Ms He Ting Ru asked the Prime Minister and Minister for Finance (a) what is MAS’ assessment of the impact of the planned acquisition of Income Insurance Ltd by Allianz Insurance on the social mission of Income Insurance Ltd in providing affordable and well-structured insurance products for Singaporeans; and (b) what avenues and measures are available for Income Insurance Ltd policyholders to allay their concerns about the balance of interests shifting in favour of the new potential shareholder.
The Second Minister for Finance (Mr Chee Hong Tat) (for the Prime Minister and Minister for Finance): Mdm Deputy Speaker, may I have your permission to answer Oral Question Nos 11 to 14 and Written Question No 3 in today’s Order Paper together, regarding the proposed deal between Income Insurance Ltd and Allianz Europe BV?
Mdm Deputy Speaker: Please proceed.
Mr Chee Hong Tat: Thank you, Madam. My reply will also cover Parliamentary Questions (PQs) on the same subject matter which several Members have filed for subsequent Sittings.
Madam, the Ministry of Culture, Community and Youth (MCCY) has just replied to the PQs pertaining to Income’s social mission and NTUC Enterprise’s reasons for entering into this proposed deal with Allianz. I will focus on the following areas from Monetary Authority of Singapore’s (MAS’) perspective as regulator of the insurance sector.
First, how would MAS assess the proposed deal for regulatory approval and did the deal involve any conflicts of interests? Second, would the proposed deal affect Singaporeans’ access to affordable insurance products? Finally, what will be the impact on Income’s existing policyholders and employees?
MAS’ primary role as regulator is to promote a sound and progressive financial sector. For the insurance sector, we want insurers to manage their risks well so that policyholders are assured that their long-term policies are safe and will be adequately protected.
When MAS assesses the application for a change in substantial shareholder in an insurer, we will consider a range of criteria, in particular, the applicant’s track record, financial soundness, reputation, as well as fitness and propriety. For example, we will assess if the proposed shareholder has the financial capacity to support the insurer when needed, coupled with the willingness and ability to ensure that the insurer’s operations are well-run. The insurer must also have effective risk management systems and controls so that it can continue to meet its obligations to policyholders for the long term.
For the boards of major licensed insurers, including Income, MAS requires the majority of board members to comprise directors independent of the shareholders, management and business relations. Board appointments are also subject to MAS’ approval. When assessing an application, MAS’ considerations include the background, skillset and experience of the applicant.
With regard to Mr de Souza’s question on the management of conflicts of interest, MAS had reviewed and was satisfied with the relevant processes Income’s board had put in place to address conflicts of interest with respect to the appointment of its financial advisor on this proposed deal and the decision to enter into the deal with Allianz. In the appointment of the financial advisor for the deal, the Chairman of Income’s board had recused himself. The decision to enter into the deal was made by the board, comprising a majority of independent directors.
Madam, fostering a competitive insurance market with financially strong insurers is a key part of MAS’ approach to ensuring that insurers operate sustainably and serve the public well. We believe that a competitive market is the most effective way to meet the insurance needs of Singaporeans and facilitate access to affordable insurance options and good service over the longer term.
Allianz is one of the largest insurers globally, although it only has a small retail and small and medium-sized enterprise (SME) insurance presence in Singapore today. Allianz Insurance Singapore Pte Ltd is ranked 14th in general insurance with a market share of 2% based on written premiums. There is no significant overlap between Income and Allianz’s overall insurance business in Singapore and hence, there is no concern about adverse impact of the proposed deal on competition in the sector.
The insurance market in Singapore is highly competitive. There are currently more than 50 direct insurers in Singapore offering a wide range of insurance products to meet the insurance needs of individuals and businesses. In both life and general insurance, Income has market shares of less than 10% based on written premiums. For many insurance products, Income does not always offer the lowest prices compared to other insurers.
Take life insurance as an example. A check on CompareFIRST, an online portal that allows consumers to compare life insurance products from various insurers, shows that the most competitive rates for Direct Purchase Insurance Term and Whole Life products, include a mix of local and foreign insurers.
With regard to Integrated Shield Plans (IPs), the Ministry of Health (MOH) helps to exercise regulatory oversight over the IP insurers and they have to seek approval from MOH for changing IP premiums or terms and conditions. MOH also publishes a comparison of indicative lifetime premiums and coverage across different IPs. There is strong competition in the IP market, with each insurer offering plans for different levels of coverage to the public and it is not dominated by any single insurer. Income’s IPs are also not the cheapest in the market for most categories.
Finally, I would like to address the impact on Income’s existing policyholders and employees. Madam, we understand their concerns. Like many hon Members here in the House, I too have residents from Bishan-Toa Payoh who are existing policyholders and employees of Income.
Should the proposed deal be approved, there will be no change to the terms and conditions of existing insurance contracts. MAS expects Income to fulfil its obligations to all policyholders under the terms of its existing insurance contracts. I note that Allianz has also publicly stated its intent for Income to continue to honour the terms of the existing policies underwritten by Income and ensure a seamless transition with no impact to existing policyholders. MAS will hold Income and Allianz to account to these commitments.
In addition, MAS has regulatory requirements and guidance in place for insurers to maintain sufficient capital reserves, put in place robust governance and risk management frameworks, and also to treat their customers fairly.
For participating policies where policyholders share in the profits of the participating fund, MAS protects the interests of policyholders by restricting the ratio of profits allocated to shareholders and the type of expenses insurers may charge to the participating fund.
And with regard to employees, MAS does not regulate employment decisions of financial institutions (FIs). However, we expect all FIs, including Income, to treat their employees fairly and to fully comply with the Ministry of Manpower’s (MOM’s) employment laws and guidelines.
