MAA Group: What’s that issue with arbitration against Zurich Insurance?

Got to read the following article in The Sun News, where MAA Group has filed for arbitration for a dispute with Zurich Insurance – what exactly is the dispute (other than the amount being RM131 million) was not made known, perhaps, something to do with claims reserving impropriety and some promises made during the negotiation that were not somehow met. Anyway, this is the first such case going into arbitration, something interesting for the industry to follow, which may provide future bearing for all future M&A. Have a blast reading this on FATHER’s day….

PETALING JAYA (June 13, 2013):
MAA Group Bhd, controlled by the Melewar group, which is linked to the Negri Sembilan royalty, will only be able to decide on buying a new business after its dispute with Zurich Insurance Co Ltd, which is currently in arbitration, is settled, executive chairman Tunku Datuk Ya’acob Tunku Abdullah said.

At the moment, he said, the group is uncertain how much money, if any, it will receive from the sale of its insurance arm, MAA Assurance Bhd, to Zurich in 2011.
“The biggest issue now is the amount of sale proceeds MAA Group will receive from Zurich. The final selling price is subject to arbitration, so we don’t even know how much we will get at the end of it,” he told SunBiz yesterday.

MAA Group in September 2011 disposed of its interest in MAA Assurance and subsidiaries – Multioto Services Sdn Bhd, Maagnet Systems Sdn Bhd, Malaysian Alliance Property Services Sdn Bhd and Maagnet-SSMS Sdn Bhd, to Zurich for a total of RM344 million.

MAA Group is expected to receive the sale proceeds, which are in an interest-bearing escrow account operated jointly with Zurich, in September this year.

As at April 30, 2013, there was a balance of RM131.7 million in the escrow account, including interest earned but excluding quarterly releases of RM18 million up to that date.

The balance is expected to be released from the escrow account tentatively on Sept 30, 2013 should there be no claim for breach of warranties and representations from Zurich.
Tunku Ya’acob is hopeful that the arbitration can be concluded by the end of this year, but said the legal dispute could drag on for a longer period.

MAA Group filed and served the notice of arbitration against Zurich in the Singapore International Arbitration Centre on Nov 2, 2012.

“Till then (the conclusion of the dispute), there will be no acquisition (of potential new businesses),” he said.

Following the sale of MAA Assurance and its subsidiaries, MAA Group has been classified under Practice Note 17 for not having a core business. Its two remaining businesses are in MAA Takaful Bhd, an Islamic insurer, and MAAKL Mutual Bhd, a unit trust company, which are still small.

Under the upcoming Islamic Financial Services Act, 2013 (IFSA), any acquisition MAA Group plans to make in future will be restricted to the financial services sector.
In a filing with Bursa Malaysia on Tuesday, MAA Group announced that in view of this restriction, the board is “re-evaluating its financial position vis-à-vis the group’s business plans and operational requirements, and to ensure compliance with the IFSA”.

Tunku Ya’acob did not specify which areas of the financial sector the group plans to acquire but said “there are not many out there anyway”.

Previously, he had said that having disposed of its key insurance arm, MAA Group’s forte will remain in asset management and that it was exploring the possibility of a private equity business.

“Our priority now is to allocate the funds for MAA Takaful to meet the capital required under IFSA,” Tunku Ya’acob said yesterday.
The recently gazetted IFSA requires takaful operators holding a composite licence to operate under two separate entities with separate capital requirements.

MAA Takaful would have to split into separate life and general takaful units, with a minimum capital of RM100 million for each company.

Tunku Ya’acob said MAA Group has no issues raising the required capital for MAA Takaful as part of the MAA Assurance sales proceeds will be used for this purpose.
“MAA Group owns 75% of MAA Takaful and the balance 25% is held by our strategic joint venture partner, Solidarity Company BSC (C) of Bahrain. Hence, MAA Group is only required to raise RM75 million of the total capital outlay under IFSA,” he explained.
MAA Takaful, which received its composite takaful licence on July 1 2007, has a paid-up capital of RM100 million.

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