Insurance HEADLINE Regulatory PART 1 Developments in Asia Pacific: HEADLINE Risks PART and Opportunities 2 Heng Loong Cheong Joyce Chan Jonathan

Transcription

1 Insurance HEADLINE Regulatory PART 1 Developments in Asia Pacific: HEADLINE Risks PART and Opportunities 2 Heng Loong Cheong Joyce Chan Jonathan Goacher Roy Chan DLA Piper's Asia Insurance Symposium, Singapore 9 October 2013

2 Malaysia Regulatory Drivers for M&A (1/3) RBC regime for conventional insurers (from January 2009) could result in more consolidation RBC for takaful operators introduced end 2012; FDI cap increased in 2009 to 70% (from 49%) and an even higher % holding on a case by case basis if foreign investors can facilitate consolidation and rationalisation of the [Malaysian] insurance industry ; and Regulator s stated policy of encouraging consolidation in the sector Policy (since 1997) of not issuing new licenses for direct insurance Licenses for reinsurance still available 9 October

3 Malaysia Regulatory Drivers for M&A (2/3) Financial Services Act 2013 (Effective 30 June 2013) Direct insurers may NOT carry on BOTH life and general business 5 year transitional period for current composite insurers Reorganise? Divest? By 29 June AIA (ING Insurance) - Etiqa Insurance - MCIS Zurich Insurance - Zurich Insurance Malaysia - Prudential Assurance Malaysia 9 October

4 Malaysia Regulatory Drivers for M&A (3/3) Individuals may not hold >10% interest in shares of a (re)insurer "Interest in shares" Direct interest Effective interest Legal / beneficial interest 5 year transition period (by 29 June 2018) for "sell down" to 10% Sell downs by individual founders / substantial shareholders? An additional investment "cap" for future M&As? 9 October

5 Indonesia Regulatory Drivers for M&A (1/2) The Financial Services Authority ("FSA") authorised as of 31 Dec 2012 to regulate & supervise financial sectors (including the insurance sector) Prior approval of FSA required for ownership change (no minimum threshold) in insurance / reinsurance companies except transactions through the stock exchange which do not alter "control" of the insurance /reinsurance companies Regulator s policy of encouraging consolidation in the section 9 October

6 Indonesia Regulatory Drivers for M&A (2/2) Local insurers could struggle to meet the mandatory increases in minimum capital by the stated deadlines (the next and last being 31 Dec 2014) creating investment opportunities Minimum capital increase as follows: Rp100 billion (~US$8.65m) for insurance companies (or Rp50 billion (~USD4.32m) for Takaful insurers) Rp200 billion (~US$17.3m) for reinsurance companies (or Rp100 billion for Takaful reinsurers) FDI cap of 80% MAY be exceeded IF an existing 80% foreign shareholder subscribes for new shares pursuant to capital increase requirements AND the Indonesian 20% shareholder is unable to purchase additional shares resulting in dilution of its 20% holding 9 October

7 Singapore Insurance (Amendment) Act 2013 Came into effect on 18 April 2013 Made significant changes to the Insurance Act (CAP 142) Amendments made to change of control provisions (Sections 28 and 29 of the Insurance Act): MAS approval must be obtained prior to a person obtaining "effective control" of a licensed insurer "effective control" now includes circumstances where the directors are accustomed or obliged to act on the acquiror's instructions MAS approval must be obtained prior to a person becoming a substantial shareholder in a licensed insurer (being a 5% interest or more in voting shares) 9 October

8 Singapore New requirement re. insurers acquiring major stakes in other companies (Section 30B) MAS approval must be obtained prior to a licensed insurer acquiring or holding a 'major stake' in any corporation 'Major stake' means (i) beneficial interest in 10% or more of issued shares; (ii) control over 10% or more of voting power; or (iii) any interest giving defacto control over the corporation Clarification that an insurance business transfer (even via novation) requires MAS consent (Section 49FB) The branch office exception It appears that the change of control provisions continue to NOT apply to branch offices However, note the clarified non-solicitation provisions (Section 6): branch offices may not solicit insurance business for their head offices 9 October

9 Hong Kong Proposed Independent Insurance Authority ("IIA") (1/2) IIA operational in 2015 with an expanded role and extensive new powers to enforce, greatly enhanced market conduct obligations for insurance companies, intermediaries and their directors and officers 2016 HK is likely to introduce some form of risk based capital regime Key changes of IIA: Intermediary regulation ROs for insurers and intermediaries - duties on insurer ROs to secure compliance by intermediaries Disciplinary and penalties Powers of inspection, investigation and suspension Banks intermediary activities 9 October

