the new regulation in practice in recent years, no material impact is anticipated as it amounts to an affirmation of existing policy.

There is a key exemption provided in the regulation, which permits insurance companies with foreign ownership in excess of the 80 percent threshold to maintain their existing shareholding structure provided that there is a complete prohibition on any further increase of such existing percentage by the foreign insurer.

The regulation explains that where this exemption applies, the existing foreign ownership threshold in the relevant domestic insurer will amount to a maximum individual cap on foreign ownership of each of the relevant insurers.

This cap may be subject to change in the event that the relevant foreign shareholder reduces its percentage ownership or sells out completely to a third party.

The impact of the regulation is likely to be limited given that it is effectively an express statement of the existing unwritten policies applied by the FSA in recent years to interpret the Indonesian Insurance Law of 2014.

However, notwithstanding that it maintains the status quo, it gives much needed clarity to the Insurance Law and greater certainty to existing and prospective foreign investors into the Indonesian insurance industry.

This includes all cumulative and affiliated interests and the FSA will look through the chain of legal and beneficial ownership to established the precise threshold proposed to be acquired.

In practice, ever since the Asian Financial Crisis of 1998-1999, a number of foreign insurers had assumed ownership positions in domestic insurers in excess of the 80 per cent cap under the 1992 Law, as where emergency capital was required to keep their investee companies afloat, they had diluted local partners who had been unable to fund their equity proportions.

This non-compliance with the 1992 law was tolerated and had continued until very recently, with the FSA turning a blind eye to dilutive capital increases by foreign insurers in order to support capital requirements.

Email: linda.silaen@theinsiderstories.com