Debated in Parliament on 14 Oct 2024.
Mr Deputy Speaker, on 17 July 2024, Allianz Europe BV, or 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.
As part of the proposed transaction, NTUC Enterprise, or NE, had given a legal commitment to sell a proportion of its shares in Income to enable Allianz to acquire a majority stake in Income. 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.
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. I will start by setting out the circumstances in which Income, a former co-operative society or co-op, was corporatised in 2022, as that background has relevance to the proposed transaction. I will also explain the exemption from section 88 of the Co-operative Societies Act or CSA which Income had obtained in the course of its corporatisation. I will then set out our views on the proposed transaction and the next steps.
Sir, let me start with some background on Income. Income has a unique history and has played a special role in serving Singaporeans.
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. 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.
Income was subsequently established in 1970 under the name NTUC Income Insurance Co-operative Limited. It was Singapore's first co-op under the aegis of the Labour Movement. Over the years, Income played an important role in providing affordable insurance for workers and Singaporeans at large.
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. Since 2012, NE has strongly supported the growth of Income, progressively contributing to the share capital of Income. NE injected a total of $630 million into Income between 2015 and 2020. This included $100 million of capital during the COVID-19 pandemic in 2020, which was critical for the continued viability of Income.
With NE's support, Income has grown through the years to serve Singaporeans' needs. As of 31 December 2023, Income Insurance covered close to 1.7 million customers, with an ambition to serve one in two Singaporeans by 2025.
Income has also made progress in its social mission to provide accessible and inclusive insurance. For instance, it launched the Complete Cancer Care to offer Singaporeans comprehensive support from cancer diagnosis to recovery. It has also launched a suite of products over the years to cater to the financial needs of specific underserved segments. These include SpecialCare Autism and Down syndrome, Care4MigrantWorkers, and products that provide coverage for mental health conditions.
In 2022, Income embarked on a corporatisation exercise. It wanted to change its legal form from a co-op to a company and to replicate the existing co-op shareholding profile in the shareholding profile of the new corporate entity to be set up.
Its reasons were as follows. Income needed to evolve to meet tightening regulations for financial institutions. This required a strong capital base. However, the co-op structure has limitations and is not conducive to stronger capital access and good value strategic partnerships. In the face of increasing global competition, Income wanted a corporate structure which would put it on par with its competitors. 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.
Income also sought an exemption from section 88 of the CSA – which applies when a Co-op is put in liquidation – because Income was not, in substance, being liquidated. It was only changing its legal form and would continue to be engaged in the same business. The exemption was therefore needed to facilitate the corporatisation exercise, 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. I will come back to this point later in my speech.
At that time, Income explained to its members, the public and to the Ministry of Culture, Community and Youth (MCCY) that corporatisation would also empower Income to drive greater social and economic value in a sustainable manner. MCCY wanted to understand Income's position in greater detail and met with Income on several occasions to discuss the matter.
In the course of our meetings, Income emphasised a few salient points to MCCY. First, the insurance landscape had fundamentally changed since 1970 and corporatisation was critical to allow Income to effectively compete with other insurers. 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. At the same time, Income was facing increasing competition from large insurance players as well as new technology players in the market. 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.
Second, there was growing pressure to inject capital into Income to build up its financial strength, in response to regulatory requirements and market competition. Income explained that corporatisation was critical for it to achieve operational flexibility. It also wanted to have better access to capital to pursue strategic growth options, compete effectively in the market and do well in its business in the long run.
The third key point made by Income was that its social mission focus would not change. Income made clear to its members and to MCCY that the corporatisation exercise would only change its legal form from a co-op to a non-listed corporate entity. The new corporate entity would remain an NTUC social enterprise.
In our discussions, Income assured MCCY, and I quote, 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".
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, and I quote: "We believe that, pursuant to the corporatisation, Co-Op", which is Income, in this case, "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 policy-holders, and further its social mission through a sustainability agenda", unquote.
The Registry for Co-operative 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. In response, the CEO of Income confirmed that even after corporatisation, Income would not change its purpose and values. Income repeated this point publicly. At its extraordinary general meeting (EGM) in 2022, Income reiterated that the new company would continue operating as a social enterprise of NE and sustain its social mission.
The Government accepted Income's rationale for corporatisation. We agree that social enterprises need to do well in order to do good. This includes having good financial and market discipline, in order for Income to be able to pursue its social mission more effectively. At the EGM on 18 February 2022, Income's members voted overwhelmingly in support of corporatisation.
I said earlier that as part of the corporatisation exercise, Income had applied for a Ministerial exemption from section 88 of the CSA. Let me now elaborate on this.
Co-ops are regulated under the CSA. 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. Any surplus in the co-op beyond that will be transferred to the Co-operative Societies Liquidation Account, or the CSLA, to be applied for the benefit of the co-op sector generally. This is the framework under the CSA, when a co-op is wound up.
Technically, Income would be required to comply with section 88, as Income, the co-op, would be wound up after corporatisation. However, as I explained, Income was not in fact ceasing its business. It was proposing to convert from a co-op into a corporate entity for the reasons outlined above. The corporatisation was to strengthen Income's capital base and financial adequacy in order for it to carry out its business better.
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. Income thus sought an exemption from section 88 of the CSA as part of the corporatisation, which I granted. Following this exemption, Income carried over approximately S$2 billion in surplus to the new corporate entity. The corporatisation exercise was completed on 6 April 2023.
