Australia: Potential pitfalls for foreign insurers on exiting Asian joint ventures

Asia Pacific - focus on insurance


For many foreign insurers, establishing a presence in Asia's emerging markets is a priority, with their vast populations, increasing sophistication and rapidly expanding middle classes. In many jurisdictions the preferred, and sometimes only, way in which a foreign insurance company can operate is through a joint venture with one or more local partners. However, the decision to go into partnership should not be taken lightly as procuring an exit can be a slow and arduous process due to complex or uncertain legal and regulatory landscapes, defects or ambiguity in imperfectly drafted joint venture agreements, and cultural differences and diverging commercial drivers among joint venture partners.

Foreign ownership restrictions

Many Asian countries (e.g. PRC, India, Thailand, Malaysia, Indonesia and Myanmar) restrict the level of equity a foreign entity may hold in an insurance company. These restrictions may put off many potential foreign purchasers who may not be interested in acquiring what is typically a minority stake. Meanwhile, local insurers may be reluctant to partner with rivals, further shrinking the potential market for the shares.

The restrictions can be particularly unhelpful where a local partner wishes to sell equity (perhaps pursuant to tag-along rights) alongside a foreign insurer which is looking to sell its stake to a foreign purchaser. If the aggregate amount of equity for sale exceeds the maximum amount which a foreign purchaser may acquire, the whole transaction may fail.

Local legislators are increasingly keen to attract inbound foreign investment and are generally relaxing the restrictions on foreign ownership. However, the wheels of legislative change tend to turn very slowly. In the meantime, many potential foreign purchasers will prefer to keep their powder dry in the hope that they may soon be allowed to acquire a more substantial interest.

Limits on the number of insurance businesses an insurer can promote

Many Asian countries prohibit an insurer from being interested in more than one business engaged in a given type of insurance activity (e.g. life insurance or general insurance). The restrictions generally apply on a group basis rather than an entity basis, meaning that an insurer which is active in one sector may not simply acquire a stake in a joint venture which is involved in the same sector. This limits sale opportunities as many potential purchasers may be existing players in the market.

However, an acquisitive insurance company may still be able to expand its business by merging with another entity conducting the same type of business through a court- and regulator-approved scheme. Such mergers, which require the support of shareholders of all merging entities, generally follow a course prescribed by statute, and are time consuming, expensive, played out in public and significantly increase the execution risk of the transaction since the decision as to whether the transaction proceeds is made by the court and regulator, whose judgment may be influenced by prevailing government policy or a desire to protect policyholders.

Regulatory issues

In each jurisdiction, there is at least one regulator with overall responsibility for insurers whose prior consent is generally required for the transfer of shares in the joint venture or for a proposed merger. Frequently, it is also necessary to satisfy the same regulator that both the incoming shareholder and its appointees as directors or other senior managers satisfy relevant 'fit and proper' qualifications.

Where a shareholder is also a bank – e.g. in the context of a bancassurance distribution joint venture - the approval of the relevant banking regulator may also be required.

Formal regulatory approval is generally sought after conditional sale and purchase documentation is signed. Different jurisdictions and different regulators may permit different degrees of informal dialogue prior to signing to ascertain whether the regulator is likely ultimately to grant its approval. A prospective purchaser may be reluctant to enter into binding documentation, possibly requiring it to make a regulatory announcement, without a considerable degree of comfort that the necessary approvals will be granted and the transaction will complete.

The law governing the merger process in many emerging markets is often very vague, or as yet unwritten, or only recently adopted. In their effort to avoid making mistakes, regulators may move very slowly and guidelines as to the duration of the approval process should be treated with considerable scepticism. Even after lengthy deliberation, the risk of regulators adopting an unusual or inconsistent position remains significant.

In most jurisdictions, the parties will have to satisfy the relevant competition authority before closing that their proposed transaction will not eliminate or restrict competition. The competition authority usually has around 30 days to complete its preliminary review and to either give its clearance or, if it still has concerns about the transaction's anti-competitive effect, confirm that it is proceeding to a more thorough investigation, in which case the process may be extended by a further 60-120 days generally (and sometimes longer still), thus extending the transaction timetable considerably.

Certain countries, such as India and China, also apply restrictions on the price at which equity interests in a joint venture company may be sold by a foreign entity to a local purchaser.

Contractual issues

Many foreign insurers do not make the situation any easier on an exit by entering into poorly drafted joint venture agreements. Problems arise most commonly with confidentiality and transfer clauses.


There is invariably included in a joint venture agreement a clause requiring the parties to keep confidential information relating to the business or customers or affairs of the joint venture company, subject to limited exceptions.

An insurer with one eye on its exit strategy should ensure that one such exception permits the provision of information relating to the joint venture company (including a copy of the joint venture agreement) to a potential purchaser of its stake. This allows the selling shareholder to progress negotiations with the prospective purchaser without having to notify or seek the permission of its joint venture partners whose involvement at this early stage may be unhelpful as it would allow them time to devise a strategy to block the sale, or extract value from the outgoing shareholder in return for the grant of relevant waivers and consents, or seek to negotiate with the prospective purchaser a revised joint venture agreement prior to signing the sale and purchase documentation, resulting in delays to completion.

Transfer provisions

A well-drafted joint venture agreement typically provides that, having agreed the terms of a deal with a third party, an outgoing shareholder will be obliged to offer round its shares on the same terms to its joint venture partners, who have the option to buy the outgoing shareholder's shares or decline the offer, in which case the outgoing shareholder will be free to sell its shares to the third party on the agreed terms. Crucially, the outgoing shareholder can force through a sale, either to the third party or its joint venture partners.

Unfortunately, however, the drafting in relation to the sale process in many joint venture agreements is deficient in some way. These defects in the drafting require the outgoing shareholder to seek waivers or consents from its partners to vary or clarify the relevant drafting, presenting them with an opportunity either to prevent the sale by refusing to grant such waivers and consents or to extract value from the outgoing shareholder in return for their grant.


The complexities outlined above can all serve to make it very difficult for a foreign insurer to exit an Asian joint venture. Indeed, it is not unusual for an exit to take one or even two years to implement. However, by giving due attention to exit strategy at the outset of the investment, and by ensuring that the joint venture agreement is drafted in a way which not only facilitates the exit process but also enables the foreign insurer to control it, risks can be mitigated.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Practice Guides
by Mondaq Advice Centres
Relevancy Powered by MondaqAI
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions