Pre-conditional voluntary general offer by Allianz for Income Insurance

Ministerial Statement by Mr Edwin Tong, Minister for Culture, Community and Youth & Second Minister for Law

Mr Deputy Speaker,

Introduction

1. On 17 July 2024, Allianz Europe B.V. (“Allianz”) announced its Pre-Conditional Voluntary General Offer (“VGO”) to acquire the shares of Income Insurance Limited (“Income”).  I will refer to this as the proposed transaction.
2. The Government has assessed the proposed transaction and has decided that it would not be in the public interest for the transaction, in its current form, to proceed. 
3. I am therefore making a Ministerial Statement today, to explain the Government’s position, and to set out the steps which it proposes to take. 
4. I will start by setting out the circumstances in which Income, a former Co-operative society (“Co-op”), was corporatised in 2022, as that background has relevance to the proposed transaction.
5. I will then explain our views on the proposed transaction, and the next steps.

Representations of Income at corporatisation

6. Let me start with some background on Income.  Income has a unique history and has played a special role in serving Singaporeans.
1. The concept of labour movement Co-ops, also known as social enterprises, was first conceived at NTUC's Modernisation Seminar in 1969, where Mr Devan Nair articulated the need for the labour movement to turn into a social institution to serve Singaporean workers in various ways.
2. Then, Dr Goh Keng Swee urged NTUC to set up social enterprises in areas such as life insurance and essential consumer goods to meet the needs of the working population.
7. Income was subsequently established in 1970 under the name NTUC Income Insurance Co-operative Limited.
1. It was Singapore’s first Co-op under the aegis of the labour movement.
2. Over the years, Income played an important role in providing affordable insurance for workers and Singaporeans at large.
8. NTUC Enterprise (“NE”) was set up in 2012 as a holding entity for the various social enterprises under the labour movement. NE is also a Co-op and currently holds about 72% of the shares in Income.  
1. Since 2012, NE has strongly supported the growth of Income, progressively contributing to the share capital of Income.
2. NE injected a total of $630m into Income between 2015 to 2020.
3. This included $100m of capital during the COVID-19 pandemic in 2020, which was critical for the continued viability of Income.
9. With NE’s support, Income has grown through the years to serve Singaporeans’ needs.
1. As of 31 Dec 2023, Income Insurance covered close to 1.7 million customers, with an ambition to serve 1 in 2 Singaporeans by 2025.
10. Income has also made progress in its social mission to provide accessible and inclusive insurance.
1. For instance, it launched the Complete Cancer Care to offer Singaporeans comprehensive support from cancer diagnosis to recovery.
2. It has also launched a suite of products over the years to cater to the financial needs of specific underserved segments.
1. These include SpecialCare Autism and Down syndrome, Care4MigrantWorkers, and products that provide coverage for mental health conditions.
11. In 2022, Income embarked on a corporatisation exercise.
1. It wanted to change its legal form from a Co-op to a company,
2. and to replicate the existing Co-op shareholding profile in the shareholding profile of the new corporate entity to be set up.
12. Its reasons were as follows.
1. Income needed to evolve to meet tightening regulations for Financial Institutions.  This required a strong capital base.
2. However, the Co-op structure has limitations and is not conducive to stronger capital access and good value strategic partnerships.
3. In the face of increasing global competition, Income wanted a corporate structure which would put it on par with its competitors.
13. Income therefore proposed to convert itself into a corporate entity, with the members of the Co-op receiving pari passu distribution in specie of shares in the new entity.
14. Income also sought an exemption from Section 88 of the CSA (which applies when a Co-op is put in liquidation):-
1. Because Income was not, in substance, being liquidated.
2. It was only changing its legal form and would continue to be engaged in the same business.
3. The exemption was therefore needed to facilitate the corporatisation exercise,
1. so that Income’s accumulated surplus (beyond par value) could be carried over to the new corporate entity to allow it to continue the business.
4. I will come back to this point later in my speech.
15. At that time, Income explained to its members, the public and MCCY, that corporatisation would also empower Income to drive greater social and economic value in a sustainable manner.