Sir, let me now come to the proposed Income-Allianz transaction, which was announced on 17 July 2024. 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. They explained that insurance is a long-tail business. Income's capital buffers have repeatedly come under pressure over the years. NE has supported Income with capital injections but cannot continue to do so on its own.
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. Income, with Allianz and NE, had also committed to continue pursuing Income's social mission even after the transaction. 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.
In its announcement, Allianz had also said that it intended for Income to continue participating in national insurance programmes. It assured the public of a seamless transition for policy-holders and said that it would continue to honour the contractual terms and conditions of the existing polices underwritten by Income.
MCCY had no prior knowledge of the proposed transaction prior to the public announcements. When we first saw the announcements, we accepted the intent of the transaction, which is to strengthen Income. 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. This is consistent with the representations that Income had made to MCCY at the point of corporatisation.
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.
My colleague, Minister of State Alvin Tan, also spoke in Parliament in the August session. He explained that MCCY appreciated the competitive landscape that Income was operating in and understood how the transaction with Allianz would help Income achieve longer term financial sustainability.
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. In the course of this review, the Monetary Authority of Singapore (MAS) provided MCCY with further details on the proposed transaction. This included information which Allianz, Income and NE had submitted to MAS in respect of initiatives to optimise the capital of Income post-transaction. MCCY had not seen this information earlier. From our review of this additional information, we gathered the following.
The parties intended to implement a number of initiatives to optimise Income's insurance business after completion of the acquisition. The plan was for Income to run its insurance business more efficiently, without the need to hold as much capital as it presently does. As such, post-transaction, Allianz contemplates that Income could reduce its existing share capital and return this capital to shareholders. 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.
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.
These projections were submitted to MAS at around the time that the proposed transaction was announced, in mid-July 2024. 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 policy-holders would be safeguarded with a strong substantial shareholder.
MAS considered the planned capital optimisation from a prudential point of view, in accordance with its regulatory mandate. 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. 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.
It was at this point, after MCCY reviewed the information on the proposed transaction, that we became concerned. 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.
Let me explain this. 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. 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. 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. 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. The proposed capital reduction runs counter to the premise on which the exemption was given. 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.
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.
Second, MCCY is not satisfied that Income will be able to continue fulfilling its social mission after the proposed transaction. There are no clear binding provisions or structural protections in the deal to ensure that Income's social mission will be discharged. 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. 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.
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. 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.
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. 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. It was to strengthen Income and make it more financially sustainable in the longer term. The Government also does not have concerns over Allianz's standing or suitability to acquire a majority stake in Income. As I noted earlier, MCCY supports Income's efforts to find a strong partner so as to strengthen its capital base and market position.
Allianz is a major global insurance company and asset manager that can bring financial strength and expertise to Income.
Our concern is only over the terms and structure of this specific transaction, particularly in the context of the preceding corporatisation exercise. Income was a co-op, and subject to the objectives and obligations of being a co-op. 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. Hence, our assessment of the viability of this transaction must go beyond prudential considerations alone.
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.
Sir, let me now set out the steps which the Government will take.
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 MAS under the Insurance Act. Sections 26 and 27 of the Insurance Act 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.
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. There is currently no provision in the Insurance Act 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. We therefore intend to amend the Insurance Act to provide a clear statutory basis for MCCY's views to be considered in any approval involving such applications.
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 Insurance Act and, where the licensed insurer is a co-operative, has acquired the business of a co-operative, or has a substantial shareholder or effective controller which is a co-operative. 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.
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. 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. 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. Given the time sensitivity of this matter, the Second and Third Readings are proposed to be taken on Wednesday, 16 October 2024.
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.
Sir, 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. Mr Singh had asked whether NE had given its undertaking to hold on to its shares in Income, and I quote, "for an indefinite period", unquote, referring to views that Mr Tan Suee Chieh, a former CEO of Income and Group CEO of NE, had published.
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, referring to Mr Tan, was, I quote, "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", unquote.
However, the letter that was eventually sent by NE to Income on 11 February 2015 stated, and I quote, "Our shareholding in NTUC Income is thus committed over the long term, and there is no intention of withdrawing the share capital to be subscribed". 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.
More importantly, Sir, the commitment given by NE to Income in 2015 is no longer relevant in today's context. Back in 2015, Income was a co-op whose members had the right to withdraw their share capital at any time. 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. 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.
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. 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.
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. Therefore, there is no longer a need for any undertaking by NE not to redeem its shares because all the shares are now permanent.
I hope this makes the position clear.
Mr Deputy Speaker, co-ops remain an important pillar of our society. Co-ops have been helping the community, providing affordable services, especially to the underserved for close to a century. They reinforce our nation's social fabric, complementing the efforts of the public and private sectors, helping to create a caring and cohesive community in Singapore. 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.
MCCY has been and will continue supporting the co-op movement through various capability building efforts and enhancements to legislation. 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. This is why we have seen it fit to intervene, in the proposed transaction.
Sir, I would be happy to address Members' clarifications on the Ministerial Statement today. As I said, the amendment Bill to the Insurance Act will be tabled after this. Members can take time to study the Bill and take part in the debate on 16 October and raise clarifications on the Bill and related matters during that debate.
