Allianz calls off deal with Income Insurance after public scrutiny

Allianz’s planned union with Income Insurance has fallen through, five months after the German insurer made an offer to buy a controlling stake in the home-grown outfit.

The German insurer on Dec 16 said in a statement that it would withdraw its July 17 offer to acquire a 51 per cent stake in Income, in a deal valued at $2.2 billion.

The decision comes two months after the Government on Oct 14 called off the much-debated union over the deal structure and Income’s ability to continue its social mission.

Two days later on Oct 16, Parliament passed a Bill to amend the Insurance Act so that the Monetary Authority of Singapore (MAS) would have to consider the views of the Ministry of Culture, Community and Youth when an application for regulatory approval involves an insurer that is either a cooperative or linked to one.

“Allianz remains convinced it is the right partner to support Income Insurance’s continued growth and its strategic mission for the benefit of Singapore’s people, but the decision to withdraw its offer at the time underscores Allianz’s financial discipline,” the German insurer said.

Ms Renate Wagner, a member of the board of Allianz SE who is responsible for the Asia-Pacific region, said: “We respect the Singapore Government’s decision.”

She added that the group still believes the combination of Allianz and Income would result in two strong businesses being brought together for the benefit of Income’s policyholders and a growing portion of Singapore customers.

Ms Wagner said that while the insurer regrets having to make this decision, it will undoubtedly carry on supporting the Singapore insurance market’s continued growth and success.

Back in October, Allianz had said it would consider revisions to the proposed deal structure, while Income and its parent NTUC Enterprise said they would work closely with relevant stakeholders to decide on the next course of action.

In the weeks leading to this separation, industry players said Allianz was still trying to revive marriage plans.

In separate statements issued on Dec 16, both Income’s board and NTUC Enterprise acknowledged the withdrawal of Allianz’s offer following the amendment of the Insurance Act.

Income, on its part, will continue to explore options that would allow the 16,000 or so minority shareholders to exit.

In the meantime, these shareholders can continue to buy and sell their shares on a willing buyer and willing seller basis, the board said.

It added that business is as usual for Income, and no policyholder will be impacted by the developments.

NTUC Enterprise said it will take time to study how to address the Government’s concerns and, more importantly, to consider all strategic options that can further strengthen Income’s financial resilience on a sustained basis.

A key reason the proposed deal was blocked by the Government was that Allianz submitted a proposal to MAS to undertake a capital reduction exercise.

This exercise would return $1.85 billion to shareholders within the first three years after the deal is completed.

On this, Income’s board on Dec 16 said details of the exercise would have been disclosed publicly if the offer was formally made.

“The preliminary business plan was not subject to approval from the current board of Income Insurance,” it said, adding that under the Singapore code on takeovers and mergers, all shareholders would have been informed about the details of the offer, including the possibility of a proposed capital reduction.

The board noted that the proposed deal was made in good faith “to safeguard the interests of its stakeholders, including policyholders and shareholders”.

It said the backing of two institutional shareholders – Allianz and NTUC Enterprise – would have enabled Income to call on additional capital support in the future in the event of any financial crisis.

Similarly, NTUC Enterprise said the search for a strategic partner for Income Insurance was conducted to bolster the insurer’s financial resilience, especially in times of crisis.

It noted that it had to inject $100 million in 2020 during the Covid-19 pandemic and had to have another $300 million on standby for solvency purposes.

That same year, Income had to issue $800 million in subordinated bonds.

Subordinated bonds are those that are not backed by collateral, and should a company default on its debt, bond holders will be paid only from what is left after all creditors have been paid.

If the pandemic had been prolonged, and more capital needed, NTUC Enterprise said it alone might not have been able to meet Income’s further financial needs.

While Income’s capital buffer is currently at a healthy level, NTUC Enterprise said there is a need to be prepared for a more turbulent and volatile world, given the possibility of future economic crises and pandemics.

Going forward, Income’s board said that with more than 40 direct insurers in Singapore today offering a wide range of retail insurance products, no single insurer dominates in providing the most affordable or innovative insurance products.

So Income needs to strive for sustained growth to fulfil its mission of supporting the vulnerable segments of society, it said.

Sequence of key events

July 17: German insurer Allianz offers to buy a stake of at least 51 per cent in Income Insurance in a $2.2 billion cash deal. 

Mid-July: Allianz, Income and its parent NTUC Enterprise submit plans to the Monetary Authority of Singapore (MAS) around the time the offer is made. These include details about Income returning $1.85 billion in cash to shareholders within the first three years after the deal is completed. This is not publicly disclosed. 

July 25: NTUC Enterprise chairman Lim Boon Heng says that Income will continue to provide affordable insurance after the deal. The statement comes after some former executives and members of the public raised concerns about the insurer’s social mission.

July 27: Income issues a statement that its chairman Ronald Ong had recused himself when Morgan Stanley was appointed as the financial adviser for the deal, after questions are raised about it.

July 30: Mr Lim, Income chief executive Andrew Yeo and the Income board’s lead independent director Joy Tan further clarify concerns over the deal in an interview with The Straits Times and in a separate joint statement. 

Aug 4: NTUC Enterprise and Income rebut an open letter by former NTUC Income chief executive Tan Suee Chieh in which he objected to the Allianz offer.

Minister for Culture, Community and Youth Edwin Tong writes in a Facebook post that co-ops as social enterprises must be financially sustainable in order to better serve their members in a fast changing economic environment.

Aug 5: NTUC’s secretary-general Ng Chee Meng and president K. Thanaletchimi say in a joint statement that the central committee was briefed on the deal, and outline why Income needed to become more competitive.

Aug 6: The deal is debated in Parliament. The Ministry of Culture, Community and Youth (MCCY) is unaware of the post-transaction details at this time. 

After Aug 6: MCCY continues to do due diligence and inquire further into the proposed deal. MAS provides the ministry with further details, including Income’s capital optimisation plan as the regulator felt it could be relevant to the ministry’s views on the deal. MCCY had not seen this information earlier.

Oct 14: Mr Tong tells Parliament that the Government will halt the deal in its current form on concerns over its structure and the ability of Income to continue serving its social mission. A Bill to amend the Insurance Act is tabled on an urgent basis.

In a late statement, Allianz says it will consider revising the deal structure. Income and NTUC Enterprise say they will work closely with stakeholders on the next course of action.

Oct 16: NTUC deputy secretary-general Desmond Tan tells Parliament that NTUC’s central committee was unaware of the capital extraction plan and learnt of it on Oct 14. MPs debate the issue for nearly four hours, and vote to pass the Bill. 

Nov 14: Allianz says discussions on amendments to the proposed deal are still ongoing. Income and NTUC Enterprise also say they will work closely with relevant stakeholders to decide on the next course of action. 

Dec 16: Allianz withdraws its offer for Income, saying the decision underscores its “financial discipline”. 

Source: Straits Times © SPH Media Limited. Permission required for reproduction.

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