This article first appeared in The Edge Malaysia Weekly on July 24, 2023 - July 30, 2023

GENERALI, one of the world’s largest insurers, recently embarked on mergers and acquisitions (M&A) in Malaysia to enable it to strengthen its market position as a general insurer and enter the life insurance space. The group expects to grow more aggressively in the country towards the end of next year, once it has completed the integration of its newly acquired businesses.

Until then, the Italy-based group plans to stay in business-as-usual mode in a bid to maintain its current position as Malaysia’s largest general insurer after Allianz General Insurance Co (M) Bhd.

“I would say by the end of 2024, that’s when we will become more aggressive. Today, we are really focused on finishing the integration,” Fabrice Benard, CEO of Generali Insurance Malaysia Bhd and country head for Generali entities in Malaysia, tells The Edge in an interview.

In August last year, Generali, which has had a presence in Malaysia since 2015 through its 49% shareholding in general insurer MPI Generali Insurans Bhd (MPIG), completed its acquisition of majority stakes in AXA Affin’s general and life insurance joint ventures in Malaysia.

Generali then bought out the remaining 51% stake in MPIG from Multi-Purpose Capital Holdings Bhd and merged the business with that of AXA Affin General Insurance Bhd, propelling it into becoming the country’s second-largest general insurer.

The combined transactions — valued at RM1.3 billion, one of the largest M&A deals in Malaysia in recent years — have resulted in Generali owning 70% equity stakes in the enlarged general insurer Generali Insurance Malaysia Bhd (formerly known as AXA Affin General Insurance Bhd) and life insurer Generali Life Insurance Malaysia Bhd (formerly known as AXA Affin Life Insurance Bhd).

Affin Bank Bhd holds the remaining 30% stake in the two entities, after France-based AXA exited the companies.

“We gave ourselves a two-year time frame [until August 2024] to complete the merger plus integration. As of today, you can assume that from a legal and compliance perspective, 95% is completed, but we still have several more steps to make it to 100%, and we can probably get there in September, October,” says Benard.

“Now, this doesn’t mean that I can go immediately after market share, or be aggressive in growing, because my official integration ends in August 2024. Until then, I have a commitment to localise all or most of my IT systems, and at the same time exit all the AXA infrastructure — and this is the most difficult part of the project. Anyone going for an integration like this one would be crazy to do it while seeking market share. We need a stable operation first, and this would only happen by the end of 2024.”

In the meantime, the group is on track to achieve its profitability targets for 2023. “We are currently the second-largest general insurance company in the conventional space — we don’t have takaful licences — and we want to stay second largest during the integration,” he says.

Based on Insurance Services Malaysia Bhd’s (ISM) report for the period of January to December 2022, AXA Affin General Insurance was ranked No 6 among all general insurance companies, with a market share of 7.27%, while MPIG was ranked No 10 with a market share of 4.36%.

Generali’s newly acquired life insurance company is loss-making and Benard says he expects to turn it around in “something like three to four years”. Generali Life Insurance reported a net loss of RM50.15 million for the year ended Dec 31, 2022 (FY2022), compared with a net profit of RM12.8 million a year earlier.

In contrast, the general insurance entity — Generali Insurance Malaysia — posted a higher net profit of RM73.02 million in FY2022 compared with RM71.92 million the year before.

“There are about 13 or 14 life insurance companies in Malaysia, and ours is one of the smallest. I think we rank No 2 from the bottom. It’s a subscale company, which means that the level of expenses that you have to sustain in order to make it work is much higher than what you can afford with your premium. It’s not just us [facing this problem], it’s the bulk of the small companies in any market, including this market,” says Benard.

“So, on this one, we have no choice but to grow it. It’s clearly about sales, sales, sales … growing the top line so that we can absorb our inherent expenses.”

While Generali has yet to finalise its post-integration strategy, it has made it clear that it aims to focus on the underserved B40 (bottom 40% income group) segment over the long term. According to Benard, this was the commitment it gave to the Ministry of Finance when seeking to expand in Malaysia. 

However, he says there is no need for it to apply for one of the upcoming five digital insurance licences from Bank Negara Malaysia to serve the B40. “No, we don’t need it because we can already propose our digital products online with our existing licence.”

What the group does lack, however, is a takaful licence and it would be willing to consider opportunities in this space. It may even consider M&A to get into the takaful business further down the road.

“If there are opportunities in this space, why not study it? It’s always a question of timing, price and opportunity. For any player, not just us, takaful is clearly something to look at because it’s the fastest growing share of the market,” he says.

ISM data shows that gross written premiums (GWP) in the general insurance market grew by 9.7% year on year to RM19.89 billion in 2022. In comparison, GWP in the general takaful market grew at a stronger rate of 21.1% to RM4.64 billion.

Meanwhile, Benard says it is important to come up with the right strategy to serve the B40 as that is the only way to improve the country’s low insurance penetration rate. 

According to him, insurance penetration as a percentage of gross domestic product (GDP) in Malaysia is low, at about 3% for the life insurance segment and 1.2% to 1.3% for the general insurance segment.

“So, Malaysia is at about 4.2% or 4.3%, compared with 10% to 15% in very developed countries. Singapore is at about 10%,” he says. “For Malaysia, you need to build [products] that are specific to this B40 population — simple products that really help them on their specific pain points, and done digitally or with alternative distribution channels. Or, if you use your classic distribution channels like agents, then you need products that you already know will sell in the thousands, so the agent is interested in distributing them.”

In the process of doing research, Generali found that the B40 could be willing to pay RM1 to RM3 a month for insurance, or RM15 a year. “As of today, there is not a single [such] product that really offers valid protection for such a price. I also don’t want to sell something where, in the end, you buy but you have nothing at the end if you claim. So, that’s the difficulty of it,” says Benard.

Can insurers make money selling such products? “You do it for RM15, so you remove from it all the potential costs like commissions because it’s done digitally, but the cover will still be small and you kind of accept [that you won’t make] that much profit, but you don’t want to lose money either. And then you have a strategy around this population too. If you believe Malaysia is a key market in terms of growth of the GDP, which we do, then you have to believe that this population [the B40] will also get richer over the years. And that’s the game. If you were their partner of choice in the beginning, then they would stick with you over the long term. So yes, this is a long-term play,” he says.

Benard notes that Malaysia is a profitable market, particularly for general insurance. “That’s very good for us because not all the markets in Asia are typically profitable. The combined ratio is below 95% for Malaysia and it has been like that for years, except when the market was struck by the floods in December 2021,” he says.

The combined ratio is a key measure of profitability for insurers. It is the ratio of claims paid and operating expenses, to an insurer’s total earned premium.

“So, what we are trying to achieve here is to at least put our general insurance at market standards. We are now not at market standards, and that was one of the main reasons for us to buy the companies, because we believe we can do it. We did it with MPIG in the past — it was a company that didn’t have a good profit track record, but prior to the [current] merger, it became one of the most profitable companies in the market. So, we believe that we can do the same with the overall entity now,” says Benard.

As it stands, the group’s more than 1,500 employees are scattered across four locations in the Golden Triangle of Kuala Lumpur — its headquarters is in Wisma Boustead in Jalan Raja Chulan — and it aims to eventually move everyone to a new building.

“The idea is to have a Generali building. There is an RFP (request for proposals) open, but it’s not finalised yet, so I can’t really talk about it. But yes, we’ll stay within the Golden Triangle,” he says. 

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