Clarifications may be asked arising from the Ministerial Statement.
Thank you, Deputy Speaker, Sir. I thank you the Minister for the clarification.
Some of our Choa Chu Kang residents are Income policy-holders and they have expressed concern, and are grateful to the Government that they have looked into this and deemed that the transaction in its current form is not in the public interest. I have two questions.
The Minister mentioned just now that the Government intervened in this transaction but has not closed the doors to any potential other restructuring of the particular deal. So, my question is whether or not Income can find new partners or is it open to Allianz to restructure it and come back with future proposals? The concern is because Allianz is a foreign company and it is not the basis that just because it is an offer from a foreign company that we are intervening.
My second question is on the Government's commitment to support co-operatives as social enterprises. I cannot agree more that they need to do well in order to do good. Quite apart from Income, are there any other co-ops in Singapore and how are their objectives supported?
And the Minister mentioned the Co-operative Societies Liquidation Account, the CSLA. May I know what that account is for?
I thank Mr Zhulkanain for the two clarifications that he seeks. The first is on Allianz and whether or not we have foreclosed the possibility of a future transaction, whether with Allianz or any other partner. As I have said in my speech, the answer is no.
By all accounts, Allianz has put forward a credible, sound proposal and from a financial perspective it makes sense for Income to look at an entity that has global presence, strong networks and it is able to enter into it with a view towards a long-term strategic partnership.
On financial and prudential reasons alone, let me make clear, there is no reason not to accept this arrangement. The grounds that I have set up relate to the representations that were made at the corporatisation exercise, the exemption that was granted and the circumstances in which now it is proposed for capital to be extracted. Those were the reasons.
So, do not read into this as suggesting that we are not open to a foreign entity partnering with Income or indeed, whether it is Allianz or indeed, any other entity. So, I hope that answers the first of the Member's questions.
In relation to co-ops, they come under my Ministry. There are a variety of different co-ops and there are NTUC co-ops which helps look after the underserved workers. There are also campus co-ops where, Members might remember, the National University of Singapore, Nanyang Technological University and Ngee Ann, they all run co-ops for the benefit of students. There are also co-ops which help the sectors of society which need special attention. For example, Running Hour is a co-op that helps inclusivity in sports. There is also a co-op that looks after the employment of persons with disabilities. So, these are the different types of co-ops that come under the framework.
We support the co-ops in a number of ways, through enhancing the work that they do, supporting them through changes in the CSA that helps them in their business, that allows them to evolve and keep up with the times, and also has a fund that I mentioned, the CSLA, which MCCY and the Registrar manages and administers.
This fund, from time to time, helps co-ops with training of personnel and showing that they are the best people running each of the co-ops, and on occasion also sets up a fund like we have done recently, just earlier this year, on the Empowering Communities Fund, which helps to look after a specific segment of society, that is funded from the CSLA. So, this is one reason we maintain the CSLA, to look at how we can benefit co-ops as a whole in Singapore.
Ms Joan Pereira.
My clarifications are for MAS. MAS knew about the capital extraction plan by around mid-July. I would like to seek a few clarifications with MAS. First, what was MAS' assessment of this plan? Second, was MCCY aware?
Minister Chee Hong Tat, do you want to respond?
Thank you, Mr Deputy Speaker, because Ms Pereira posed the question to MAS, so on behalf of MAS, I would like to respond to her – with your permission, Sir.
Yes, please proceed.
Thank you. Mr Deputy Speaker, Allianz submitted the capital reduction plan to MAS in mid-July this year. At that time, MAS had reviewed the high-level submitted information based on prudential grounds, focusing on whether Allianz was fit and proper, looking at its financial strength and track record, and looking at the interests of Income's policy-holders and ensuring that this will be safeguarded with a new, strong, substantial shareholder. So, those were the elements of what MAS was looking at when they received this plan and they received the proposal from Allianz.
The information received by MAS to perform its regulatory functions is generally not shared with other Government agencies and at that time, MAS was not aware of MCCY's considerations when MCCY issued the section 88 exemption and hence, it did not link the proposal from Allianz with the exemption that MCCY had provided earlier.
As the MAS team were still doing their technical assessments at that time, they did not surface the details, including the capital reduction plan, to the MAS Board before the 6 August Parliament Sitting. It was only after the 6 August Parliament Sitting that the MAS team that was assessing this matter saw that this plan to optimise the capital could be relevant to MCCY's views on the proposed transaction. That is when MAS then decided that there were grounds to share the information with MCCY and that it was appropriate for MAS to do so – and that was what happened. So, I hope that clarifies the questions that Ms Pereira asked.
Minister Edwin Tong, would you like to add to that? No? Mr Liang Eng Hwa.
Sir, in a way I am glad that the Government has done its due diligence to pick up these very serious implications of the deal, which is the S$1.85 billion capital extraction. My question to the MCCY Minister is, Income is now no longer a co-op, it is a corporate now. Hence, my query is how would MCCY still be able to exercise its oversight, whether it is for these transactions on the grounds of public interest or to hold Income to fulfilling its social mission that it has committed to, going forward?
I thank Mr Liang for the question. Income today is no longer a co-op and I have explained in my speech why it had taken steps to become a corporate entity. And because it is now a corporate entity, we must allow Income to operate like a company with autonomy in how it pursues business decisions, how it makes its plans and its financial arrangements and so on, as a corporate vehicle.