To conclude, Mdm Deputy Speaker, MAS encourages all insurers, both local and foreign, to continually innovate, adopt best practices and ensure robust risk management. This will foster a competitive insurance market that offers choice, value and stability to protect the interests of policyholders.
Mdm Deputy Speaker: Ms He Ting Ru.
Ms He Ting Ru (Sengkang): Thank you, Madam. I have three supplementary questions on this. The first would be in relation to governance and controls. First, I know that Allianz settled a criminal case in the United States (US) two years ago for around US$6 billion over allegations that it defrauded investors, and its US subsidiary pleaded guilty to criminal securities fraud and agreed to pay fines and make restitution to investors. Did MAS look into this and also is MAS then therefore satisfied that corporate governance and controls have been strengthened and that there are no residual concerns? Because after all Income serves 1.7 million Singaporeans with a significant market share in areas such as motor insurance, about 20%, in property and also health, roughly around 15% for each of those.
My second supplementary question relates to a point made in the Allianz announcement. In the announcement, it said, and I quote, “Allianz and the offeror intend to undertake a strategic and operational review of the company and its subsidiaries with a view to enhancing the value of existing businesses, operating the company in a more capital-efficient manner.” And then, further on, it states, “Pending the outcome of such a review, Allianz may make changes to the operations and businesses of the company and its subsidiaries”.
I note that there are approximately 1,900 employees of Income at the moment and, having worked on a number of acquisitions, I note the standard for discussions to be had between parties about streamlining operations, possible redundancies and sometimes certain undertakings are made about continued employment for a certain amount of time, particularly for key officers. However, it is natural that existing staff, especially those who are more junior, would be concerned and wonder whether and how they would be supported through this.
Given the above, is the Government or MAS aware of any discussions being made about possible job losses or will MAS consider if any guarantees should be made and sought from Allianz about existing employees, about their employment situation and would this form part of the MAS regulatory assessment and ultimately, decision whether or not to approve the transaction?
And finally, if I may, on the point about the financial sustainability of Income, I note a report that was published in December 2023 by Zero One Research, where it notes that the capital adequacy ratio of Income Insurance was roughly as 193% under the Risk-based Capital framework, called the RBC 2 framework, and this was based on reported data. This exceeds, by a wide margin, the minimum required level of 120% under Singapore’s Insurance Act. So, my question is, could I get some clarity about why are there concerns about Income’s unsustainability as a business, given this healthy buffer?
Mr Chee Hong Tat: Mdm Deputy Speaker, I thank Ms He Ting Ru for her three questions. Let me start off with the first one about the case against the Allianz Global Investors in the US.
Madam, the Allianz Global Investors is a US entity under the Allianz Group and this structure, this entity is not directly linked to the entity that will be entering into a deal, this proposed deal, with Income. The product that got into trouble with the US regulators, the Allianz entity that is in Singapore, they did not manage and they also did not offer similar funds, like this fund that got into trouble, which is called the Structured Alpha funds. The investigation by the US Department of Justice on Allianz Global in the US also did not reveal that any other entities within the Allianz Group, including the entity here in Singapore, were aware or had participated in the misconduct. So, I hope that addresses the question that Ms He raised.
Ms He’s second question, with regard to the announcement by Allianz that they intend to do a review of their operations and see how they can deploy capital and also streamline their operations, I think that is to be expected, that every time you have a merger, you have a corporate restructuring, whether it involves another party or it is done internally, we are always looking for ways to work more productively and to become more efficient. Whether that then translates into what Ms He was concerned about, which is job losses, I think let us not jump too far ahead. They have not even entered into the proposed deal yet. It has not been approved yet. It is a bit too early, a bit too premature to start to talk about whether there will be job losses.
But as I mentioned earlier in my main reply, in response to a question that Ms Foo Mee Har raised, because I know Ms Foo is also very concerned about our workers and wanted to make sure that their interests will be protected, the MAS does not directly regulate employment practices of FIs. This is not just for Income, this is across all FIs. But we do expect our FIs to comply fully with the MOM employment laws and guidelines. If the workers are not treated fairly, that is where MOM and NTUC will be able to come in and help to speak up for our workers, just like what NTUC has done in previous cases. Where there are job losses and the workers were not fairly treated, NTUC will step forward and fight for our workers, so that we give our workers a fair deal.
As I qualified earlier, this is too early for us to talk about that. In Chinese, they say, “八字都还没一撇”. You have not even completed the deal. Therefore, it is too early for us to start talking about some of these potential downstream issues.
The assurance I want to give to the Member and also to our workers is that we expect Income and Allianz, we expect the entity to treat its workers fairly and to comply fully with the MOM employment laws and guidelines.
To Ms He’s last question, I would like to go back to what Minister of State Alvin Tan mentioned earlier in his reply, which is why NTUC Enterprise had to inject additional capital into Income. Maybe the healthy state of what Ms He has seen being reported, is the outcome of NTUC Enterprise injecting additional capital into Income.
As I also mentioned earlier in my response to Mr Ang, this does not mean that in the immediate moment, at the immediate point in time, Income is having a problem with its finances. That is not the case. But we know insurance is not a just here and now business, it is a long-term business with a long tail. How do you ensure that over the longer term, you are stronger and better able to meet your obligations and to protect the interests of your policyholders – both the existing policyholders and also new policyholders that you may take on later on. This is best done when you have a stronger insurer.
Ministry of Finance
6 August 2024
https://sprs.parl.gov.sg/search/#/sprs3topic?reportid=oral-answer-3610
Office of the Leader of the Opposition 