German insurance giant Allianz’s bid to buy a majority stake in Singapore’s home-grown Income Insurance has raised concerns among policyholders and experts about whether institutions with social missions should be allowed to be sold to profit-driven foreign entities.
Income started as a social enterprise and has had a long-standing objective to provide affordable insurance to Singaporeans, and its sale to a listed company could shift its priorities, they say.
On July 17, Allianz announced it would offer S$40.58 per share for a 51 per cent stake in Income Insurance in a deal worth S$2.2 billion (US$1.64 billion). This represented a 37 per cent premium over Income’s net asset value per share of S$29.55 as at the end of last year.
“This majority stake is expected to elevate Allianz’s presence in the fast-growing and attractive Singapore insurance market,” Allianz said then.
Mak Yuen Teen, a professor of accounting and the director of the Centre for Investor Protection at the National University of Singapore’s Business School, told This Week in Asia: “As a for-profit listed company, this is probably an accurate rationale for the proposed acquisition.
“It is certainly not to advance Income’s social objectives – they wouldn’t want to pay a premium to do that.”
Critics have taken issue with the social enterprise being sold to a foreign, profit-seeking player in a deal which some allege appears to enable NTUC Enterprise and other shareholders to cash out with substantial gains. NTUC Enterprise has a 72.8 per cent stake in the insurer, with the remainder held by institutional and minority shareholders.
Chairman Lim Boon Heng of NTUC Enterprise, Income Insurance’s parent organisation, told local newspaper The Straits Times on Monday that the deal was intended to give the provider a much-needed boost in a market that had become highly competitive so that it could help Income continue to fulfil its social mission.
He cited data from the Life Insurance Association, which showed that Income’s annual market share of the life insurance segment in Singapore had been less than 10 per cent by revenue for the last 10 years and was declining.
Lim said NTUC Enterprise was expected to get about S$1 billion if the deal went through, and this would be channelled into “possible ventures in education and health, particularly in services for the elderly”.
Income Insurance was established in 1970 as the first cooperative society to be set up by Singapore’s labour movement, with a mission to provide affordable insurance to workers and families.
Previously known as NTUC Income Insurance Co-operative, it has about 2 million customers and offers life, health and general insurance, as well as investment-linked products. NTUC Enterprise has a 72.8 per cent stake in the insurer, with the remaining stake held by institutional and minority shareholders.
In 2022, NTUC Income Co-op became a corporate entity, citing increasing challenges in the insurance sector.
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It said then corporatising would allow it more flexibility to compete with other insurers since being a cooperative had limited its capital access options to institutional members, which had to be co-operatives and trade unions. After becoming a corporate entity, it could receive capital from other types of institutional investors.
In a forum letter in The Straits Times in January 2022, chief executive of Income Andrew Yeo said the exercise would only change Income’s “legal form” and the new entity would remain an NTUC social enterprise.
“NTUC Enterprise will continue to be the majority shareholder of the new entity,” Yeo wrote then.
In a commentary on local broadcaster CNA last Saturday, former group chief executive of NTUC Enterprise Tan Suee Chieh, who held the post from 2013 to 2017, echoed that the understanding communicated to him when Income was corporatised was that NTUC Enterprise would remain a majority shareholder.
“This understanding was breached in less than two years after Income Insurance was corporatised. With these as a backdrop, it is hard to regard any further commitments made seriously,” Tan wrote.
Income Insurance role is to serve the people of Singapore and not the shareholders of Allianz Europe BV
In a LinkedIn post on Wednesday, Tan wrote: “Income Insurance role is to serve the people of Singapore and not the shareholders of Allianz Europe BV.”
Veteran Singaporean diplomat Tommy Koh has also been vocal about his disapproval of the deal, writing in a Facebook post on July 23 that has since been shared over 660 times and attracted 2,600 likes that he believed it was not a good idea. “[Income] was founded to serve a social purpose and a social need. They remain valid today.”
In a separate post on Wednesday, Koh pointed out that Income in 2010 launched a free insurance scheme for low-income families with young children and in 2013 was the first provider to cover children with autism. “I don’t think a foreign insurance company would have launched such products.”
Koh also argued that Income had always been profitable and did not need a financial rescue.
“As an older Singaporean, I feel sad that for many younger Singaporeans nothing is sacred and everything is for sale,” said Koh.
However, Lawrence Loh, a professor in strategy and policy at NUS Business School, argued that being “a large versatile company is not necessarily at odds with a strong social underpinning”.
Loh added: “Income Insurance is not the first Singapore iconic brand that is being sold to an overseas entity, and is probably not the last. The question is whether any business entity is a strategic national asset that requires Singapore ownership or management.
“For Income Insurance, the debate of ownership and mission is valid, and it has been a considered decision to adopt a strategic growth partner like the global entity of Allianz.”
Shinichi Kamiya, an associate professor of Nanyang Technological University’s Insurance Risk and Finance Research Centre, said Allianz’s presence in the Singapore personal insurance market was minor and combining its global brand with Income’s strong position among Singaporeans offers a “significant advantage for increasing their market presence in Singapore”.
While some Singaporeans may feel negatively about the acquisition as Income is closely tied to Singapore’s foundation and development, this would not have major implications on the deal, said Kamiya.
He argued that investing the S$1 billion as Lim said could help with achieving both profit and social goals. “Potential investments in education could help improve customers’ risk awareness and promote their health, thereby reducing claims and costs. Similarly, investments in healthcare for the elderly could have a positive impact by helping to control healthcare cost inflation.”
However, Mak also noted that while NTUC Enterprise could channel proceeds from the sale to its social purposes, the bigger issue was that given Allianz’s stated objective of building a resoundingly profitable business, it would be looking to gain a return on its investment.
“The worry would be that they will get Income to pay huge dividends and only do things that make money, not things that deliver on the social mission,” said Mak.
Another controversy surrounding the deal involves a possible conflict of interest. Chairman of Income Ronald Ong is also a senior executive at investment banking company Morgan Stanley, the insurer’s appointed financial adviser for the proposed acquisition by Allianz.
Last Saturday (July 27), Income said that Ong recused himself from the board’s decision to appoint Morgan Stanley as the financial adviser in its deal with Allianz and that an audit committee had reviewed the appointment of Morgan Stanley before approval was given by the board.
Mak said: “The conflict involving the Income chairman raises issues such as whether Morgan Stanley had an unfair advantage in tendering for the job of financial adviser, whether the advice will be objective and independent, and whether the chairman is involved in any way directly or indirectly on the Morgan Stanley side in providing advice.”
Singapore’s parliamentarians will debate the issue next week.
Opposition MP He Ting Ru from the Workers’ Party has filed a question to Prime Minister and Finance Minister Lawrence Wong about the Monetary Authority of Singapore’s assessment of the impact of the deal on Income’s social mission and what avenues policyholders have to voice their concerns.
Housewife Susan Lee, a 60-year-old Income policyholder for more than 30 years, expressed concern that the insurer might prioritise profits for shareholders over the needs of policyholders.
She added that Income had acted as a benchmark for other companies to keep premiums affordable. “A foreign company may not have a stake here and may not see the need to uphold such benchmarks for the benefit of the citizens.
“It is paramount that Income keeps the premiums in check to make insurance, which is an essential product, accessible to many in Singapore.”
