If the Income-Allianz deal was subjected to a vote by Singaporeans or Income policyholders, then the outcome would probably be that the deal should be called off. Despite all the clarifications and reassurances from the Board of Income Insurance and NTUC Enterprise, the man in the street never quite warmed up to this proposed acquisition.
As a policyholder myself of an integrated shield plan (IP) sold by Income, I am also happy that the deal has been blocked by the government. Income’s Outcome is good to me.
But the revelations made by the MCCY Minister Mr Edwin Tong on 14 Oct 2024 in Parliament is nothing short of a bombshell to this hobbit IP policyholder. The capital reduction or extraction that came with the acquisition by Allianz was never made public before that. It is not peanuts we are talking about here, but $1.85B!
What is more interesting is that Income Insurance first announced that they were in discussions with Allianz on 14 June 24 and exactly four months later, on 14 Oct 24, Income announces that they respected the decision of the Government to not approve the deal.
In these four months, between the initial announcement of 14 June and the announcement of 14 Oct, Income Insurance made four announcements on its website with regard to the proposed acquisition. None of them mentioned anything about capital extraction.
If you read the Minister’s speech carefully (Paras 41 to 43 of https://www.mccy.gov.sg/about-us/news-and-resources/speeches/2024/Oct/Pre-conditional-voluntary-general-offer-by-Allianz-for-Income-Insurance ), it is very clear that the Income Insurance Board have missed the wood for the trees in terms of fulfilling the social mission of Income Insurance and serving public interest.
The Income Insurance board has 12 directors, of which 10 are independent. It is noteworthy that on the press release dated 27 July 24, it was stated that all 12 directors approved the proposed transaction.
Which really brings to mind what were these 12 experienced and intelligent individuals thinking of when they approved the deal?
In addition, there was also a Board “Steering Committee” set up to recommend to the full Board with respect to this proposed acquisition. It consists of a majority of independent directors and was chaired by an independent director. This Committee is supposed to ensure that “the interest of policyholders and shareholders were considered, in evaluating the transaction”. Did they have public interest and social mission in mind in addition to considering the interest of policyholders and shareholders when the evaluated the proposed acquisition?
What were the members of this Steering Committee thinking when they (presumably) recommended to the full Board to approve the transaction?
It is also reasonable to think that for the deal to have gone through the board approval of Income Insurance, the support of its largest shareholder, NTUC Enterprise would have been obtained before the deal was made public. NTUC Enterprise owns 72.8% of Income Insurance. The NTUC Enterprise Board and Executive Directors are all very experienced people, including a few very senior union leaders and ex-politicians. Indeed, NTUC Enterprise and its Chairman have defended the deal on at least two occasions (25 and 300 July) and these were made public through press releases by NTUC Enterprise.
Therefore, there were at least three levels of approval or concurrence that were probably obtained: Income Insurance (Board) Steering Committee, Income Insurance Board of Directors and NTUC Enterprise Board. Did these three bodies take into consideration the issues of
- capital extraction
- fulfilling its social mission
- public interest?
If they did, then how did they and MCCY arrive at such divergent positions (Paras 41, 42 and 43(ii) of Minister Edwin Tong’s speech in Parliament on 14 Oct 24):
Here are the excerpts of the Minister’s speech as taken from the MCCY website:
“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.
i) 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.
ii) The proposed capital reduction runs counter to the premise on which the exemption was given
iii) 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.
iv) 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.
i) There are no clear binding provisions or structural protections in the deal to ensure that Income’s social mission will be discharged.
ii) 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.
iii) 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”.
Para 43(ii) further states “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”
What this hobbit would give to be a fly on the wall when the Income Steering Committee and Board met to discuss, recommend and approve the proposed acquisition.
This blog discusses primarily about health matters so let us get back to health matters, in which Income plays an important role as a big provider of IP policies and the impact that it has on doctors who provide services to their policyholders.
Anecdotal evidence suggests that Income was a very decent IP provider in the past. They respected the MOH Fee Benchmarks in its entirety, unlike many other IP insurers: as long as you charged within the lower and upper limits, Income would reimburse.
But things have gotten worse recently. Some private specialists claimed that the change coincided with the appointment of a Third Party Administrator (TPA) to handle IP claims. Some say it all began when Income ceased to be a cooperative and got corporatized. We may never know if these claims and theories are true as it is very difficult to prove causation in such matters.
Also, the extended panel (EP) practices of Income is apparently quite different from how other IP insurers run their EPs. Some private sector specialists have opined that it is not popular with both policyholders and doctors. Apparently, in contrast to other IP insurers’ EP policies and practices, the Income EP features more friction and more disincentives.
Well, now that the deal in its present form is effectively deader than the dodo bird, this hobbit hopes that the Income Board and Management can refocus their energies on making their IP Plans better managed, giving their policyholders (e.g. me) a better deal and more choice of healthcare providers.
On the larger front, it was only as recently as September 2023 when the Monetary Authority of Singapore (MAS) classified Income as one of the four “domestic systemically important insurers” (effective 1 Jan 2024). In other words, Income is actually one of the Big Four in the local insurance scene, together with AIA, GE and Prudential. Income has the scale, and resources to innovate, stay profitable, look after its policyholders well and at the same time also fulfill its social mission and serve public interest. Let’s hope that happens now as we put this unpleasant episode behind.
hobbitsma 