Allianz-Income deal: A stronger Income is more relevant to society, says NTUC Enterprise chairman

SINGAPORE — The stronger Income Insurance is, the more competitive it can be, with the ability to offer better prices to consumers, said NTUC Enterprise (NE) chairman Lim Boon Heng.

In an exclusive interview with The Straits Times on July 29, he said that if the local insurer is weak, it will be less relevant to society.

Lim, who was labour chief from 1993 to 2006, noted that some in Singapore may feel very emotionally attached to the concept of Income as a cooperative, which does not place profit maximisation as a goal.

However, he asked: Can Income continue to discharge its obligations to policyholders in the long term if it is not a growing and thriving insurance enterprise?

Customers usually buy insurance when they are young and look forward to payouts when old, which means insurers have "a very long tail responsibility", he said.

Having been associated with the labour movement and cooperatives under NTUC for a long time, he has strong feelings for businesses set up as cooperatives.

"But it's not just my heart. I also have to exercise my head in deciding what is right and what is good for the people that we serve," said Lim.

Income operates in a very highly competitive market where foreign firms dominate.

Data from the Life Insurance Association showed that Income's annual market share of the life insurance segment in Singapore has been less than 10 per cent by revenue for the last 10 years and is declining, Lim said.

His comments come in the wake of an offer by German insurer Allianz on July 17 to buy a 51 per cent stake in Income at a premium.

The offer has triggered questions and concerns. Among the issues raised are if Income will go back on its pledge to fulfil social obligations that support the low-income and vulnerable, and if the deal is meant for minority shareholders and NE to cash out.

When asked what guarantee there is that Income will continue to serve its social missions with Allianz in the driver's seat, Lim said the emphasis on doing well so that Income can serve people may have created the impression that it is focused on profit maximisation.

"No amount of what we say can assure Singaporeans that the purpose and objectives on which Income was founded will be maintained in the years ahead," he said, adding that trust cannot be inherited.

"Trust has to be earned and therefore, the new partnership must be set up to win the trust of the customers and the public," he said.

What the partnership will do in the months and years ahead will determine whether the objectives that Income was founded on will be maintained, said Lim.

He added that "doing well to do good is no longer the preserve of social enterprises and cooperatives only", noting that commercial companies globally have been subscribing to such values as well.

"We expect that the Income partnership will maintain the philosophy that they had over the years," he said.

Lim said Income will still join key national insurance programmes even if it were to lose those bids, as its participation will provide a good benchmark on price and coverage.

Some policyholders are worried that their health insurance premiums will go up if the deal is approved.

Income chief executive Andrew Yeo said a large part of pricing, particularly in Integrated Shield Plans, is based on claims cost. Both he and Lim spoke to ST at the same July 29 interview at Income Centre.

Claims cost, he said, is based on a confluence of factors, including claims inflation, healthcare inflation, consumption and mortality rates.

But some things like consumption of healthcare treatment are out of the insurer's control, said Yeo.

Also out of the insurer's hands are external factors such as geopolitics and climate change.

During economic downturns, Income's capital adequacy ratio (CAR) came under pressure, such as during the Asian financial crisis and the global financial crisis, given that insurance is a capital-intensive business.

This led the insurer to do a number of fund-raising exercises between 1998 and 2004.

Back then, NE did not have many resources to inject into Income, so the bulk of it came from the 16,000 members of the public, said Lim. He was referring to ordinary members of Income when it was a cooperative.

But the fund raising became useless for CAR when the international accounting bodies classified cooperative members' shares, which are redeemable, as a contingent liability, he said.

"If members want to exit, they can apply to withdraw as members from the cooperative and take their money, which is quite different from a company listed on a stock exchange, where if you want to exit, you need to find someone who wants to buy your shares.

"So you can imagine that if there's any sense that there is a problem with Income, there would be a queue to withdraw those shares, and the capital, which is provided by members, would therefore be useless to Income," Lim said.

Set up in 2012, NE was tasked by the Monetary Authority of Singapore to look at Income's financial resilience.

NE also requested the Ministry of Culture, Community and Youth to amend the Co-operative Societies Act to allow cooperatives to create a class of irredeemable shares. Irredeemable shares in an insurance cooperative can then be classified as Tier-1 capital, counting towards CAR.

To protect the individual ordinary members so that they would not be in limbo, Lim said they were not permitted to take out irredeemable shares.

When the Act was amended in 2018, NE converted all its shares into irredeemable shares to boost Income's capital to grow its business.

"None of the other institutional members did so, only NE," Lim said.

Between 2015 and 2020, NE injected $630 million into Income.

To shore up its solvency, Income issued $600 million in subordinated bonds in 2012 that were fully redeemed in 2022. It also issued another $800 million of subordinated bonds in 2020 that would mature in 2050.

In the end, NE decided that Income should be corporatised for it to be able to tap the capital markets for its current and future needs.

This meant that the corporatised Income would have access to mergers and acquisitions, joint ventures or an initial public offering to raise funds for expansion.

The search process for options eventually led to the proposed offer by Allianz, which is the No. 1 global insurance company and asset manager.

During the hour-long interview, Lim told ST the partnership will mean that Income's financial resilience will be backed by two institutional shareholders instead of just one.

With Allianz's shareholder capital at $87 billion and NE's shareholder capital at $5 billion, the union between the two insurers will help Income tap Allianz's global expertise to do more, he said.

[[nid:695561]]

This article was first published in The Straits Times. Permission required for reproduction.