16. MCCY wanted to understand Income’s position in greater detail, and met with Income on several occasions to discuss the matter.
17. In the course of our meetings, Income emphasised a few salient points to MCCY.
18. First, the insurance landscape had fundamentally changed since 1970, and corporatisation was critical to allow Income to effectively compete with other insurers.
1. Income pointed out that the local insurance market had matured by 2022, unlike in earlier years, when a significant working class segment was still underserved.
2. At the same time, Income was facing increasing competition from large insurance players as well as new technology players, in the market.
3. Its existing structure, as a Co-op, lacked the flexibility of a corporate structure, and did not give it access to distribution channels or the ability to scale, either locally or globally.
19. Second, there was growing pressure to inject capital into Income to build up its financial strength, in response to regulatory requirements and market competition.
20. Income explained that corporatisation was critical for it to achieve operational flexibility.
1. It also wanted to better access capital to pursue strategic growth options, compete effectively in the market and do well in its business in the long run.
21. The third key point made by Income was that its social mission focus would not change.
1. Income made clear to its members and MCCY that the corporatisation exercise would only change its legal form from a Co-op to a non-listed corporate entity.
2. The new corporate entity would remain an NTUC social enterprise.
3. In our discussions, Income assured MCCY that “post-corporatisation, Income will be able to grow more significantly in scale and deliver its social mandate as a significant player in the insurance industry”. 
4. Income wanted more flexibility to establish partnerships that could build up its capital base so that it could sustain its social mission.  In its letter to MCCY dated 27 June 2022, Income stated:-
   “We believe that, pursuant to the Corporatisation, Co-op will be regarded to offer a more attractive proposition to investors and strategic partners.  This would, in turn, allow Co-op to raise capital more easily and thereby grow and unlock value for existing and new shareholders and policyholders and further its social mission through a Sustainability agenda.”
5. The Registry for Co-op Societies told Income that it had to address the public perception that NTUC social enterprises would be seen as moving away from Co-op values.
6. In response, the CEO of Income confirmed that even after corporatisation, Income would not change its purpose and values.
7. Income repeated this point publicly.
8. At its Extraordinary General Meeting (EGM) in 2022, Income reiterated that the new company would continue operating as a social enterprise of NTUC Enterprise and sustain its social mission.
22. The Government accepted Income’s rationale for corporatisation.
1. We agree that social enterprises need to do well in order to do good.
2. This includes having good financial and market discipline, in order for Income to be able to pursue its social mission more effectively.
23. At the EGM on 18 February 2022, Income’s members voted overwhelmingly in support of corporatisation.
24. I said earlier that as part of the corporatisation process, Income had applied for a Ministerial exemption from Section 88 of the CSA.  Let me elaborate on this.
1. Co-ops are regulated under the CSA.
2. Under Section 88 of the CSA, when a Co-op decides to cease being a Co-op and is wound up, its members can only be paid their original share capital plus any unpaid dividends up to a cap, after settling the costs of liquidation and the Co-op’s liabilities.
3. Any surplus funds in the Co-op beyond that will be transferred to the Co-operative Societies Liquidation Account (CSLA) to be applied for the benefit of the Co-op sector generally.
4. This is the framework under the CSA, when a Co-op is wound up.
25. Technically, Income would be required to comply with Section 88, as Income the Co-op would be wound up after corporatisation.
1. However, as I explained, Income was not in fact ceasing its business.
2. It was proposing to convert from a Co-op into a corporate entity for the reasons outlined above.
3. The corporatisation was to strengthen Income’s capital base and financial adequacy, in order to carry out its business better.
4. For these reasons, carrying over Income’s surplus to the new corporate entity to support the business would be an integral part of the exercise.
26. Income thus sought an exemption from Section 88 of the CSA as part of its corporatisation, which I granted. Following this exemption, Income carried over approximately S$2 billion in surplus to the new corporate entity.
27. The corporatisation exercise was completed on 6 April 2023.

