Allianz pull-out 'provides clarity' on Income's special position

German insurer Allianz likely misjudged Income Insurance’s special position in Singapore, industry watchers said. And the government’s intervention in the proposed acquisition, they added, highlights the importance of preserving Income’s social mission.

The comments came after Allianz in a surprise move on Monday (Dec 16) announced its decision to withdraw its pre-conditional offer to acquire a 51 per cent stake in Income. 

“It is easy to see how Allianz may have misjudged the special position of Income within Singapore,” John Morley, Asia-Pacific CEO at insurance broker Aon’s strategy and technology group, told The Business Times.

He explained that Income and its relationship with the National Trades Union Congress (NTUC) is clearly a unique case, with a distinct cultural position and perception among the government and people of Singapore.

“As for Allianz, Singapore is a long way from Munich, and in international insurance volumes, Income Insurance is a small player,” he added.

Lawrence Loh, a professor of strategy and policy at the National University of Singapore Business School, believes that the Singapore government’s intervention is a firm expression to maintain public interest.

“It is a unique case that is contextually customed to the unparallelled circumstances related to the capture of value that originally belonged to the cooperative sector,” he told BT.

Income was originally a co-op, but became a non-listed corporate entity two years ago. At the time, it had assured the Ministry of Culture, Community and Youth that its social mission would remain unchanged.

It had also applied for a ministerial exemption from Section 88 of the Co-operative Societies Act, which requires wound-up co-ops to transfer any surplus funds to the Co-operative Societies Liquidation Account after reimbursing members for their original share capital and unpaid dividends.

Prof Loh said the Allianz-Income Insurance episode “provides clarity on the red line for the capture of public money for private gains”. He added: “Income Insurance is a company with a distinctive labour movement heritage – its social mission is of paramount importance even if it is to be acquired.”

Kanishka de Silva, a director in Fitch Ratings’ Asia-Pacific insurance team, also noted that the government’s concerns regarding the deal highlights the importance it places on the continuation of Income’s social mission.

“We believe it will be key for any potential acquirer or acquirers to demonstrate that they will address any concerns the government or regulators may have around this,” he said. 

The government was initially receptive to foreign companies acquiring Income until public backlash arose, Alvin Chow, co-founder of online financial education platform Dr Wealth, pointed out.

This situation is unique due to Income’s social mission, he said, noting that other insurers do not have a similar commitment and the government has not intervened in their operations.

“The insurance industry has already experienced some mergers, such as Singlife acquiring Aviva’s local business and AXA Singapore being sold to HSBC Insurance,” said Chow, who expects further consolidation to occur in the future.

In Income’s case, it needs adequate capital in order to stay financially sustainable, and an acquisition could provide the necessary support.

Its capital buffers have reportedly faced repeated pressures, from the Asian financial crisis in 1997 to the severe acute respiratory syndrome outbreak in 2003, the 2007 to 2008 global financial crisis, and the Covid-19 pandemic.

Stefanie Yuen Thio, joint managing partner at TSMP Law Corporation, noted that Income appears to be in sound financial form at present, but is looking over the horizon amid increasingly stiff competition.

“I expect that Income will continue to look for an investor or strategic partner to bolster its capital requirements and enjoy the economies of scale that another insurer (or someone in an adjacent industry) would bring,” she said.

Former NTUC Income CEO Tan Suee Chieh, a vocal critic of the Income-Allianz deal, welcomed the German insurer’s withdrawal in a LinkedIn post on Monday. He expressed concern over the challenges faced by Income’s individual shareholders following its corporatisation, highlighting the risk that they could lose a disproportionate share of the company’s value.

“Issuing bonus shares to these shareholders is a necessary step to redress the imbalance and fulfil the expectations created during corporatisation and the proposed sale of Income,” he said.

“It is also urgent, as many shareholders are elderly – a fair and timely payout to support their golden years.”

In a statement on Monday addressing Allianz’s withdrawal, Income said it would consider exploring share liquidity options for shareholders to unlock the value of their shares.

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

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