But a corporate vehicle can also be a social enterprise within this framework. For example, if you ask how this could be done, for example, ring-fencing some of the products which I mentioned earlier, which serves a segment of society, ring-fencing this to ensure that whatever business you conduct, you will always be in a particular segment of looking after this underserved segment of society at a lower cost.
For instance, Mr Liang would recall that I spent some time explaining the background to the corporatisation and the exemption. So, going back to this specific case, when the exemption was granted, the surplus funds of about S$2 billion, instead of going to the CSLA which would have applied for the benefit of all co-ops in Singapore, was transferred into Income, the entity.
If this arrangement was not being proposed, Income was free to use this surplus as it has been doing, to carry out the social mission, it would embark on business obviously and it must meet the usual capital adequacy requirements and so on, but it would be able to exercise some discretion over this surplus. That is how we saw it and that is why the exemption was given.
But in the context of those representations – building up its surplus, share capital base and so on – to come forward now and to ask for it to be extracted so soon and at this amount, after the exercise was completed, in our view, runs counter to the premises on which the exemption was granted. That is why in this case we have stepped in.
But moving forward, which I think is the thrust of your broad point, there are a number of ways in which a corporate can still remain a social enterprise in the way in which it conducts its business.
Mr Louis Chua.
Thank you, Mr Deputy Speaker. Just one clarification for the Minister. Was the Government and MCCY already aware in July that despite assurances given by NTUC and Allianz that there are no existing safeguards which precluded Allianz from optimising the capital base of NTUC Income, which, as I understand correctly from Minister's Statement just now, is one of the key reasons that it now steps in.
From what I can see from the announcements back in July, a key rationale that Allianz put forth was that it will undertake a strategic and operational review of the company to operate it in a more capital efficient manner, considering possible business model transformation opportunities and also to target a double digit return from investment.
I had explained earlier that MCCY was not aware of the terms of the transaction or indeed of the planned cash remittance which includes the capital extraction until after the 6 August Parliamentary Sitting. It was at that juncture, and I think Minister Chee shared the circumstances in which MAS shared the information with MCCY, which I also covered in my Statement, and thereafter we decided to intervene, based on what we found out from the terms of the transaction as disclosed at the point in time.
Mr Derrick Goh.
Mr Deputy Speaker, I welcome Minister's Statement on blocking the proposed deal and the Government's emphasis that at the heart of this decision is about NTUC Income being able to serve its social mission.
As such, can I ask Minister to clarify upon reflection if NTUC Income should have been allowed to be a corporate and be given an exemption from compliance with section 88 of the Co-operative Societies Act? And if so, will MCCY consider further mechanisms to be built in since subsequent corporate exercises could alter or weaken this social objective?
Sir, I have explained in some detail the background to the corporatisation exercise as well as the exemption that was granted in 2022 and 2023. Let me just reiterate that we felt that it was suitable at that point in time, because Income is involved in the insurance business. It essentially is competing with large players around the world and in Singapore and it also has to maintain a substantial capital base. That is the requirement under the Insurance Act and by MAS.
And the current co-operative, or at that time, current co-operative structure, was not conducive to it. For example, it made investments or strategic partnerships with a co-op less attractive. There were some restrictions on how much dividend could be declared, out of which year's profits and there was also a limit to it and so on. These limitations do not apply to a corporate entity.
And so, these amongst others, were the reasons why we supported Income when they approached us and discussed their plans with us.
In terms of the exemption, as I had explained, if Income was going to be wound up and no longer continuing with its business, obviously, section 88 would apply. It applies in all other cases – the fund with the surplus after you pay off liabilities would be put into the CSLA. But as I had explained, this was not a scenario where Income was going to be liquidated, wound up and cease its business. In fact, it was carrying on the same business, with the assurance that it would see to its social mission, in a sense, in a new skin, in a corporate vehicle set-up, but continuing with the same business, fundamentally.
And so, in that respect, taken as a whole, the exemptions were considered to be suitable and granted, so that Income can carry on and will be able to take advantage of the capital surpluses in its new vehicle.
In terms of future steps that Mr Goh mentioned, I mentioned in my Statement that we would look at the possibility of amendments to the CSA to look at such scenarios where a co-operative converts into a corporate vehicle and what are some of the measures that can be taken. We will explore all of this when we look at the CSA in detail.
Ms Hazel Poa.
Thank you, Mr Deputy Speaker. Given that the need for more capital was the basis to justify the corporatisation of Income and then again, subsequently, to justify the sale of Income to Allianz which is in direct contradiction with the plan to reduce capital, will any action be taken against those responsible for misleading the public and the Government?
I am not sure Ms Poa heard my Statement or understood it. Let me explain the key points.
There is no question of misleading. The deal, on its own, was priced appropriately; the terms were put up. And as I had mentioned, even after the capital extraction, the financial viability, the capital adequacy requirements and ratios will be satisfied. That was the framework in which this was proceeded with. And NE and Income, as I also explained, believed in good faith that this strategic partnership would strengthen Income as an entity to allow it to compete in the insurance business with the benefit of a partner like Allianz. We have a different view of that for reasons which are not associated with the financial viability or sustainability of the proposal.
