After the Singapore government announced its decision to reject the proposed acquisition of Income by German insurer Allianz in parliament on Oct 14, key stakeholders and individuals who have been outspoken about the deal have weighed in.
“I welcome the government’s decision to change the law to reject the proposed Allianz-Income deal,” says ex-NTUC Income CEO Tan Suee Chieh in a LinkedIn post on Oct 14. “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.”
Tan has been a prominent voice against the deal, which was first announced in mid-July. Allianz had proposed to buy a majority stake in Income for about US$1.6 billion ($2.09 billion), which was later rejected in parliament on Oct 14 in a statement by the Minister for Culture, Community and Youth (MCCY), Edwin Tong. He stated that it is “not in the public interest” for the proposed transaction to proceed in its current form.
Tan was the CEO of NTUC Income from 2007 to 2013 before becoming group CEO of NTUC Enterprise from 2013 to 2017.
“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,” Tan’s LinkedIn post continues.
Meanwhile, the German insurer Allianz says that it will work closely with the relevant stakeholders to consider revisions to the proposed transaction structure. In a release dated Oct 14, Allianz said that it respects the government’s position, and is convinced that partnering with Income will benefit Singapore’s customers and society.
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NTUC Enterprise adds that it believes that Allianz’s offer will enable Income Insurance to be even more relevant and resilient over the long term, to fulfil its social commitments, and meet its obligations to its policyholders.
NTUC Enterprise will study carefully the implications of the ministerial statement by Tong and the amendments to the Insurance Act, and work closely with relevant stakeholders to decide on the next course of action.
Why did the government reject the deal?
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MCCY's Tong, explained in his parliamentary speech in detail why the government stepped in to scupper the Income-Allianz transaction. On July 17, Allianz offered to acquire a 51% stake in Income for $2.2 billion, or $40.58 per share.
In its plans for Income, Allianz proposed to run Income’s insurance business, including life insurance, more efficiently. Often, in cases where an insurer has a foreign subsidiary, the insurer’s capital, and in this case, the German or home regulator ensures the insurer has sufficient capital for its businesses at home and in its overseas markets. Undoubtedly, Allianz has sufficient capital with a capital adequacy ratio of 206% as per its FY2023 annual report.
However, as with most M&As, the acquirer is likely to “upstream” dividends and surplus cash. No surprise then, in the proposal of Allianz’s capital reduction plan, which would return $1.85 billion to shareholders, in the first three years.
But this does not sit well for a former cooperative that was able to keep its surplus when it corporatised back in 2022.
In 2022, Income corporatised, instead of giving its surplus of $2 billion back to the Cooperative Societies Liquidation Account (CLSA) as was required by Section 88 of Cooperative Societies Act (CSA), it was given an exemption by the government as it was merely changing its legal structure from a cooperative to a corporation.
“Technically, Income would be required to be compliant with section 88. But Income was not in fact ceasing its business, it was proposing to convert to a corporation to strengthen its capital base,” Tong said. Hence the exemption.
After the announcement of the Allianz deal on July 17, the Monetary Authority of Singapore (MAS) subsequently reviewed the plans submitted and saw that Income’s planned capital optimisation could be relevant to MCCY’s views. “It was at this point after MCCY reviewed the information that we became concerned,” says Tong.
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While the government accepts that it is common to free up capital to be returned to shareholders, it is not confident that the proposed transaction would not affect the ability of Income to carry out its social mission.
“We find it difficult to reconcile the proposed substantial capital reduction soon after the transaction is completed, with Income's representations to MCCY during the corporatisation exercise that it was aiming to build up capital resources and enhance its financial strength,” says Tong. “The proposed capital structure runs counter to the premise on which the exemption was given.”
“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,” the minister says.
