Tan Kin Lian: Shift to market-based practices led to higher costs and lower returns for Income customers

SINGAPORE: In a Facebook post on Monday (5 August), Mr Tan Kin Lian, former CEO of NTUC Income, provided further insight into the ongoing debate regarding the sale of a majority stake in the insurance company to German multinational Allianz Europe B.V.

He emphasized the key differences between a cooperative and a typical company, noting that while companies aim to maximize profits for shareholders, cooperatives prioritize serving their customers.

He noted that under Singapore’s cooperative law, shareholders are limited to a maximum dividend of 6% annually.

“Any excess surplus or profit has to be returned back to the customers in proportion to their transactions or retained for the future.”

Mr Tan recalled that NTUC Income was founded in 1970 to offer affordable insurance to policyholders, rather than maximize shareholder profits.

“The goal was not to increase profits for shareholders, as the dividends were limited by law to a maximum of 6%. ”

During his 30-year tenure until 2007, Mr Tan said he maintained lower sales and management expenses than industry norms, resulting in approximately 10% cheaper premiums for policyholders.

Initially focused on life insurance, NTUC Income later expanded into motor, health, and other insurance products, all while adhering to its cooperative principles.

However, he criticized the new management for shifting to market-based practices after his departure.

He claimed that the increased sales and operating expenses, aimed at expanding sales channels and attracting external managers, led to higher costs and reduced returns for customers.

“It increased the market share initially, but it appeared to be not sustained.”

Allianz announced on 17 July that it planned to buy a majority stake in Income Insurance for about US$1.6 billion. Allianz offered S$40.58 per share, valuing the transaction at S$2.2 billion (US$1.66 billion) for a 51% stake in Income Insurance.

NTUC Enterprise currently holds a 72.8% stake in Income and will remain a substantial shareholder if the sale proceeds.

Last week, Mr Tan also expressed disappointment and opposition to the proposed sale on social media.

He raised concerns about whether Allianz, as a foreign insurer, would support NTUC Income’s social mission, fearing that Allianz’s primary goal would be maximizing shareholder returns.

NTUC Enterprise Denounces Former CEO Tan Suee Chieh’s Open Letter as ‘Unfair’

On Sunday, NTUC Enterprise and Income Insurance issued a joint statement to an open letter from former NTUC Income CEO, Mr Tan Suee Chieh, accusing Mr Tan of “casting aspersions on the stakeholders in relation to this proposed transaction.”

In his letter to Mr Gan Kim Yong, Chairman of the Monetary Authority of Singapore (MAS), Mr Tan urged MAS to intervene, citing several criticisms of the deal.

He expressed concerns that NTUC Enterprise acquired shares at a par value of S$10 each from 2015 to 2020, below their true economic value, which diluted the stakes of minority shareholders.

He noted that NTUC Enterprise’s shareholding increased from 30% to 70% during this period, further impacting ordinary members’ shares.

Mr Tan criticized NTUC Enterprise for selling to Allianz, arguing it contradicts their prior commitment to remain the majority shareholder and uphold NTUC Income’s social mission.

He also questioned Allianz’s commitment to maintaining these social principles given its profit-driven nature.

In response, NTUC Enterprise and Income emphasized that cooperative shares were redeemed at their par value of S$10 per share, rather than at market value.

This applied to both the capital injections made by ordinary members between 1995 and 2004 and those made by NTUC Enterprise from 2015 to 2020.

The statement highlighted that these capital injections were necessary to support NTUC Income’s capital adequacy ratio in light of new regulatory requirements, ensuring financial stability and resilience in a competitive insurance market.

NTUC Enterprise reiterated its commitment to maintaining a majority shareholding in NTUC Income, subject to the interests of Income Insurance.

They highlighted that the conversion of shares to irredeemable status under the Cooperative Societies Act in 2018 was a strategic move to bolster capital adequacy.

Additionally, the joint statement assured stakeholders that Allianz, as a majority shareholder, would continue NTUC Income’s social initiatives, including participation in national insurance programs and community investments.

Allianz’s strong financial backing and ESG track record were presented as assurances of their commitment to the social mission.

Furthermore, the statement indicated that minority shareholders would benefit from the sale, with an offer of S$40.58 per share, representing a substantial return on their investment. Minority shareholders would have priority in tendering their shares ahead of NTUC Enterprise.