So, there is no misleading as far as this is concerned. But we believe that if you were to look at the representations that were given in the context of the corporatisation and the exemption exercise, we think that this goes counter to that arrangement and we have a different opinion from NE and Income as to its ability to still continue to carry out its social mission.
And as I said, cumulatively with other factors which we have also seen, such as the lack of structures in the agreement to protect the social mission or to advance it, and also coupled with the fact that it would no longer have majority control at the shareholding and also at the board level. So, it is taken in the round.
But there is no question that there has been any misleading. All of these facts were as disclosed. We have just taken a view of them differently from NE and Income as to its ability to carry out its social mission thereafter.
Mr Desmond Choo.
This is a question for Minister Chee Hong Tat. The strategic intent for this deal is to help policy-makers in the longer run. So, in MAS' review of this deal and that now that this deal will be halted, what does it mean for policy-holders in the short to the long run? Will the terms of their policy to their board be safeguarded and should policy-holders be concerned?
Mr Deputy Speaker, I would like to respond to Mr Choo by saying that the existing policy-holders of Income need not be concerned as MAS will continue to regulate Income as a licensee.
Income has sufficient resources to meet the necessary capital adequacy ratio, which means it has enough capital to meet its liabilities and also to pay out to policy-holders. I also want to add, Mr Deputy Speaker, that MAS has not yet approved this proposal.
I mentioned this in the August Sitting in response to Ms He Ting Ru that the deal is still subject to MAS regulatory approval. So, this is not something that MAS has approved. We are still going through the details. Minister Edwin Tong has explained why the Government has decided to make amendments to the Insurance Act to give the Minister-in-charge of MAS the powers to consider the views and concerns of the Minister for MCCY on public interest grounds.
The best way to protect policy-holders in addition to ensuring that the licensees have sufficient capital to meet the necessary capital adequacy ratios is also to ensure that we have a competitive insurance industry. Because then, that will give choice and options to policy-holders to be able to choose what is the best product, the most competitive product, that can meet their needs.
Assoc Prof Jamus Lim.
Sir, I appreciate Minister Chee's answer about how MAS has not given its approval at the time of the announcement. But nevertheless, as a globally oriented player, Allianz would presumably have done some of its regulatory risk assessment and homework prior to the actual announcement on 17 June. And based on Minister Tong's statement, it seems that it was MCCY that was ultimately caught unaware.
And I understand that the proposed urgent Bill scheduled for Wednesday is meant to, in part, remediate this lapse in intra-government communication.
Nevertheless, I wonder what this means for the reputation of MAS as a reliable channel for Government sentiment for potential future deals that would require regulatory approval. What of other deals where different agencies or Ministries other than MCCY may have relevant input?
Mr Deputy Speaker, MAS takes its international reputation very seriously and this is the reason why we want to handle this matter in an open and transparent manner, coming to Parliament to pass the amendments to the Insurance Act and to do so with urgency because the deal is under consideration by shareholders, as explained by Minister Tong earlier.
The current provisions in the Insurance Act do not provide explicitly a provision for the Minister-in-charge of MAS, or for MAS to assess an application like this, based on non-prudential related considerations. So, this is why we need to make this amendment through the proposed Bill to give the Minister-in-charge of MAS these powers, to be able to factor in non-prudential related considerations. In this case, relating to co-ops and with views from the Minister for MCCY.
I appreciate why Assoc Prof Lim asked this question because it is also something that is important to us. We want to make sure that when we regulate, we do so in an even-handed manner, in an open manner. And as Minister Tong mentioned earlier, and I would like to reiterate that, the reason why we have concerns about this particular deal is not because there is a foreign entity, Allianz in this case, and it is also not because we have concerns about Allianz being fit and proper and being a suitable partner for Income. I hope that clarifies.
Mr Leong.
Thank you, Deputy Speaker Sir. First of all, I really, from my heart, welcome the Government's decision to block this transaction, which I have questioned very much at the 6 August Sitting, with the help of information from many well-informed Singaporeans, like Mr Tan Suee Chieh. It is a big relief to NTUC policy-holders, of which I am one.
The Minister today, in announcing the turnaround of the Government's position, because what we heard on 6 August is actually very different. However, from what the Minister has said, it seems that all the processes are proper.
So, it begs the question, my first question is, who in the Government, in such big financial transaction, will be the final goalkeeper? Who is the one who will finally look at the outcome of the deal or any policy decisions, and not just the processes?
It seems that NE has gone through the right process, MAS has also done the first round of assessment and the case was presented to Parliament on 6 August. We were debating, we were asking questions in a different direction. We are trying to say at that Sitting that this transaction needs to be reconsidered. But of course, the Minister and the Minister of State at that time had given us very different impressions.
So, my first question is, in the future, when we have big financial transactions like this, can we get the assurance from the Government that there will be someone – in this case, we are happy that MCCY acted as a goalkeeper to look at the outcome of this transaction. So, in the future, can I get assurance who is going to do this goalkeeper role?
The second question I have is, what Minister Chee had mentioned just now, is that part of MAS' responsibility is to assess the deal in the interest of policy-holders. If the deal involves the acquirer extracting capital from the entity, can this fit into the criterion that it will be in the interest of the policy-holders? If it does not, then, is it that MAS had not done its job? I would like to have an answer to that.
So, I think there are two questions. If I am not mistaken, one is directed at Minister Tong and the other directed at Minister Chee. Who would like to go first? Minister Chee.