Concerns over the Income-Allianz Transaction

28. Let me now come to the proposed Income-Allianz transaction, which was announced on 17 July 2024.
29. In announcing the proposed transaction, NE and Income had said that it was needed to strengthen Income so that it could continue with its social mission.
1. They explained that insurance is a long-tail business.
2. Income’s capital buffers have repeatedly come under pressure over the years.
3. NE has supported Income with capital injections but cannot continue to do this on its own.
4. That is why Income has proposed this transaction with Allianz, to find a strong partner that can complement NE in strengthening Income, so that it can sustain its social mission.
5. Income, with Allianz and NE, had also committed to continue pursuing Income’s social mission even after the transaction.
1. For example, Income will maintain two low-cost insurance schemes as well as contribute $100 million over 10 years from 2021 for social and environmental causes.
6. In its announcement, Allianz had also said that it intended for Income to continue participating in national insurance programmes.
   1. It assured the public of a seamless transition for policyholders and said that it would continue to honour the contractual terms and conditions of the existing policies underwritten by Income.
30. MCCY had no prior knowledge of the proposed transaction before the public announcements.
31. When we first saw the announcements, we accepted the intent of the transaction, which is to strengthen Income.
32. We saw that Income would be engaged in a strategic partnership with a major reputable player in the industry. This would strengthen Income’s capital base and allow it to have more access to capital.
1. This is consistent with the representation that Income had made to MCCY at the point of corporatisation.
2. As we have said before, for Income to do good, it must first do well.  In a Facebook post on 4 August, I pointed out that co-ops, as social enterprises, must be financially sustainable in order to better serve their members in a fast-changing economic environment.
3. My colleague, MOS Alvin Tan, also spoke in Parliament in the August session.
4. He explained that MCCY appreciated the competitive landscape that Income was operating in.
5. And understood how the transaction with Allianz would help Income achieve longer term financial sustainability.
33. Subsequent to the August session of Parliament, MCCY continued to do due diligence and enquire further into the proposed transaction, including on the various public queries which had been raised.
34. In the course of this review, MAS provided MCCY with further details on the proposed transaction
1. This included information which Allianz, Income and NE had submitted to MAS in respect of initiatives to optimise the capital of Income post-transaction.
2. MCCY had not seen this information earlier.
35. From our review of this additional information, we gathered the following:-
1. The parties intended to implement a number of initiatives to optimise Income’s insurance business after completion of the acquisition.
2. The plan was for Income to run its insurance business more efficiently, without the need to hold as much capital as it presently does.
3. As such, post-transaction, Allianz contemplates that Income could reduce its existing share capital, and return this capital to its shareholders.
4. Allianz projects that Income would return some S$1.85 billion in cash to its shareholders, within the first three years after completion of the transaction.
36. NE and Income focused on bringing in a strong shareholder and believed that, even with these initiatives, the proposed transaction with Allianz would allow it to continue with its social mission for years to come.
37. These projections were submitted to MAS at around the time that the proposed transaction was announced, in mid-July 2024.
1. At that time, MAS had reviewed the information based on prudential grounds, focusing on whether Allianz was a fit and proper institution, and Allianz’s financial strength and track record, so that the interests of Income’s policyholders would be safeguarded with a strong substantial shareholder.
2. MAS considered the planned capital optimisation from a prudential point of view in accordance with its regulatory mandate.
3. Based on the plans submitted, MAS did not have reason for concern as Income was projected to continue to meet regulatory capital requirements with a healthy margin even with the capital reduction.
38. However, after the 6 August Parliamentary sitting, MAS saw that Income’s planned capital optimisation could be relevant to MCCY’s views on the proposed transaction. MAS then shared the information with MCCY, including the terms of the proposed transaction.
1. It was at this point, after MCCY reviewed the information on the proposed transaction, that we became concerned.
2. We decided that there was sufficient basis for the Government to intervene in the proposed transaction, to protect the public interest, notwithstanding that the financial prudential requirements had been satisfied.
3. Let me explain this.
39. We accept that from a narrow commercial or even prudential perspective, capital optimisation measures that free up capital to be returned to shareholders, are not uncommon practices.
40. However, MCCY is not confident that the proposed transaction would not affect the ability of the Co-op movement as a whole, or of Income itself, to carry out its social mission.
41. First, we find it difficult to reconcile the proposed substantial capital reduction, soon after the transaction is completed, with Income’s representations to MCCY during the corporatisation exercise that it was aiming to build up capital resources and enhance its financial strength.
1. As I had explained, as part of that exercise, Income had sought and obtained an exemption to allow it to carry over a surplus of S$2 billion to the new corporate entity.
2. The proposed capital reduction runs counter to the premise on which the exemption was given
3. If not for the Ministerial exemption in 2023, Income Co-op’s accumulated surplus of some S$2 billion would have gone to the CSLA after being wound up, to benefit the Co-op movement in Singapore as a whole.
4. MCCY has not seen any arrangement within the present transaction to account for the estimated S$2 billion surplus that was carried over to the new corporate entity, due to the exemption. There is no clarity on how this sum will be directed towards advancing Income’s social mission.
42. Second, MCCY is not satisfied that Income will be able to continue fulfilling its social mission after the proposed transaction.
1. There are no clear binding provisions or structural protections in the deal to ensure that Income’s social mission will be discharged.
2. It is also not clear what Income might do after the capital extraction, for example, to adjust or trim its insurance portfolio, and what impact this could have on policy holders.
3. NE has stated that it intends to maintain Income’s social mission. MCCY accepts that NE is making this commitment in good faith. But MCCY is not confident that NE’s intentions, or the assurances Income gave earlier to MCCY, can be upheld.
43. We had known earlier that the proposed transaction would leave NE as the minority shareholder in the new entity, with a minority of board positions and no ability to nominate the Chairman of the new Income entity.  On their own, these factors would not have caused MCCY to object to the transaction.
1. However, taken together with the proposed capital extraction and the lack of structural protections in the deal to ensure the continuation of Income’s social mission, cumulatively, they pose a risk that MCCY judges not to be acceptable.
2. As such, it is the Government’s view that it is not in the public interest for the transaction, in its current form, to proceed.
44. I should, however, make clear that the Government understands and accepts the strategic purpose behind Income’s corporatisation exercise and its subsequent decision to form a partnership with Allianz.
1. It was to strengthen Income, and make it more financially sustainable in the longer term.
45. The Government also does not have concerns over Allianz’s standing or suitability to acquire a majority stake in Income.
1. As I noted earlier, MCCY supports Income’s efforts to find a strong partner so as to strengthen its capital base and market position.
2. Allianz is a major global insurance company and asset manager that can bring financial strength and expertise to Income.
46. Our concern is only over the terms and structure of this specific transaction, particularly in the context of the preceding corporatisation exercise.
1. Income was a Co-op, and subject to the objectives and obligations of being a Co-op.
2. Therefore, we also have to take into account the circumstances in which Income was corporatised and obtained an exemption from Section 88 of the CSA.
3. Hence, our assessment of the viability of this transaction must go beyond prudential considerations alone.
4. Whilst we will not allow the proposed transaction to proceed, we are nonetheless open to any new arrangement which Income may wish to pursue, whether with Allianz or any other partners, so long as the concerns highlighted are fully addressed.

