Insurance Law

Change of Control in An Insurance Company

Section 67(1) of the Insurance Act of 1996 of Malaysia provides that any agreement or arrangement to acquire or dispose of any interest in shares of a licensed insurer incorporated in Malaysia or of its controller[1] by a person (either alone or with any associate) together with any existing interest in the shares of the licensee or its controller (either alone or with any associate), which will in aggregate exceed 5% of the shares of that licensee or of its controller, requires the written approval of the Ministry of Finance. The approval process is implemented by way of a two-step process as below:

  • Approval in principle by Central Bank of Malaysia or Bank Negara Malaysia (BNM): A proposed acquirer must first obtain approval in principle from BNM before it enters into any arrangement or agreement to acquire more than 5% of its shares in the insurer or its controller[2]. This approval process, which takes approximately 1 to 2 weeks, generally begins when the proposed acquirer intends to commence preliminary negotiations or conduct due diligence of a licensed insurer in Malaysia.[3]
  • Final approval by the MOF: The approval of the MOF is required before parties can finalize the sale and purchase agreement to acquire or dispose of any interest in shares or any interest, as the case may be, exceeding 5% of the shares of the licensed insurer or its controller[4].  After the draft sale and purchase agreement has been finalized between the parties but prior to signing the agreement, both the buyer and the seller are required to apply for the prior approval of the MOF via BNM.  BNM will submit the application together with its recommendation to the MOF, which in turn will approve or refuse the application[5].  This approval process would typically take 2 to 3 months from the submission of a complete application.[6]

In addition, an insurer licensed under the Insurance Act of 1996 of Malaysia must seek and obtain BNM’s written approval before appointing or reappointing a director or a CEO[7].  This approval process can take about 3 months. For the purpose of such appointment, a person must fulfill the regulatory requirements of a “fit and proper” person, where the person must, amongst others, (i) have educational qualifications and experience that will enable him to satisfactorily discharge his responsibilities; (ii) not be a bankrupt; (iii) have not been convicted for criminal offence involving fraud or dishonesty or under the relevant business laws punishable with imprisonment or fine; (iv) be available for full-time employment; (v) not carry on any other business or vocation; (vi) have personal qualities of honesty and integrity; and (vii) manage his debts or financial affairs prudently[9].  Failure to meet the aforesaid requirements could lead to BNM’s rejection of the appointment.[10]



[1]         “Controller” means, in relation to an institution, (a) a chief executive officer of the institution or of a body corporate of which the institution is a subsidiary; (b) a person who, either alone or with any associate, (i) has interest in one-third or more of its voting shares; (ii) has the power to appoint, or cause to be appointed, a majority of its directors; or (iii) has the power to decide or cause to be decided, in respect of its business or administration.

[2]        Circular JPI: 27/1998 dated 28 October 1998 on Acquisition or Disposal of Interest in Shares of an Insurer.

[3]         ING may have already applied for and obtained the approval in principle.

[4]       Circular JPI: 27/1998 dated 28 October 1998 on Acquisition or Disposal of Interest in Shares of an Insurer.

[5]         Section 67(3) of the Insurance Act of 1996.

[6]         Delays normally arise where the application is not complete or the Minister is not in Malaysia to consider the application and give his approval.

[7]         Section 70(1) of the Insurance Act of 1996.

[9]      Part 6 of the Guidelines on Fit and Proper for Key Responsible Persons [BNM/RH/GL 018 – 3], regulation 51 of the Insurance Regulations 1996, section 71 of the Insurance Act, 1996.

[10]       There have been cases where the appointment of CEOs or directors was rejected by BNM, such as where the person was a director of a corporation that has been wound up or where the fit and proper criteria were not satisfied.  The board and the nominating committee of an insurer are primarily responsible for ensuring that all key responsible persons fulfill the fit and proper requirements and for conducting assessments of the fitness and propriety of directors and the CEO.  BNM expects that the fit and proper assessments on each key responsible person is conducted both prior to initial appointments and at regular intervals of at least annually or whenever the nominating committee becomes aware of information that may materially compromise a key responsible person’s fitness and propriety.  When the person becomes disqualified after his appointment, he must immediately cease to hold office and the insurance company must immediately terminate his appointment and that person, notwithstanding any contract of service, must not be entitled to claim any compensation for his loss of office or termination of appointment.  Section 127 of the Companies Act of 1965 of Malaysia provides for the validity of the acts of a director or manager notwithstanding any defect that may afterwards be discovered in his appointment.  However, that section only applies where either those concerned in the appointment were not aware of the facts rendering the appointment invalid or they were honestly unaware that the legal consequence of those facts was to invalidate the appointment.