Mr Deputy Speaker, I think the way Mr Leong has described what MAS colleagues have done is not accurate and I think it is not fair. I have explained earlier in my reply to Ms Pereira that MAS will look at the proposal from a prudential point of view. That is MAS' role as the prudential regulator for the insurance industry.
So, when the MAS team looks at that, they at that point in time, were not privy to the details of the exemption, of MCCY's exemption from section 88. I had explained that earlier in my reply to Ms Pereira.
So, from the MAS team's point of view, this is a proposal, they were assessing it from a prudential point of view and they looked at after the proposed capital reduction, would Income still be able to meet its necessary capital adequacy ratio? And if so, then from a prudential point of view, there is no reason for the regulator to object.
And this goes back to the point that Assoc Prof Jamus Lim raised earlier. If we want to be a regulator of good standing internationally, we have got to operate in a rules-based system, looking at what our requirements are as regulator and apply them consistently and in an even-handed manner. So, regardless of who the entity is, we would have to apply those rules based on our considerations as a prudential regulator. So, this is what happened.
I also explained earlier in my response to Ms Pereira that after the 6 August Parliament Sitting, the team from MAS that was looking at this proposal then recognised that there is a larger consideration beyond just prudential considerations alone. They then passed this information to MCCY, the information about the proposed capital reduction. MAS was the one who provided this information to MCCY and said, "I think this is something you need to take a look at and whether this will fit with the terms of the earlier exemption that MCCY provided". And then, by working together, MAS, MCCY, in a whole-of-Government manner, and this is how we will work as a Government, we will work across different Ministries, across different departments for the benefit of Singapore and Singaporeans.
Yes, initially, there was an information gap, as I explained. But once we shared the information, we work closely together, we work in a coordinated manner, and this is why we are bringing this Bill to Parliament for consideration.
Minister Tong.
Mr Leong made a reference to the Sitting in August and also some public views on the transaction. I was not here in August, but I have since read the transcripts and understand what the Member had said. There were a number of views that were put out like, this transaction should not go on because the shares were supposed to be not redeemable or that it cannot be sold. None of these apply in this case. And I think the Member heard me explain earlier the background to why and how I answered the Leader of Opposition's query.
And the point really is that it is in the interest of Income in 2022 to have corporatised, I explained that, and for it to use this corporate vehicle to look at possibilities for partnerships, which it has now done and they found Allianz in this case. As I said, the objection is not to Allianz as an entity or to the financial suitability of its plans per se, but rather the questions that we have decided which followed after we reviewed the information, as the Member heard Minister Chee say earlier.
So, I would add to that by saying that is exactly how, when the Member mentioned the goalkeeper, this works. MAS would not share all and sundry information. The Member cannot expect that every time information about a potential application, an acquisition or a deal is proposed, is made, and information given to MAS that it is shared with all and sundry. That is not how MAS works. But, in this case, after they realised that there are various issues which MCCY might be concerned about, they then shared the relevant information with us. Collectively, we looked at it and came to a view, as a Government, on what would serve the public interest. And, in this case, we decided that it would not serve the public interest to allow this to proceed. That is how we would work, to answer your point about having a goalkeeper.
Mr Gerald Giam.
Thank you, Mr Deputy Speaker. Sir, I am very surprised to hear this announcement by the Government today when it had defended the sale of Income Insurance to Allianz so strongly during the 6 August Sitting of Parliament.
I think I heard Minister Tong say earlier that MCCY was concerned that there were no structural protections in the deal to ensure that Income could continue its social mission. But the fact that Allianz would have a majority stake in Income Insurance under the proposed deal was known at least since 17 July 2024, when Income first made its public announcement. Was this not a concern to MCCY in August?
Be that as it may, what structural protections does MCCY expect to be put in place in order for any sale of a co-op or social enterprise to proceed? For example, will it be the case that co-ops or social enterprises will not be allowed to sell a majority stake in their shares to an entity that does not have an explicit social mission?
Sir, I spent quite a bit of my Statement explaining the sequence of events and explaining what we knew as of 6 August and what we knew after 6 August. I hope the Member has taken that into consideration and into account. And what we knew after 6 August allowed us to look at it cumulatively. On its own, as I mentioned my speech, losing board majority, losing shareholder majority were not itself factors which allowed us to reach a view that it was not in the public's interest.
And the Member would appreciate that it is a balancing consideration. On the one hand, there is a strategic interest in wanting the partnership to strengthen Income, to ensure that it will remain competitive. Yes, you lose board majority and you lose shareholding majority, but you take that in the round and on balance.
But what we discovered after 6 August, with a substantial capital extraction, shortly after the exemption was granted in 2023, of such a substantial amount, were factors which then tipped the balance. And then we said, as I mentioned in my speech, cumulatively, these factors caused us to have pause and we decided to review it in greater detail, and we realised that this was not something that we should see through as a matter of public interest.
So, I hope that explains the sequence of events and that Mr Giam does not see the shadows which do not exist in this case. It is about what we knew on 6 August and what we said, and even if the Member looked at the Hansard transcripts, what we said on 6 August was in relation to overarching purpose as strategic intent of Income looking for a partner, not so much that we knew the terms of this and we were talking about the terms of this on 6 August. I hope that makes that clear for Mr Giam.