Need for the Amendment Bill

47. Let me now set out the steps which the Government will take.
48. As Income is now a corporate entity, it is no longer subject to the jurisdiction of the Registrar of Co-ops.  The approval or otherwise of the proposed transaction, now rests with the MAS under the Insurance Act (“IA”).
49. Sections 26 and 27 of the IA require a person to seek the prior written approval of MAS to obtain effective control or become a substantial shareholder of a licensed insurer incorporated in Singapore.  The proposed transaction therefore requires MAS’ approval to proceed.
1. When MAS assesses an application under these sections, it considers a range of criteria on prudential grounds such as the financial strength and track record of the applicant and whether it is fit and proper.
50. There is currently no provision in the IA for MAS to consider the views of MCCY, in the case of an application relating to an insurer that is either a Co-op or linked to a Co-op.
1. We therefore intend to amend the IA to provide a clear statutory basis for MCCY’s views to be considered in any approval involving such applications.
51. The amendments will be scoped specifically to only apply to a licensed insurer that is the subject of an application under sections 26 and 27 of the IA and, where the licensed insurer is a Co-operative, has acquired the business of a Co-op, or has a substantial shareholder or effective controller which is a Co-op.
1. This is based on the Government’s recognition that insurance Co-ops are a special category of insurers with a social mission for which the views of the Minister overseeing Co-ops need to be considered.
2. The Bill will therefore provide for the Minister in-charge of MAS to consider the views of the Minister responsible for the administration of the CSA.
3. And for the Minister in-charge of MAS to withhold approval to such applications if he considers that it is in the public interest to do so.
52. Following this Ministerial Statement, Minister Chee Hong Tat will table the First Reading of an Amendment Bill to the Insurance Act on an urgent basis.
1. Given the time sensitivity of this matter, the 2nd and 3rd Readings are proposed to be taken on Wed, 16 October 2024.
53. I should add that MCCY may also consider future amendments to the CSA to give the Government stronger levers over Co-ops that may wish to be corporatised.

