Top image: Pexels / Mikita Yo
We can say that hindsight is 20/20. But really, the red flags attached to the Allianz-Income deal— in which the German insurer would have acquired 51 percent of Income Insurance’s shares—could be seen from a mile away.
I mean, you’ve got a foreign insurance giant seeking a majority share of a local entity established to provide affordable insurance for workers. Pinky promises to maintain Income’s social mission to serve its policyholders weren’t going to cut it.
As it turns out, after prodding further into the terms of the deal, the government found enough reasons to intervene. The deal was blocked in the name of public interest, Minister for Culture, Community and Youth (MCCY) Edwin Tong announced in Parliament on October 14th.
This is undoubtedly the best outcome for the public. But! The public also deserves transparency and accountability.
How did this deal, which was criticised from the get-go by former NTUC Income CEOs Tan Kin Lian and Tan Suee Chieh, make it so far before finally being shut down?
A Matter of Public Interest
To first understand how Income policyholders and low-income Singaporeans in need of insurance might have been affected by the deal, one must first consider the oft-cited social mission of the company.
In his open letter to the govenrment, Tan Suee Chieh had expressed concern at NTUC Enterprise giving up its majority shareholder position in Income, saying it was “a fundamental erosion of the social mission”.
But it is possible to have a social enterprise within a corporate structure, even one that is a company limited by shares, says Mak Yuen Teen, Professor (Practice) of Accounting at the National University of Singapore’s Business School.
Prof Mak, who teaches corporate governance, explains: “It’s a matter of what you enshrine in the constitution and how difficult it is to change.”
However, it appears that the lack of structural protections for Income’s social mission was where the terms of the Income-Allianz deal fell short.
MCCY’s issue with the deal centred around Income’s decision to return S$1.85 billion in cash to its shareholders (which would have included Allianz) after the deal.
Where did this money come from? Well, Income used to operate under the name NTUC Income. Back then, it was a co-op. However, in 2022, it underwent corporatisation and began operating as Income Insurance.
Under Section 88 of the Co-operative Societies Act, its surplus of about S$2 billion should have gone to the Co-operative Societies Liquidation Account to benefit other co-ops.
Income, however, was granted an exemption. It was allowed to keep the S$2 billion.
In light of the proposed capital extraction, as well as the consideration that NTUC Enterprise would lose its controlling stake in Income, Mr Tong said that MCCY was not assured Income would be able to maintain its social mission.
So, where does that leave Income policyholders and lower-income Singaporeans? To put it simply, the deal being blocked and the status quo remaining unchanged is a plus for them, Prof Mak says.
Tan Suee Chieh, one of the most vocal opponents of the deal, agrees with the government “on the specific grounds of public interest”.
More Questions
As much as this is a satisfying—and probably vindicating—outcome for all who opposed the deal, there are still important questions to consider.
Prof Mak raises one. “It is not so much whether this decision should have come sooner but whether too many associated with the government and NTUC were too quick to support the deal.”
When the matter was debated in Parliament, Second Minister for Finance and Deputy Chairman of MAS Chee Hong Tat assured that Income’s social mission would not change, saying MAS would “hold Income and Allianz to their commitments”.
He later added in the debate: “This is a better way of fulfilling that social mission, and this is a more effective way for them to do good if they are able to have a strong Income.”
Minister of State for Culture, Community and Youth Alvin Tan, too, expressed support for the move as Income would have more access to capital: “NTUC Enterprise has supported Income with capital injections and will continue to do so. But NTUC Enterprise cannot do this on its own.”
NTUC Enterprise and Income had also reacted strongly to Tan Suee Chieh’s statements, calling them “unfair” and claiming they “cast aspersions” on the deal’s stakeholders.
Could our ministers and NTUC Enterprise have scrutinised the deal more closely before expressing support for it? Maybe. But as Prof Mak points out, Income—as one of the prime parties involved in the deal—should also be accountable.
“I thought the issues raised by MCCY are issues that would have been considered by the [Income] board before it agreed to support the sale,” he tells RICE.
“Did the board scrutinise the deal sufficiently, or did it just accept the views of the financial adviser [Morgan Stanley], management or NTUC Enterprise?”
Ultimately, it was Income’s responsibility to negotiate a deal that would be fair to itself and its stakeholders. Did Income’s board not consider the issue of capital reduction? Or if they did, why did they deem it appropriate to proceed with the sale to Allianz?
Door Still Open?
The Income-Allianz deal may be off, but it may only be a temporary reprieve. The door is still open if Allianz and Income can allay MCCY’s public interest concerns, Mr Tong has confirmed.
Allianz remains lurking, sort of ominously, in the background, like a suitor that won’t go away. The Geman insurer says it may consider revising the terms of the deal, so we just might get a sequel to all this drama.
Prof Mak forecasts, however, that the scrutiny that any potential deal may face may make Income less attractive to potential buyers.
And, despite the deal falling through, it’s hard to ignore the damage done to Income’s relationship with its policyholders.
“Maybe there will need to be changes in the board and management to regain trust, as I think this deal was poorly conceived and handled, and the communication was poor,” Prof Mak adds.
The fear of Income Insurance selling out is still there. Now, it’s compounded with the questions arising from the corporation’s decision-making processes. At this juncture, maybe some self-reflection is in order.
Prof Mak offers some parting advice: “It should look inward within its current structure – its strategies, what kinds of insurance business it should be involved in, how it can improve its financial strength, be more efficient et cetera. Not keep looking for a buyer.”
