Allianz-Income deal followed talks on all-Singaporean tie-up
While German insurer Allianz’s recent agreement to take control of Singapore’s Income Insurance has sparked fierce public criticism, this opposition seems unlikely to halt the deal’s progress. It may even accelerate its completion, industry executives have suggested privately to AsianInvestor.
Especially given that, prior to the current agreement, talks for a partnership between Income and another large Singaporean insurance firm fell through, as AsianInvestor has learned.
Allianz has subsequently been chosen as a suitable partner after careful consideration and discussion, according to public statements by Income Insurance, its current 72.8% owner NTUC Enterprise, and the Monetary Authority of Singapore (MAS).
And it is a decision that makes sense, said local insurance and investment industry executives, who asked to remain anonymous because of the sensitivity of the matter.
A central criticism of the deal – that a foreign firm might not be genuinely aligned with the social mission of Income – is something of a red herring. Income was set up in 1970 to provide affordable insurance products when the market was in its infancy; that is no longer the case.
On top of all this, the Singaporean government is seen as unlikely to want the issue dragging on for months, with a general election coming up next year, possibly as early as the first quarter.
DEAL RATIONALE
Let's take a closer look at the circumstances around and rationale for the choice of Allianz as a partner, and why much of the criticism – led by former Income CEO Tan Suee Chieh – may be less pertinent than it might appear.
Income and its local holding company, NTUC Enterprise, will have been well aware that a sale to a foreign firm would be politically sensitive.
The duo pointed out in an August 4 joint statement that three strategic options were considered: outright sale, IPO or strategic partnership.
Market conditions were, ultimately, not conducive to a listing.
In evaluating a strategic partnership, “a key consideration was the alignment of interests and an agreement on the valuations”, added the statement.
Income and NTUC Enterprise said they had explored opportunities with both foreign and local partners, “and Allianz’s credentials were the strongest and its interests were the most aligned”.
In fact, before inking the agreement with the German firm, the two entities were in talks over a similar transaction with a large homegrown Singaporean insurer, but the deal fell through, a well placed source told AsianInvestor.
OCBC-owned Great Eastern (the Lion City's biggest insurance firm) and Singlife are the two obvious candidates, noted sources, with the former seen as the most likely to have been involved in the talks.
Income Insurance declined to comment.
“CAPITAL RESILIENCE” NEEDED
The deal falling through was arguably a good outcome for Income, industry sources told AsianInvestor.
For one thing, even the biggest Singaporean insurer, Great Eastern, has S$109 billion ($83.5 billion) in assets, including S$6.3 billion in cash – nothing like the financial firepower of Allianz’s insurance business (€983.2 billion ($1.09 trillion) in assets; €29.2 billion in cash).
Moreover, Income and NTUC Enterprise cited in their joint statement the importance of “capital resilience”, saying it was “necessary to provide affordable, inclusive insurance on a sustained basis”.
Allianz would be well placed to support Income in the event of capital calls – and to enable it to offer competitively priced products in a market of more than 40 insurers, as several industry sources pointed out.
It has been widely noted that Income has by no means the cheapest offerings on the market.
As for questions raised about the deal’s potentially adverse impact on market competition, MAS has dismissed concerns. The regulator pointed out that there was no significant overlap between Income and Allianz’s insurance businesses in Singapore.
ADVANTAGES FOR ALLIANZ
The German firm also has very good reasons to be committed to the acquisition.
Allianz will get clear benefits in return for the S$40.58 per share it has offered for Income, for a total transaction value of S$2.2 billion Singapore dollars ($1.64 billion). The deal would turn it into a key player in Singapore and strengthen its foothold in Asia.
Income was the fourth largest insurer in the city-state by assets as of December 2023, according to the Singapore Business Review’s Insurance Rankings.
Allianz would become the fourth biggest composite insurer by revenue (with S$9.6 billion) in Asia, up from the ninth biggest now (with S$5.8 billion).
It would also add Income’s S$43 billion ($32.3 billion) in assets under management to its roughly $50 billion in regional assets under management (including unit-linked products).
This will potentially provide opportunities to Allianz Global Investors and PIMCO, asset managers owned by the German group, in the form of potential investment mandates.
There are understandable worries over the deal's implications for Fullerton Fund Management, which manages a big chunk of Income's assets, and potentially also for Income's own team.
Nonetheless, the industry executives that AsianInvestor spoke to were very confident the acquisition would proceed, and perhaps even accelerate.
As one source familiar with the situation said: “There’s no way Singapore will want to say it’s not open for business.”