THE deal between Income Insurance and German insurer Allianz will be called off, as the Singapore government has assessed that it is “not in the public interest” for the proposed transaction to proceed in its current form.
This is after the Ministry of Culture, Community and Youth (MCCY) received new information on the proposed deal, which raised doubts about whether Income will be able to continue fulfilling its social mission if the deal were to go through, said Minister Edwin Tong in Parliament on Monday (Oct 14).
“Our concern is only over the terms and structure of this specific transaction, particularly in the context of the preceding corporatisation exercise,” he said in a ministerial statement.
While the government is not allowing the current deal to proceed, added Tong, it is “nonetheless open to any new arrangement which Income may wish to pursue, whether with Allianz or any other partners”, so long as its current concerns are fully addressed.
Concerns raised
Allianz announced in July that it planned to acquire 51 per cent of Income at S$40.58 per share, in a deal amounting to 1.5 billion euros (S$2.1 billion).
In his statement, Tong laid out the reasons why MCCY had chosen to reject the deal in its current form.
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In 2022, Income – which at the time was the NTUC’s insurance cooperative – proposed to convert itself into a corporate entity, with the members of the co-op receiving pari passu distribution in specie of shares in the new entity.
To do this, it sought exemption from Section 88 of the Co-operative Societies Act, which stipulates that a co-op that is wound up will have to transfer any surplus funds – after paying its members their original share capital and unpaid dividends – to the Co-operative Societies Liquidation Account to be applied for the benefit of the sector generally.
At the time, Income had assured MCCY that its social mission would not change following the corporatisation exercise; it would be changing only its legal form from a co-op to a non-listed corporate identity.
The government thus accepted Income’s rationale for the corporatisation and granted the exemption, allowing it to carry over about S$2 billion in surplus to the new corporate entity.
This July, after Allianz and Income announced the proposed deal, MCCY initially accepted that the rationale behind the move was to strengthen Income with a strategic partner that is a reputable player in the industry.
But after questions on the proposed transaction were raised by Members of Parliament during August’s parliamentary sitting, the Monetary Authority of Singapore (MAS) provided MCCY with further details.
This included information that Allianz, Income and NTUC Enterprise (NE) had submitted to MAS on proposed initiatives to optimise the capital of Income, should the deal be allowed to go through.
Among other things, Allianz intended to implement “a number of initiatives to optimise Income’s insurance business after completion of the acquisition”, said Tong. It had plans to run its insurance business more efficiently without the need to hold as much capital as it presently does.
Allianz proposed that Income reduce its existing share capital and return this capital to shareholders, and projected that the insurer could return some S$1.85 billion in cash to shareholders within the first three years after the completion of the transaction.
“MCCY had not seen this information earlier,” noted Tong. “It was at this point, after MCCY reviewed the information on the proposed transaction, that we became concerned.”
From a “narrow commercial or even prudential perspective, capital optimisation measures that free up capital to be returned to shareholders are not uncommon practices”, he said.
Yet, MCCY was not confident that these proposals would not affect the ability of the co-op movement as a whole, or of Income itself, to carry out its social mission.
First, the ministry found it difficult to reconcile the proposed capital reduction with Income’s representations during the corporatisation exercise that it was aiming to build up capital resources and enhance its financial strength.
“The proposed capital reduction runs counter to the premise on which the exemption was given,” said Tong. MCCY has also not seen any arrangement in the present deal to account for the surplus amount, and there is no clarity on how this sum will be directed towards advancing Income’s social mission.
Second, neither Allianz nor Income have given “clear binding provisions or structural protections in the deal to ensure that Income’s social mission will be discharged”, noted Tong.
“It is also not clear what Income might do after the capital extraction, for example, to adjust or trim its insurance portfolio, and what impact this could have on policyholders,” he added.
The government therefore decided that there was “sufficient basis” for the government to intervene in the proposed transaction to protect public interest.
