Several questions were asked about the Income Insurance-Allianz transaction in Singapore’s Parliament on Aug 6. Chee Hong Tat, Second Finance Minister and Monetary Authority of Singapore (MAS) board member, says: “When MAS assesses the application for a change in substantial shareholder in an insurer, we will consider a range of criteria, in particular, the applicant’s track record, financial soundness, reputation, as well as fitness and propriety. The insurer must also have effective risk management systems and controls so that it can continue to meet its obligations to policyholders for the long-term.”
Allianz Insurance Singapore is ranked 14th in general insurance with a market share of 2% based on written premiums. “There is no significant overlap between Income and Allianz’s overall insurance business in Singapore, and hence, there is no concern about the adverse impact of the proposed deal on competition in the sector,” Chee adds.
Should the proposed deal be approved, Chee replied that the terms and conditions of existing insurance contracts would not change. He also added that MAS has regulatory requirements and guidance in place for insurers to maintain sufficient capital reserves, implement robust governance and risk management frameworks, and treat their customers fairly.
On July 17, Allianz announced a pre-conditional voluntary cash general offer to acquire at least 51% of the shares of Income Insurance, subject to regulatory approval. Allianz intends to offer $40.58 per share for a total transaction value of approximately $2.2 billion (approximately EUR1.5 billion) for 51% of the shares in Income Insurance.
The Allianz transaction does not mention embedded value since there are differences between European Embedded Value and Traditional Embedded Value. The Milliman Report estimates income insurance’s embedded value to be $4.357 billion for FY2022, while Allianz values income as $4.3 billion.
In an open letter to MAS on Aug 2, Tan Suee Chieh, former NTUC Income (now Income Insurance) CEO from 2007 to 2013 and NTUC Enterprise CEO from 2013 to 2017, said that NTUC Enterprise injected $630 million into NTUC Income from 2015 to 2020 in return for shares at a par value of $10 per share.
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He wrote: “The consequence of those capital injections was that NTUC minority shareholders at the time had their shares diluted. NTUC Enterpise’s shareholding in NTUC Income increased very significantly from 30% in 2015 to 70% in 2020.” It is unclear whether Tan objected to the capital infusion or its terms when he was at the helm.
On Aug 4, NTUC Enterprise clarified that cooperative shares are bought and redeemed at their face value, so they are not considered equity shares. When ordinary members invested between 1995 and 2004, the co-operative shares of NTUC Income were valued at $10 each, or their par value. This same valuation was used when NTUC Enterprise injected $630 million into NTUC Income between 2015 and 2020, regardless of the prevailing net asset value.
NTUC Enterprise converted all its shares to permanent ones when the Co-operative Societies Act (CSA) introduced a new class of irredeemable shares in 2018. Conversion to permanent shares was only open to institutional members and not ordinary cooperative members, as the CSA required Income Insurance to maintain ordinary members’ flexibility to redeem at any time.
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“As part of corporatisation, Income Insurance voluntarily converted all members’ cooperative shares, pari-passu, to Income Insurance shares on a 1-for-1 basis. As such, minority shareholders of Income Insurance now hold equity shares in the company. As a positive consequence, minority shareholders’ voting rights increased from 0.3% to 26.2%,” NTUC Enterprise says.
If minority shareholders choose to accept Allianz’s offer of $40.58 per share, if and when the regulator approves it, minority shareholders would be accorded priority to tender their shares ahead of NTUC Enterprise, says the latter.
The offer price represents an annualised return (including dividends and bonus issues) of 10% to 39% over their holding period (or 3.3 times to 28 times their original investment). As a reference, the 30-year STI annualised returns is 4.3%.
Follow The Edge Singapore’s coverage of Allianz and Income Insurance:
- May 23: Singapore’s Income Insurance considering partnerships or stake sale
- June 14: Income Insurance and Allianz hold 'transaction' talks, latest possible Singapore insurance M&A
- July 17: Allianz offers $40.58 per Income share, representing premium of 37.3% over NAV
- July 25: NTUC Enterprise says it remains ‘fully committed’ to Income Insurance in clarification statement
- July 30: NTUC Enterprise issues further clarification statement, stresses its commitment to Income Insurance
- Aug 3: Income Insurance: open letter, global backdrop, redeemable and irredeemable shares
- Aug 4: NTUC Enterprise explains the difference between redeemable and irredeemable shares to former CEO
- Aug 5: Former NTUC Income and NTUC Enterprise CEO rebuts NTUC Enterprise’s points
- Aug 6: Income-Allianz deal saga: From a minority shareholder’s perspective