10 Hong Kong Proposed Independent Insurance Authority ("IIA") (2/2) Effect of industry: Rise of legal & compliance costs Additional senior management (responsible officers) time to monitor intermediary compliance More common conduct investigations / enforcement actions 9 October

11 Hong Kong Medical Insurance Proposed Health Protection Scheme ("HPS") (1/2) Standardized, government-regulated (and funded?) framework Objectives Facilitate greater use of private health services as alternative Better control of healthcare expenditure HPS Concept Mandatory minimum requirements for plans under the HPS and indemnity hospital insurance products Insurers may offer Standard Plans and top-up benefits ( Flexi and Top-up Plans) 9 October

12 Hong Kong Medical Insurance Proposed Health Protection Scheme ("HPS") (2/2) Key features 1. Guaranteed acceptance and renewal 2. minimum coverage and benefit levels 3. cover pre-existing medical conditions subject to waiting period 4. permit to charge premium loading up to 200% on high-risk applicants and transfer to High Risk Pool 5. No-Claim discount (up to 30%) 6. Transparent premium structures and standard terms 7. Informed financial consent; No-gap/ known-gap arrangement 8. No restriction on entry for those below 65 ( Above 65 can join within 1 st year of HPS introduction) 9 October

13 Thailand New investment regulations for life & non-life insurers. Currently in draft form but believed to be final and shall become effective imminently. 9 October

14 Thailand NEW DRAFT INVESTMENT REGULATIONS FOR LIFE & NON-LIFE INSURERS Investment committee must be appointed by the Board of the insurer: Composition: at least three persons - directors/executives and investment experts with at least 3 years experience (can be internal or external persons). Supervisory role: must develop investment policies & plans; supervise & manage investment; oversee transparency & accountability of investments; report investment results to the Board. Investment unit should be developed by the insurer, responsible for the operational role in undertaking investment. Within two years, responsible person(s)/investment decision maker(s) must complete an official training course & have certain financial/economic qualifications & experience. Otherwise, an external party can be appointed to the investment unit: must be either a licensed personal fund manager or approved for the role by the insurance regulator, or the scope of the insurer's investments will be extremely limited. 9 October

15 Thailand Documents to be developed and submitted to the regulator: (i) investment policy & investment plan; (ii) risk management procedure; (iii) policy for conducting other business: review & submit annually & within 30 days of any "significant change". investment manual: develop within 180 days of regulations becoming effective & submit within 30 days of completion. risk management procedure for conducting other business: to be submitted within 30 days of any "significant change". Compliance: When investment is not in compliance with the investment policy or manual, the regulator may request clarifications, set compliance conditions or order stoppage of such investment until compliance is achieved. Types of permitted investment: bank deposits; equity instruments (shares up to 10%); debt instruments; hybrid instruments (e.g. convertible debentures); investment units; futures contracts; structured notes; making loans; vehicle hire purchase; issuing avals & letters of suretyship; securities borrowing & lending transactions; securities buying or selling under repurchase agreements. 9 October

16 Thailand Possible conduct of other business: let or sublet real estate; conduct back office services; hold more than 10% of shares in a foreign insurer, or a company holding shares in ASEAN insurers, with regulator permission; hold more than 20% of shares in certain insurance-related businesses (including brokers), with regulator permission; operate certain securities businesses, with regulator permission. n.b. a supervisory committee and an internal control system must be established for the conduct of other business; income from other business must be separated according to GAAP. FUTURE DEVELOPMENTS Amendments to insurance acts (removal of consideration of voting rights in assessing whether a corporate shareholder is foreign or Thai). 100% foreign ownership of insurers on the horizon? 9 October

17 China Regulatory Update (1/2) (A) Relaxation of Investment CIRC issued more than eight investment regulations since early 2012 to encourage more diversified investment portfolio and hopefully higher investment yield Implementing Rules of Interim Measures for Managing Foreign Investment of Insurance Funds dated 23 October 2012 opens up a wide range of overseas investment opportunities, eg. Ping An's acquisition of Lloyds Building in July 2013 for 260 million (B) Tightening up control of intermediaries China Insurance Regulatory Commission issued the Notice on Further Regulating Market Access for Insurance Intermediaries in June 2012 Suspended licensing of most sideline agents Increased minimum registered capital requirement from RMB 10 million to RMB 50 million 9 October

