SINGAPORE: Moody's Investors Service sees Prudential Financial Inc's expansion into Malaysia as providing it with a platform for life insurance sales in a high-growth region.Last Thursday, Prudential Financial and Bank Simpanan Nasional announced that an agreement to purchase 100 per cent of midsize Malaysian life insurer, Uni.Asia Life Assurance Bhd (UAL) from Uni.Asia Capital Sdn Bhd for about US$160 million in cash.
In Moody's Credit Outlook Thursday, the rating agency said although not a large market for life insurance compared with Japan where Prudential has material operations, Malaysia is an under-penetrated market with substantial room for growth.
In 2012, total insurance premiums in Malaysia were US$15 billion, or about five per cent of the gross domestic product (GDP). This is in contrast to the US$654 billion in Japan, or about 11 per cent of the GDP, indicating Malaysia's growth potential.
In the proposed transaction, Prudential Insurance Company of America (PICA), Prudential's flagship insurance company, and BSN will purchase UAL's issued and ordinary shares.
PICA will hold 70 per cent of the shares, while BSN will hold the remaining 30 per cent. The companies expect the deal to close by year-end.
UAL reported total net premiums of RM263 million (about US$84 million) for the fiscal year ended in March.
"Despite its modest size, we believe UAL may be a harbinger of additional transactions for Prudential outside the US. said Scott Robinson, Moody's Investors Service senior vice president.
"We consider Malaysia's operating environment, which captures relevant economic, social, judicial, institutional and general business conditions in a country's insurance sector, and incorporates multiple factors in two categories (insurance system risk and insurance market development), to be modestly weaker than that of Japan and Korea.
"Although the focus of our analysis of insurers is predominantly on the business and financial parameters of their operations, an important component, particularly in developing markets, is the operating environment," said Scott Robinson, Moody's Investors Service senior vice president.
He noted although Prudential will likely have immaterial exposure to Malaysia over the next few years, meaningful expansion to weaker operating environments would weaken Prudential's credit profile.
After the deal closes, BSN will distribute UAL's conventional life insurance products through its Malaysian banking network.
As of the end of March, BSN had more than 397 branches, 3,593 registered banking agents and eight million customers, making it one of Malaysia's largest banks.
UAL mainly distributes products through agencies, as well as through banks and POS Malaysia Bhd, Malaysia's mail service provider.
Prudential and BSN also intend to develop an agency force, based on Prudential's productive Life Planner distribution channel in Japan, in which agents focus on needs-based selling to mainly affluent individuals. - Bernama