More questions
As for why MAS did not sound any alarms during its review, Tong explained that MAS reviewed the information based on prudential grounds, focusing on whether Allianz was a fit and proper institution, as well as its financial strength and track record.
MAS also considered the planned capital optimisation from a prudential point of view in accordance with its regulatory mandate. It thus did not have any reason for concern as Income was projected to meet regulatory capital requirements with a healthy margin even with the capital reduction, said Tong.
To address this, the government will table amendments to the Insurance Act this week to allow MAS to consider the views of MCCY in the case of an application relating to an insurer that is either a co-op or linked to a co-op.
In a separate Facebook post, Prime Minister Lawrence Wong said this will allow MAS to withhold approval of the sale on the grounds of public interest when it involves a current or former co-operative insurer.
The amendments were tabled by Second Finance Minister Chee Hong Tat on Monday and will be debated in Parliament on Wednesday.
MCCY may also consider future amendments to the CSA to give the government “stronger levers over co-ops that may wish to be corporatised”, added Tong.
PM Wong stressed that the government supports Income finding a strong partner to strengthen its capital base and market position, and has no concerns over Allianz’s standing or suitability to acquire a majority stake in the insurer.
“Our concerns are over the structure and terms of this specific transaction, particularly in the context of assurances which Income had given to MCCY when the former was corporatised in 2022,” he said.
In separate statements on Monday night, Allianz, Income, and NE each confirmed that they will collaborate with stakeholders to determine the next steps, which in the case of Allianz, includes considering revisions to the proposed transaction structure.
“We are convinced that partnering with Income Insurance, a company that shares Allianz’s values and commitment to customer excellence, will benefit Singapore’s customers and society,” Allianz said.
Income acknowledged the government’s concerns regarding the deal’s terms and technical structure, adding that it “respects the need to amend the Insurance Act to provide a clear statutory basis for its review and approval involving such applications”.
NE, meanwhile, emphasised that it has “consistently acted in good faith to safeguard the interests of shareholders, policyholders and employees” of Income.
After Tong delivered his statement, MPs raised more questions, including when the various ministries became privy to the capital reduction plan, and if any parties withheld information from the public or misled them.
Chee responded that there was initially an “information gap”, but once information was shared, MAS and MCCY worked together “in a whole-of-government manner”.
Tong added that MAS does not usually share all information on every potential deal, but instead flags issues to ministries when there are concerns.
Workers’ Party MP He Ting Ru asked about whether NE was questioned about its acceptance of the deal, given that its concerns were chiefly about financial sustainability and capital structure.
Replying, Tong noted that there are ways to withdraw capital that would not compromise the longer-term financial sustainability of the entity.
Progress Singapore Party Non-Constituency MP Leong Mun Wai asked why the public had not been told earlier about the capital extraction proposal.
To this, Chee replied: “This is not about withholding information. This is about coming to Parliament after we have put together the full picture.”
This included working across the whole of government to decide how to move forward, and presenting the information openly in Parliament to propose the amendment, he added.
Agreeing, Tong said that the government came to Parliament at “the first available opportunity”.
He also noted that Allianz has obligations to shareholders, and could not be expected to make their plans public to everyone.
“This is a step that happens after the transaction is completed,” he added. “There is a due process to how this is done, and you don’t go out there and produce information about a proposal when the transaction has not even been approved.”
Ex-Income chief welcomes decision
Writing on Facebook, former NTUC Income CEO Tan Suee Chieh said he welcomed the government’s decision to reject the deal.
“This outcome underscores the importance of speaking up on matters of public interest and ensuring that the values of trust, integrity, and governance remain at the forefront of our decision-making processes,” he said.
“Throughout this journey, I have been driven by the belief that raising concerns and fostering open dialogue is essential for safeguarding the social mission of our institutions and protecting the well-being of Singaporeans. It is through such collective efforts that we ensure decisions serve the long-term interests of the public.”
Allianz shares were up 0.7 per cent or 2.20 euros at a 52-week high of 299.30 euros as at 11.35 pm on Monday.
