The story of NTUC Income began more than 50 years ago and we do not believe it should end as a merger with German insurer Allianz. NTUC Income is a social enterprise and should continue to perform that role. This is an opportunity to draw upon Income’s enduring mission to tackle the evolving social challenges of a new Singapore, meeting the needs of our time.
In 1970, the National Trades Union Congress (NTUC), under the leadership of C.V. Devan Nair, established NTUC Income as a cooperative under it. Mr Nair had spoken of the need for NTUC to become a social institution, in order to serve the workers in various ways. The then Finance Minister, Dr Goh Keng Swee, supported this mission. He 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.
In accordance with Mr Nair’s vision and Dr Goh’s suggestion, NTUC set up Income in 1970 and FairPrice in 1973. The two cooperatives have been very successful. They have fulfilled their social missions and are financially strong. They have lived up to the mantra, to do well in order to do good.
From cooperative to company
In 2022, NTUC Income proposed to change its legal character, from a cooperative to a company. The reasons given for this change were to “achieve operational flexibility and gain access to strategic growth options”. The proposal was approved by an extraordinary general meeting (EGM).
The success of Income can be seen from the fact that in 2022, it had a surplus of $2 billion.
Under the law governing cooperatives, when a cooperative is dissolved, the surplus would be paid to the Co-operative Societies Liquidation Account. The money would be used to benefit the cooperative movement.
Income appealed to the regulator for an exemption from the application of the law. The reason was that Income was only changing its legal form and not its business. Income needed the surplus $2 billion to be carried over to the new entity to strengthen its capital base and drive greater social and economic value in a sustainable manner.
The exemption was granted on this understanding – and Income promised to remain a social enterprise. In fact, it gave an explicit undertaking.
In a press release dated Jan 6, 2022, and in the EGM of Feb 18, 2022, Income assured its shareholders and the public that becoming a company would not change its social mission focus. The new company would remain an NTUC social enterprise and NTUC Enterprise would remain a majority shareholder.
The Income-Allianz merger
Just over two years down the road, there were some startling developments.
On July 17, 2024, Income announced that it would be merging with the German insurance company Allianz. Following the merger, Allianz would have 51 per cent and Income 49 per cent of the shareholding of the merged entity. In other words, Income would become a minority shareholder and Allianz would be the majority shareholder.
Although Income was to become a minority shareholder in the merged entity, its parent body, NTUC Enterprise, stated that it would maintain its social mission. This assurance is not credible since it was to become a minority shareholder, whereas the majority shareholder is a profit-driven company.
The Group CEO of Allianz, Mr Oliver Bate, clearly stated that Allianz’s objective is to “build a resoundingly profitable business”. He also said that he expected a “double digit return on investment over time”.
$2 billion question
We have already pointed out that, just two years before this, Income had convinced the regulator to allow it to retain the surplus fund of the cooperative, of $2 billion, in order to strengthen the company’s capital base to grow more significantly in scale and deliver its social mandate.
Contrary to this assurance, Income-Allianz’s merged entity proposes to reduce its capital and for $1.85 billion to be distributed to the shareholders over the next three years. This proposal is in breach of the undertaking given by Income to the regulator. Instead of strengthening the capital base, it will have the opposite effect.
We applaud the Singapore Government’s decision to block the proposed transaction in its current form.
We are, however, disturbed by a statement issued by Allianz that the deal is not dead and it is still in negotiation.
We recommend that the negotiations be ended. Income should stand alone as an NTUC social enterprise. It is a successful insurance social enterprise. Income may have less than 10 per cent market share in life insurance, but it has leading market shares in other segments – such as a 22 per cent share in health insurance, a 17.5 per cent share in motor insurance, a 21 per cent share in travel insurance and a 17 per cent share in personal accident insurance.
We understand that the 15,000 individual shareholders who own 30 per cent of Income shares may view the Allianz-Income transaction as an opportunity to cash out. In light of this, we believe NTUC Enterprise or another purpose-driven organisation with a clear social mission could step in to purchase these shares.
The valuation should take into account that the $2 billion surplus must be safeguarded and dedicated to serving social causes and other relevant factors.
Income is a social enterprise and not a shareholder-driven insurance company.
In the past, its primary goal was to cater to the insurance needs of Singaporeans, particularly workers. Today, Income must redefine its mission to address a broader social mandate encompassing ageing, health (including mental health) and the needs of socially disadvantaged groups, such as lower-income workers, all guided by a sustainability agenda. There is no pressing need for Income to expand into neighbouring countries or pursue a global presence.
It is not as if Income’s case is unique. There are many successful social enterprises, in Canada and some European countries, which have transformed themselves and are prospering, and delivering significant social impact to people in their respective countries.
Income should not fritter away its legacy of doing good over more than half a century.
Professor Tommy Koh is special adviser to the Institute of Policy Studies at the National University of Singapore. Mr Tan Suee Chieh is past CEO of NTUC Income and past Group CEO of NTUC Enterprise.
Top photo from ntuc.org.sg