INCOME insurance must maintain “strong and continuous capital resilience” if it is to thrive in today’s competitive environment. But this is a challenge that a social enterprise model alone cannot shoulder, said NTUC Enterprise (NE) Co-operative in a statement on Tuesday (Jul 30) to give further clarification in relation to the offer by Allianz Europe.
The pre-conditional general offer is expected to enable Income Insurance to leverage Allianz’s strengths, and will help Income compete in Singapore where more than 40 global, regional and local insurers jostle for market share.
The offer, which was announced last week, has generated mixed reactions from the public. Many are concerned that if NE cedes its majority stake, Income’s social objectives may be diluted. Some are concerned that premiums will rise as focus on the bottom line becomes paramount.
NE chairman Lim Boon Heng said in the statement: “Income Insurance remains firmly committed to delivering the social outcome of protecting families against key risks in life… A stronger Income Insurance, to be anchored by Allianz and NTUC Enterprise as institutional shareholders, upon successful closing of the proposed (preconditional general offer), can better offer competitive and affordable products, including those for the masses and the lower income.”
NE said the operating environment today is vastly different from the marketplace when Income was formed. Income’s market share in the life business has slipped through the years, from a high of 20.8 per cent in 2010 to around 5.7 per cent today. Its share in the non-life business has remained steady, currently at around 11.7 per cent.
Income has lost key contracts to its global and regional competitors, such as in bancassurance, the Dependants’ Protection Scheme and group insurance for a large public organisation
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NE said Income must grow and thrive as an enterprise “to better discharge is obligations to policyholders in the longer term”. It said Income will continue to be a “financially profitable and socially responsible business”.
Lim said: “As more and more leading businesses embrace stakeholder capitalism in their corporate purpose, social enterprises and cooperatives can no longer claim they are unique in doing good. Every enterprise must earn its cost of capital to be financially sustainable in the long term. There is a misperception that NTUC Enterprise and Income Insurance have become profit oriented.”
He said NTUC cooperatives, including Income, generated surpluses so they can be financial sustainable, re-invest to grow, pay employees and distribute dividends to shareholders and rebates to members.
“NTUC Enterprise intends for Income Insurance to continue to be an important, financially profitable and socially responsible business, in line with its enduring purpose of empowering financial well- being for all.”
NE has taken action to protect policyholders’ interests in a few ways over past years. For instance, it proposed to amend the Co-operative Societies Act to enable Income to create a class of irredeemable shares. When this was approved, it converted its shares to irredeemable shares to count towards Income’s capital adequacy ratio (CAR). Shares of cooperative societies are redeemable and classified as contingent liabilities.
It also stepped in during times when Income’s CAR buffer came under pressure in economic downturns such as the global financial crisis and the recent pandemic. NE made S$630 million worth of capital injections between 2015 and 2020 to ensure that Income remained adequately capitalised. It also issued S$600 million in subordinated bonds in 2012, which were redeemed in 2022, and another S$800 million in 2022 to shore up its capital strength.
NE said it supported Income’s corporatisation as this was in line with its goal to provide strategic flexibility for Income and strengthen its long-term competitiveness.
Income’s chief executive Andrew Yeo had earlier indicated in an interview that corporatisation would create options such as mergers and acquisitions, joint ventures and initial public offerings. On the question of whether there was already intent to sell a majority stake during corporatisation, NE said there were no material developments at the time and “hence, it would have been misleading to say anything more”.
NE expects the combination of Income Insurance’s strengths and Allianz’s global capabilities to create a highly competitive composite insurer here. “The goal is not to just bring in a financial investor, but an experienced partner who can grow a large and thriving Income Insurance,” said NE.
Allianz offered to buy 51 per cent of Income Insurance at S$40.58 per share, in a deal valued at S$2.2 billion. Allianz needs to acquire 54.7 million shares to reach 51 per cent. NE currently holds 77.98 million shares or 72.8 per cent of 107.2 million shares. Shareholders have first right of refusal.