As to what would work, I had ventured that in my answer to Mr Liang earlier. For example, you might ringfence products using proceeds or surplus from the co-operative, as one example. Or you might have terms contractually even without majority shareholding, which oblige the parties to operate in a particular way to fulfil social missions. So, these are some examples of what they might be.
But as to what exactly such a deal should look like, I think that would be speculative and I would not go into that. If the parties decide, at some juncture, that they want to reconsider this proposal and resubmit a proposal, we will consider it afresh at that point in time.
Okay, I see the last three hands. That is Mr Leong, Ms He and Mr Liang Eng Hwa. Are there any more hands besides these Members? No? Okay, then Ms He Ting Ru, then Mr Leong and then Mr Liang.
Thank you, Mr Deputy Speaker. I would like to ask the Minister, as part of its discussions with NE, did MCCY ask NE why they agreed to the deal knowing that there will be a capital extraction post-acquisition? I believe some of the concerns raised in Parliament in August were about financial sustainability and capital structure of the business going forward. So, I struggle to understand how withdrawing capital in the future can strengthen any entity's capital structure.
Given that there is public interest and social mission involved here, I think it is important that these reasons are articulated properly to help the public understand why there was this structure put in place, and I think it is also relevant because NE is still after all going to be a shareholder, albeit a minority one going forward, under the original proposed structure.
I thank Ms He for the question. The short point is this: that a withdrawal must be seen in the context of several other factors and there was a plan. And the plan is to optimise capital and not so much just to withdraw per se. So, when you optimise capital, you can do it in a number of ways. In the context of an insurance company, maybe redeploy reinsurance, for example, to remove some of the risks and therefore you need to maintain less capital to deal with buffers. These are some examples. I am not saying that this is what happened in this case, but these are some reasons why you might have a capital optimisation which provides for withdrawal but still not compromise the longer-term financial sustainability of the entity.
And I think the Member heard me mention earlier that on MAS' assessment, even after the withdrawal, over a three-year period, the capital adequacy requirements of the new entity will still have to pass muster. So, these are factors that they take into account in looking at this. I take the point that these are discussions that obviously ought to be had with NE, moving forward, as to which types of proposals that maintain and allow us to fulfil the social mission can be countenanced. These are discussions for the future.
Minister Chee Hong Tat, would you like to add to the response?
Thank you, Mr Deputy Speaker. I just wanted to add to what Minister Tong has said in response to Ms He Ting Ru that MAS has not approved the proposed capital reduction plan. That was what they put forth to MAS since the middle of July, but MAS has not approved the proposed capital reduction plan.
In fact, Ms He may recall, when I responded to her on 6 August during the Sitting, I used the Chinese phrase to describe the situation that the deal still required MAS' regulatory approval. I said, "八字都还没一撇". So, this deal is not approved yet and it is something that is still subject to MAS' regulatory approval, including the capital reduction plan.
Mr Leong Mun Wai.
Deputy Speaker, I have two questions, maybe for Minister Chee Hong Tat. One is, can the Minister confirm that in assessing the prudential requirements of the deal, MAS had taken into consideration the capital extraction, although the Minister said just now that MAS had not approved the capacity extraction? Have they considered, even with the capital extraction, the prudential requirements are still satisfied?
The second question is maybe both Ministers can decide who to answer this question. This is about information given to Singaporeans. For the last few months, we are of the impression that the information given is all that we have. So, now we know about capital extraction. This is a very important condition of any financial deal. I am surprised, I am shocked and I am very unhappy today that this important condition is not being disclosed to the Singaporeans, when we were all discussing about this deal. So, whose responsibility is it for not disclosing this information? Can the Government give a commitment that it will pursue responsibility with regard to this? Maybe the company and all that, because this is a very important condition for the financial deal.
Thank you, Mr Deputy Speaker. Sir, I had actually addressed the first question that Mr Leong raised, in my response to various Members. But in case Mr Leong may have missed it earlier, let me say that again. So, first, I think we have to understand that the proposed capital reduction is a proposal from Allianz. It is not something that MAS has approved because, as I mentioned repeatedly, the deal is still subject to MAS' regulatory approval. So, would MAS consider this proposed capital reduction in its overall assessment? The answer must be yes, because this is part of the proposal.
Mr Leong always remind us that he has more than 30 years of experience in the financial sector. So, I am sure Mr Leong would agree with me that as a regulator, it is only right that we assess the full proposal, including this element within the proposal. Whether we agree with it or not, we have not yet come to a decision because this deal is still not yet approved by MAS.
Earlier, when we were discussing this matter of capital adequacy ratio, I think Minister Tong and I were explaining that because of the way the capital was being optimised in the proposal, the capital adequacy ratios, even after the extraction, could still be met. But that is what the proposal put forth. MAS will of course have to assess this independently as regulator to see if we agree with that view. I hope that clarifies the first question that Mr Leong raised.
The second question – and I think my colleague Minister Tong may add on later – let me just say in response to Mr Leong that that is why we are coming to Parliament. In Minister Tong's speech, he has explained clearly and in an open manner our key considerations, what are our concerns, including the proposal to reduce the capital in Income and why that is a concern to MCCY, bearing in mind the section 88 exemption that was earlier given and the undertaking and commitments that were given to MCCY.
