Less than a month ago, on 17 July 2024, there was an announcement that NTUC Enterprise would sell a majority stake in Income Insurance to German insurer Allianz for around $2.2 billion. The offer price was $40.58 for each Income Insurance share.
Since then, local headlines have been dominated by this deal, with former CEOs of Income Insurance expressing their disappointment surrounding the sale.
It’s no real surprise that this deal has captured public attention. NTUC’s Income Insurance has an entrenched history with Singapore – established over 50 years ago in 1970 in response to the growing need for affordable insurance for Singapore’s working class.
Many of us may have Income Insurance products. In fact, there are about 2 million Income Insurance customers in Singapore today. The insurer also underwrites important coverages, including Health, Life, Savings and General Insurance. In the wake of the proposed deal, Income Insurance had to reiterate its commitment to two low-cost insurance schemes, NTUC GIFT and LUV, for NTUC members.
We look at the Income-Allianz deal to try to break down why the sale is probably happening.
#1 Co-op Model May Not Be As Significant In The Singapore Context Today
When NTUC Income was first formed, there may not have been many insurers ready to underwrite risks in Singapore at an affordable rate. This gap provided an opportunity for a local player to offer important insurance coverage at an affordable rate for workers.
Today, there are over 50 direct insurers in Singapore. The financial sector is also highly developed. As a developed and mature economy, the risks are also more easily digestible by existing insurers in the Singapore market.
Having over 50 direct insurers also means there are likely sufficient market participants to ensure that rates remain relatively competitive even if the Income-Allianz deal goes through.
Read Also: Complete Guide To Understanding What Are Co-Operatives In Singapore And How Do They Work
#2 NTUC Income Was Corporatised In 2022
In 2022, NTUC Income Co-op became a public company. At the time, the insurer cited challenges “to compete on an equal footing with other insurers locally and regionally”.
This move highlighted that the leadership at Income Insurer was already calculating its battles in Singapore, as well as pre-empting a broader footprint.
Along with the corporatisation, Income Insurance officially shed its co-operative-led directive, at least in name, in search of resilience.
#3 Income Insurance Is Not A Loss-Making Business
When Income Insurance was on the cusp of forming, the late Dr. Goh Keng Swee advised NTUC to organise a Life Insurance Co-operative first to provide for a “firm, financial base” that “would bring profits to unions and branches” while “fulfilling a genuine social need because social security is its rudimentary stages.”
Besides its wide customer base and goodwill in Singapore today, Income Insurance is also a financially strong and profitable business. These characteristics are likely why Allianz is offering Income Insurance a 37.3%premium over its net asset value per share of $29.55 as at 31 December 2023.
If Income Insurance was loss-making, scrutiny on the deal may not have been as intense – with sustainability a key factor. While we can’t know for sure, Allianz themselves may not have been attracted to table a bid for a loss-making insurer in the first place.
#4 NTUC Income’s Business Does Not Overlap With Allianz’s Singapore Business
In MAS’ assessment of the Income-Allianz deal, fostering a competitive insurance market with financially strong insurers is a key consideration.
For starters, having 50 direct insurers in Singapore offering a wide range of insurance products to meet the insurance needs of individuals and businesses highlights the competitive nature of Singapore’s insurance market. In turn, this likely downplays the significance of the Income-Allianz deal on the overall market.
Allianz may also be one of the few major insurers globally, with the financial resources and profile to pull off this acquisition. While Allianz is one of the largest insurers globally, it only has a small retail and SME insurance presence in Singapore. In Singapore, Allianz is currently ranked 14th in general insurance with a market share of 2% based on written premiums.
In both life and general insurance, Income Insurance has market shares of less than 10% based on written premiums – underscoring a minimal overlap between their businesses which may affect the competitive landscape.
#5 Consolidation In Singapore’s Insurance Market?
We can see evidence in different ways, even if it does not directly point to consolidation.
First, there are over 50 direct insurers in Singapore. This feels like there could be substantial existing competition. Income Insurance’s life and general insurance covers less than 10% of the market share.
While not directly consolidation transactions, another deal in the headlines for OCBC to take Great Eastern private has also been widely discussed.
In 2022, AXA Singapore also sold its local insurance business to HSBC Insurance, which then ceased certain insurance lines altogether.
When Income Insurance underwent its own corporatisation exercise in 2022, one of the factors it cited was that it lost out on “several key contracts to its global and regional competitors” despite putting in competitive bids. This supports the need for “strong and continuous capital support and resilience” to achieve growth. Allianz can provide the global reach, expertise in asset management, and technology and product development that the insurer may need for growth.
#6 NTUC Has Shown Willingness To Monetise Assets
In recent years, NTUC Enterprise has not been afraid to divest assets – in particular, its property portfolio.
In 2022 again, NTUC’s Mercatus Co-operative divested Jurong Point and Swing By @ Thomson Plaza, along with a 10-year property management service agreement for AMK Hub, to Hong Kong’s Link REIT for $2.16 billion.
In 2023, Mercatus Co-operative divested another portfolio of 18 commercial properties in Housing Board estates for around $265 million. In 1H2024, Income Insurance sold its 11-storey commercial building at Prinsep Street for $147 million.
The current Allianz-Income deal may just be another divestment for NTUC Enterprise.
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