Warburg Pincus-backed insurer sees more M&A in SE Asia

Regulatory changes in markets such as Indonesia and the Philippines are putting pressure on insurers to consolidate, according to the CEO of Oona Insurance.

Tougher regulatory requirements on capital held by insurers in different markets in Southeast Asia will increase pressure on entities to consolidate, a veteran industry executive said.

"These increasing capital requirements are a clear signal from regulators that they are encouraging only serious, long-term insurers in the industry," Abhishek Bhatia, founder and group CEO of Oona Insurance told AsianInvestor.

“The stringent nature of these requirements may lead to consolidation among insurance companies, as they strive to meet the minimum capital thresholds. This is a trend that Oona is closely monitoring.”

Bhatia, who was formerly CEO of FWD Singapore, cited examples of both Indonesia and the Philippines — markets in which Oona has licenses to operate — where regulatory measures are nudging towards consolidation.

In Indonesia, the Financial Services Authority, or Otoritas Jasa Keuangan – OJK, recently implemented a regulation requiring insurers to have a minimum equity of 250 billion Indonesia rupiahs (about $15 million) by the end of 2026 and 1 trillion Indonesian rupiahs (about $62 million) by the end of 2028.

In the Philippines, insurance companies must maintain a minimum net worth of 1.3 billion Philippine pesos ($23 million).

Oona, launched in late 2022 and headquartered in Singapore, focuses on digital general insurance in Southeast Asia.

It is fully owned by Oona Holdings and 100% backed by private equity entity Warburg Pincus. It was seeded with two acquisitions — PT Asuransi Bina Dana Arta in Indonesia and Mapfre Insular Insurance Corp in the Philippines.

Oona Insurance plans to grow via a buy-and-build strategy.

MORE M&A COMING

Other experts agreed that Indonesia’s insurance sector is poised for more M&As.

“In addition to pent up demand and supply from the slow M&A market of the past couple of years, and increasing compliance costs, the primary factor for consolidation will likely be regulatory-driven,” said Allison Lee, partner, corporate and securities, mergers and acquisitions, insurance, at legal firm Mayer Brown.

“The OJK has recently proposed significant increases to the minimum capital requirements, which if implemented, will affect insurance and reinsurance companies, particularly those smaller players with lower revenue streams and inadequate capital reserves,” she told AsianInvestor.

The likeliest targets will be smaller, more local insurers or reinsurers who are lacking robust compliance programs, who may have less profitable revenue streams, and/or inadequate capital reserves, said Lee.

“Another potential target will be the local branch or segment of an international insurer or reinsurer, for whom the geography or business lines no longer align with the group’s overall business objectives, who may be looking to sell.”

These will be interesting to insurers who are looking for opportunistic deals that align with their commercial strategies in a country or the Asia Pacific region.

Oona Insurance’s Bhatia believes that insurers will need to embrace collaboration in markets like Indonesia and the Philippines, two of Southeast Asia’s fastest-growing economies, as they undergo rapid digital transformation.

“The future of insurance hinges on healthy partnerships between tech and traditional players, as well as between the public and private sectors,” he said.

“Technology acts as a great equaliser, playing a vital role in expanding financial inclusion by overcoming once-insurmountable barriers like information gaps, geographical constraints, and high costs,” he added.

REGULATORY CHANGES

There are other regulations that Oona Insurance is keeping an eye on as well.

“In the Philippines, there are discussions about potential revisions to Anti-Money Laundering Council (AMLC) guidelines, which could impact current KYC processes,” said Bhatia, adding that in Indonesia, the OJK plans to also introduce new regulations for insurance products.

“The upcoming regulations are expected to adopt a ‘sandbox approach,’ eliminating the need for pre-approval for certain ‘simple and straightforward’ products. We are eagerly anticipating the detailed requirements for this new approach,” he said.

Like other insurance executives that AsianInvestor has spoken to in the past 12 months, Bhatia believes it is crucial for the industry to proactively address evolving risks.

“Climate change, cyber threats, and natural disasters demand continuous adaptation. Insurers need to invest in risk modelling and develop solutions to tackle these emerging challenges,” he said.