18 China Regulatory Update (2/2) (C) Opening up of mandatory auto insurance market Allowing full access of Mandatory Motor Vehicle Third Party Liability Insurance market to foreign insurers Eight foreign insurers have been allowed to operate Mandatory Motor Vehicle Third Party Liability Insurance: Allianz ( 安 联 财 险 ), Cathay Insurance ( 国 泰 产 险 ), AIG Insurance ( 美 亚 财 险 ), Fubon Insurance ( 富 邦 产 险 ), Generali China Insurance ( 中 意 财 险 ), Groupama AVIC Insurance ( 中 航 安 盟 ), Liberty Insurance ( 利 宝 保 险 ) and Samsung Fire and Marine Insurance ( 三 星 财 险 ) AXA acquired 50% of Tian Ping Auto Insurance Company Limited ( 天 平 汽 车 保 险 股 份 有 限 公 司 ), and AXA's existing Chinese Property & Casualty operations are expected to be integrated with the new join venture Such market will be extremely competitive, price deregulation in this segment may drive prices even lower, putting further pressures on profits 9 October

19 China Industry Update (A) Expanding role of banks in insurance market BoCommLife Insurance 交 银 康 联 人 寿 (previously China CMG Life Insurance, 2010); CCB Life 建 信 人 寿 (previously CPIC-ING, 2011); ICBC-AXA Life 工 银 安 盛 人 寿 (previously AXA-China Metal, 2012); ABC Life 农 银 人 寿 (perviously Jiahe Life Insurance, 2013) adopting different models (B) Potential pension and medical / health insurance market PRC may allow foreign insurers to take part in the long-waited taxdeferred pension pilot scheme in Shanghai and expected to have major impact on the pension market Shanghai Free Trade Zone further relaxation and development on medical and health sector (C) Expanding role of internet Internet will play an increasingly important role in distributing personal lines insurance - Zhong An Online Property Insurance Company Ltd. ( 众 安 在 线 财 产 保 险 公 司 ) JV between Alibaba, Tencent, Ping An 9 October

20 China Shanghai - Pilot Free Trade Zone Update (1/3) Officially launched on 29 September 2013 First of its kind on the Chinese mainland, includes the special customs zones of the Yangshan Deep Water Port, Pudong Airport and Waigaoqiao Port, covering a total of 28 square kilometers Following the State Council approval of the positioning of Shanghai as the two centres: financial and shipping It will create tax-friendly facilities for trade and investment within the free trade zone, promote China's interest-rate liberalization and, eventually, Renminbi convertibility It will encourage financial product innovation and promote the development of offshore businesses Set to play an important part in the negotiations for the Trans-Pacific Partnership Agreement (TPP) and become the first open window to help China join the TPP 9 October

21 China Shanghai - Pilot Free Trade Zone Update (2/3) Supporting policies proposed by CIRC relating to China (Shanghai) Pilot Free Trade Zone ("FTZ") dated 29 September 2013: 1. To support the establishment of foreign-invested professional health insurance entities in the FTZ 2. To support insurance companies to set up branches in the FTZ to carry out cross-border RMB reinsurance business, and to support research and explore catastrophe insurance mechanism in Shanghai 3. To support insurance entities in the FTZ to carry out pilot schemes of overseas investment, and to actively research on expanding the scope and scale of overseas investments of insurance entities in the FTZ 4. To support international renowned professional insurance intermediaries, other service / social organizations and individuals in reinsurance to operate in the FTZ, in order to provide professional technical support services to the development of the insurance industry 9 October

22 China Shanghai - Pilot Free Trade Zone Update (3/3) Supporting policies proposed by CIRC relating to China (Shanghai) Pilot Free Trade Zone ("FTZ") dated 29 September 2013: 5. To support Shanghai to carry out marine insurance business, to nurture shipping insurance operators and marine insurance brokers, and to develop a marine insurance association in Shanghai 6. To support the development of innovative insurance products from insurance companies, and to expand the field of liability insurance services 7. To support improving the insurance market in Shanghai, to promote institutional building of marine insurance pricing centre, reinsurance centre and insurance funds centre etc 8. To support innovations in financial reform and innovation in the FTZ, and the linkage mechanism between FTZ and the establishment of Shanghai as an international financial centre, will continue to strengthen and expand memorandum cooperation mechanism between CIRC and the Shanghai government 9 October

23 Insurance HEADLINE Regulatory PART 1 Developments in Asia Pacific: HEADLINE Risks PART and Opportunities 2 Heng Loong Cheong Joyce Chan Jonathan Goacher Roy Chan DLA Piper's Asia Insurance Symposium, Singapore 9 October 2013