Other issues

54. Before I conclude, I would also like to address an outstanding issue raised by the Leader of the Opposition at the 6 August Parliament Sitting. At that time, I had replied that we were still looking into the issue.
55. Mr Singh had asked whether NE had given its undertaking to hold on to its shares in Income "for an indefinite period", referring to views that Mr Tan Suee Chieh, a former CEO of Income and Group CEO of NE, had published.
56. Our fact finding shows that Mr Tan did indeed state, when he was Group CEO of NE, at a meeting of the Income Board on 21 November 2014 that he (i.e. Mr Tan Suee Chieh) was “confident that the NE Board would agree to a request to extend this undertaking not to redeem to an indefinite period, as NE was prepared to convert its shares to the new class of irredeemable shares once the legislation was passed.”  
57. However, the letter that was eventually sent by NE to Income on 11 February 2015 stated, “[o]ur shareholding in NTUC Income is thus committed over the long-term, and there is no intention of withdrawing the share capital to be subscribed”. 
1. In short, the answer is:  there was no specific commitment that the shares would not be redeemed indefinitely. Neither was there a commitment that the shares would not be transferred to someone else.
58. More importantly, the commitment given by NE to Income in 2015 is no longer relevant in today’s context.
1. Back in 2015, Income was a Coop whose members had the right to withdraw their share capital at any time.
2. This was a problem because Income needed a stable capital base to support its insurance business, but its members’ share capital, being redeemable at any time, could not be counted towards MAS’ capital adequacy requirements for insurers.
3. NE’s commitment not to redeem its shares was meant to assure Income of the stability of its capital base, pending legislative amendments to provide for a more permanent class of share capital for Co-ops.
4. The CSA was subsequently amended in 2018 to allow institutional members of Co-ops, like NE, to hold permanent shares so that the capital could not be withdrawn. NE then converted all its shares in Income to permanent shares, which could count towards MAS’ capital adequacy requirements.
5. This rendered NE’s 2015 undertaking no longer relevant, because NE’s shares were now legally locked in and Income’s capital base had stabilised.
6. When Income subsequently corporatised, NE’s shares in Income the Co-op were converted into shares in the new company, which are also not withdrawable.
7. Therefore, there is no longer a need for any undertaking by NE not to redeem its shares, because all the shares are now permanent.
59. I hope this makes the position clear.

Conclusion

60. Mr Deputy Speaker, Co-ops remain an important pillar of our society.
1. Co-ops have been helping the community – providing affordable services especially to the underserved – for close to a century.
2. They reinforce our nation’s social fabric, complementing the efforts of the public and private sectors, and helping to create a caring and cohesive community in Singapore.
61. We appreciate that Co-ops have to balance the constant tension between doing good and doing well.  On its part, the Government agrees that Co-ops must do well before they can do good.
62. MCCY has been and will continue supporting the Co-op movement through various capability building efforts and enhancements to legislation.
1. At the same time, MCCY is responsible to ensure that the Co-ops continue to uphold their social missions to benefit Singaporeans and our wider society, as they seek to do well.
2. This is why we have seen it fit to intervene, in the proposed transaction.
63. Sir, I would be happy to address Members’ clarifications on the Ministerial Statement today.
64. The Amendment Bill to the IA will be tabled after this.  Members can take time to study the Bill, and take part in the debate on 16 Oct and raise clarifications on the Bill and related matters during that debate.
65. Thank you.