Why Income Insurance may want to consider an SGX listing: Opinion

Now that Allianz’s $2.2 billion offer to take a controlling stake in Income Insurance is off the table, one alternative for the local insurer to continue growing its business is to undertake an initial public offering (IPO) on the Singapore Exchange (SGX).

Going public would enable Income’s retail investors to sell their shares on a convenient and transparent platform, and buy them back again later if they choose, an option currently unavailable to them.

Allianz in July offered to buy a controlling 51 per cent stake in Income. The deal was marketed as a win for both companies.

For the German insurance giant, it was an opportunity to expand its business into Singapore, where it has a regional office but does not operate as a business.

Income said the move would give it access to additional capital and resources, helping it to continue meeting its long-term obligations to policyholders and scale the business for further growth.

The Singapore insurer would get help to become more competitive in an industry where its market share in the life insurance business had fallen to less than 10 per cent by value over the past 10 years, according to data from the Life Insurance Association.

But the announcement triggered a public outcry, with concerns over whether Income would continue its social mission. 

On Oct 15, the Government blocked the deal, citing information that Allianz planned to return $1.85 billion of Income’s capital to shareholders within three years of the deal’s completion. This raised concerns over whether Income would be able to maintain its social mission if such a plan went through.

IPO option

Unless Allianz comes back to the table with an offer that is acceptable to the Government, a way for Income to draw new investors and boost the capital needed for its social mission is to go public.

Income said it had weighed growth options including an IPO after it was corporatised in 2022, but did not pursue a listing due to unsuitable market conditions.

Analysts told The Straits Times that the IPO route is a “well-trodden path” for insurance companies looking to grow.

The key to ensuring a successful IPO is by appropriately valuing the shares so that they can “trade up”, and setting targets for future growth to make the shares attractive to investors.

Speaking in Parliament on Oct 16, Nominated MP Neil Parekh noted “that there are many providers of growth equity capital that would be willing to take a minority stake in Income”.

He added that there should first be a five- to seven-year growth plan and a new Singapore-controlled board of directors with the right experience and vision, as well as the authority to take the company forward.

If listed, Income would have the advantage of being the only domestic systematically important insurer on the SGX after OCBC Bank moved to take Great Eastern private in 2024.

It would also be the only insurer with a social mission embedded into its business model on the SGX.

Nominated MP Keith Chua on Oct 16 urged Parliament to consider the option of listing Income “as a profitable and socially responsible business”.

He said that while there is increasing interest and capital available for social investing, the current options on the SGX for “profitable companies with clear social missions are extremely limited”.

Convenient platform to buy and sell

A public listing would enable Income’s existing shareholders to trade their shares at the market price.

Had the Allianz deal gone through, some 16,000 shareholders holding around 28 million shares, or a 27.2 per cent stake, could have taken advantage of the chance to sell their shares to Allianz at $40.58 each.

That’s a 37.3 per cent premium over Income’s net asset value per share of $29.55 as at Dec 31, 2023.

Now, though, shareholders who want to sell their Income shares are once again stuck with having to navigate the complex and time-consuming process of identifying willing buyers and dealing directly with them.

An earlier option for them to sell their shares on digital exchange Alta had also been discontinued.

For Income’s major shareholder NTUC Enterprise (NE), an IPO would enable it to monetise some of its Income holdings to free up funds for other purposes.

Having new investors on board would also ease mounting pressure on NE to keep the local insurer sufficiently capitalised at all times.

NE, a cooperative set up by the National Trades Union Congress, Singapore Labour Foundation and their affiliated unions, holds a 72.8 per cent stake in Income.

Mounting capital pressure

Amid the drama surrounding the Allianz offer, NE came out to say it is committed to supporting Income, but it cannot do so alone. That is why Income was corporatised in 2022, so that it could have more options to access capital, NE pointed out. 

In a July 29 interview, its chairman Lim Boon Heng told The Straits Times that NE provided Income with capital totalling $630 million between 2015 and 2020.

“We have to ask ourselves as NE whether we are able to provide Income with all the capital that it requires,” Mr Lim said.

“Should NE devote all its financial resources to help build up Income, it would not be a very prudent policy,” he added.

Meanwhile, Income’s capital needs have been mounting.

In 2023, the Monetary Authority of Singapore named Income, Great Eastern, AIA and Prudential domestic systemically important insurers.

They are therefore expected to meet higher capital requirements than regular insurers, given that their collapse would significantly affect the country’s economy. The new regulations kicked in at the start of 2024.

In a credit ratings review in September, S&P Global Ratings said Income continues to have a substantial allocation to riskier assets, such as equities and investment properties, which exposes it to market volatility and may affect its capital adequacy.

But it added that Income is expected to maintain a strong business presence in Singapore and satisfactory capitalisation over the next two years.

For the 18-month period ended Dec 31, 2023 – in its first set of results as a company – Income reported profit after tax of $60.4 million, thanks to the strong underwriting profitability from its general insurance business.

As at Dec 31, Income had gross premiums covering 1.7 million customers, totalling $4.86 billion. Its total assets amounted to $43 billion, including $1.92 billion in cash and $31.76 billion in other financial assets comprising debt, equities and funds.

It had $3.2 billion in share capital, and capital adequacy ratios were “well above the minimum regulatory levels”.

Need to redefine social mission?

Whether it decides to go public or not, Income needs to work with the Government to update and articulate its social mission for the insurer to move forward.

Under its current social mission, Income now offers two low-cost schemes for union members.

They are NTUC Gift, a group insurance policy exclusively for members of NTUC-affiliated unions and associations, and Income Insurance Luv, which is an affordable group term life insurance policy for NTUC members.

Income also participates in national insurance programmes and is involved in charity commitments that include a pledge of $100 million over 10 years from 2021 to promote social mobility among the lower-income, and support the well-being of seniors.

But while delivering its social obligations is important, ensuring they are both sustainable and relevant to Income’s business would be central to informing future deals and offers involving the insurer.

Quoting the former Asia Centre for Social Entrepreneurship and Philanthropy, Mr Chua said an organisation can outgrow its social mission over time as social norms evolve or when its management changes.

A key characteristic of a social enterprise is that the organisation is addressing a clearly articulated and institutionalised social mission that is relevant to the community it supports. 

“Unlike traditional businesses conducting projects as part of corporate social responsibility, the social good done by a social enterprise is a part of the core business of the company.”

Workers’ Party MP He Ting Ru said on Oct 16 that redefining Income’s social mission is necessary to avoid the risk of it focusing only on delivering its present obligations, while missing the wider picture of how Income is fundamentally able to fulfil its social mission as an insurer.

In any case, given its declining market share and capital needs, standing still may not be an option for Income.

Short of finding the right merger partner and more capital injection, going for an IPO is worth considering.

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

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