So, I hope Mr Leong understands that this is not about withholding information. This is about coming to Parliament after we have put together the full picture, working across the whole-of-Government, between MAS, MCCY and also other agencies, to see what is the overall assessment of how we want to move forward on this important issue and then coming back to Parliament to present the information in an open manner and to propose that we amend the Insurance Act to give the Minister-in-charge of MAS the powers to consider the concerns and the views of the Minister for MCCY on public interest grounds.
It is important for us to recognise that this deal is not yet approved and this deal is something that is ongoing, under consideration by shareholders, and that is why we have some urgency. That is why we are coming to Parliament to seek approval urgently.
Minister Edwin Tong, would you like to add to that?
Sir, Mr Leong should not mischaracterise what happened. I explained it in some detail in my speech and I hope that the Member will not mischaracterise it by suggesting that information has been withheld. On 6 August, we were here. We explained why we believed that it is important for Income to have the ability to find and make arrangements for a partnership.
But as the Member knows, the transaction had not been approved. It is being considered.
We then got information from MAS, we shared the information and, as you heard me say earlier, this is how the Government works. We studied the information carefully, went through, understood the transaction and its impact, understood it from a financial perspective, understood it from a social mission perspective. Then, after coming to a view that it would not be in the public interest for this to proceed, we had to decide what is the best way to deal with this, to handle this, having regard to the fact that the Insurance Act gives MAS the ability to look at transactions from a financial or prudential perspective, but not from this angle, which is the views of the MCCY Minister overseeing co-operatives.
So, we had to reach a view as to not just that it is not in the public interest to proceed, but what we would do about it, which I am sure Mr Leong appreciates, is equally important. This is, after all, a live transaction, it is going on and there is market-sensitive information as well.
So, the first available opportunity, we have come to Parliament, explained it in a Ministerial Statement, the background as well as the steps moving forward and then tabling a Bill, which we will put in in a few moments, for a debate on Wednesday, as much time as possible in the context given to Members, given that this is a live transaction and we cannot leave this state of uncertainty pending.
So, I hope Mr Leong appreciates that that is the scenario that we are in and that there is no question of any information being withheld, either from Parliament or from Singaporeans.
I will allow one last clarification from Mr Leong. Please make it short. You will have the opportunity to debate the merit and principles of the Bill at the Second Reading and Third Reading on Wednesday. So, could you make it a short clarification, please?
Yes, Sir. I would just like to say that I appreciate all the clarifications that both Ministers have done today. Thank you very much. When I talk about responsibility, I am actually talking more about when Income made the announcement, were they withholding information? Because we Singaporeans are all debating this deal. If this capital extraction is included right from the beginning in the deal, this information should have been made available to all Singaporeans.
Do either of the Ministers want to respond or we can leave it for the debate? Minister Chee Hong Tat.
Thank you, Mr Deputy Speaker. We will have a further discussion on Wednesday when we do the Second Reading and the Third Reading.
The considerations for why the Government has concerns for this deal, Minister Tong has already explained. I just wanted to reiterate one point, an important point, that Minister Tong said earlier, which is that from NE and NTUC's point of view, their objective, their intent of entering into this deal with Allianz is to strengthen Income, so that Income is in a better position to do well and to be able to meet its social obligations. So, that was the intent.
The Government has a different view because of the concerns that we had, as Minister Tong explained, and that is why we are coming to Parliament. But I want to say this – because I think it is important that we do not leave with the wrong impression – that for NTUC and NE, their objective of wanting to go into this deal was, indeed, to do what is right; and it is, indeed, to allow Income to be strong and to be able to do well so that it can continue to do good.
Minister Edwin Tong, would you like to add to that?
Thank you, Sir. I would just like to say that Mr Leong has been working for longer than I have been, in the financial sector. You know that this is an arrangement, this is a deal, and the parties submit proposals or plans to MAS, socialise them with MAS. The Member cannot expect this to be then made public to everyone. Income has obligations to its shareholders as well, and this is a step that happens after the transaction is completed. They have not even applied to approve the transaction.
So, Mr Leong, be circumspect about making allegations that parties, whether the Government or Income, could be more open or are withholding information, because there is a due process as to how this is done. You do not go out there and produce information about a proposal when the transaction has not even been approved. So, I hope Mr Leong sees it in that perspective.
There being no other final clarifications, Mr Liang Eng Hwa.
Mr Deputy Speaker, my question relates to the Second Reading of the Bill on Wednesday. While I can understand the urgency of the intervention by the Government, can I ask is there not any provision within our existing legislation that allows the Minister-in-charge to reject corporate transactions on grounds of public interest, rather than to amend the Insurance Act on the basis of a Certificate of Urgency?
Minister Chee Hong Tat.
Mr Deputy Speaker, I understand where Mr Liang is coming from. I have explained earlier why there is urgency in tabling this Bill – because the deal is under consideration by the shareholders. Currently, there is no explicit provision in the Insurance Act for MAS to consider non-prudential-related factors in assessing such applications. This is why we need to come to Parliament with the proposed Bill to give the Minister-in-charge of MAS the powers to be able to consider the views and the concerns of the Minister for MCCY on public interest grounds.
Order. End of Ministerial Statement. Introduction of Government Bills. The Deputy Prime Minister and Minister for Trade and Industry, for the Insurance (Amendment) Bill.
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