Concerns over conflict of interest and corporate governance arise in Income’s sale to Allianz

The proposed sale of Income Insurance to German multinational financial services company Allianz has sparked significant public discontent and raised serious questions about corporate governance within the organization.

Industry experts and concerned citizens have voiced worries about potential conflicts of interest and the future of the homegrown insurance company.

Corporate Governance Questions

According to Income’s statement on 17 July, Morgan Stanley is named the exclusive financial advisor to Income Insurance on the purchase offer by Allianz Europe of 51% of Income’s shares for approximately US$1.6 billion.

The offer includes S$40.58 per share, resulting in a transaction value of S$2.2 billion (US$1.64 billion) for 51 percent of the shares in Income Insurance. NTUC Enterprise, currently holding a 72.8 percent stake in Income, will remain a substantial shareholder if the sale is finalized but will no longer be the majority shareholder.

Morgan Stanley’s role as the exclusive financial advisor for the transaction has come under scrutiny due to the involvement of Mr Ronald Ong, the Chairman of Income Insurance Limited, who also holds a high-ranking position at Morgan Stanley.

Mr Ronald Ong has been with Morgan Stanley for over 20 years and currently serves as the Chairman and CEO for Southeast Asia.

His dual roles have prompted questions about the integrity of the decision-making process behind the appointment of Morgan Stanley as the financial advisor.

Mr Ong was co-opted to the Board of NTUC Income Insurance Co-operative Limited on 23 August 2018 and later elected as a non-independent non-executive director on 24 May 2019.

Since 1 August 2022, he has been the Chairman of the Board and Board Executive Committee of Income Insurance Limited.

Additionally, he serves as a Board Member of NTUC Enterprise Co-operative Limited, the majority owner of Income Insurance.

Concerns about potential conflicts of interest were highlighted by authoritative voices in corporate governance.

Professor Mak Yuen Teen, a corporate governance expert and former Vice Dean of the NUS Business School, expressed his astonishment on LinkedIn.

“So his firm is the financial advisor, and he’s chairman of Income and chair of its exco, and director of Enterprise. I certainly hope he’s not involved in the decision to appoint MS [Morgan Stanley] as financial advisor as MAS CG guidelines for FIs state that directors should recuse if they have a conflict of interest,” he wrote.

Retired banker Chris Kuan also voiced his concerns on Facebook, highlighting the potential conflict of interest involving Mr Ong and other key figures in NTUC Enterprise.

Kuan stated, “Thanks to a Biz Times, we now know that Income’s chairman is on the board of NTUC Enterprise, the majority owner who sold to Allianz. Income’s deputy chairman is NTUC Enterprises’ CEO. NTUC Enterprises’ best interest may not be in the best interest of Income, having these executives from NTUC Enterprises in key decision-making positions of Income in the event of a sale is a clear conflict of interest and can only be resolved if the two of them recuse themselves from the decision to sell 51% of Income.”

Kuan elaborated on the complexities of the situation, drawing parallels with past instances of conflicts of interest in the financial sector. He emphasized the need for transparency and proper governance to maintain the integrity of the financial market in Singapore.

Corporatisation and Opposition

The transition from a co-operative to a corporate entity has also raised significant concerns.

Established in 1970 as the first co-operative society by Singapore’s labour movement, NTUC Income maintains a social mission to provide affordable insurance to workers and families.

Formerly known as NTUC Income Insurance Co-operative before corporatisation in September 2012, it was the only insurance co-operative in Singapore, serving around 2 million customers with life, health, general insurance, and investment-linked products.

Tan Suee Chieh, who previously headed NTUC Income and NTUC Enterprise, posted on his LinkedIn page that he was informed in a letter from NTUC Income that NTUC Enterprise’s majority stake would be maintained after corporatisation.

In his post, Tan wrote, “Income has not only reversed its 2022 commitment to maintain NE as the majority shareholder, but NE would also crystallise a significant capital gain through the sale of its shares. This gain, I argued in 2022, should be more fairly distributed to those shareholders who invested before NTUC Enterprise’s capital injection in 2015-2020.”

Tan stated that he advocated “for a fairer distribution of equity gains for shareholders who invested before NTUC Enterprise’s capital injection, but without success.” He brought his concerns to the Monetary Authority of Singapore, which shared them with the Registrar of Cooperatives. However, the Registrar of Cooperatives declined to intervene.

In early 2022, during an extraordinary general meeting to discuss corporatisation, NTUC Enterprise indicated to Income’s board that it would remain a majority shareholder and was committed to supporting Income in terms of maintaining sound liquidity and a solid financial position.

The minutes of the meeting documented, “Post-corporatisation, NTUC Enterprise will continue to be the majority shareholder of the new company, Income Insurance Limited.”

While the Business Times reported that NTUC Enterprise showed indications that if a strategic shareholder better able than NTUC Enterprise supports Income’s growth, NTUC Enterprise may cede its position as the largest shareholder, this was not clearly indicated to shareholders or the public.

Public Discontent

In addition to corporate governance concerns, the proposed sale has stirred public discontent.

In a Facebook post on Tuesday, Dr Tommy Koh, Ambassador-At-Large at the Ministry of Foreign Affairs and Chairman of the Institute of Policy Studies, voiced his opposition to the proposed sale. Dr Koh highlighted the origins of NTUC Income, stating, “INCOME started life as a cooperative of NTUC like Fairprice. The idea was to offer insurance to the people at affordable rates. A few years ago, it was made into a company and ceased to be a cooperative. Now we are told that it may be sold to a German insurance company.”

Dr Koh further emphasized the social mission of NTUC Income, saying, “I don’t think it’s a good idea to sell INCOME. It was founded to serve a social purpose and a social need. They remain valid today. I wish to argue that INCOME and Fairprice should never be sold.”