GERMAN insurance provider Allianz is expecting a “double-digit return on investment (ROI) over time” on its acquisition of Income Insurance, said its chief executive Oliver Baete on Aug 8.
Speaking during the company’s second-quarter earnings briefing in Frankfurt, he said: “More importantly, (the acquisition) creates a very strong home base for us. We have been domiciled in Singapore since 1991, but never had an operating business in the city-state.”
He added: “Now, we do have it and it is with a leading franchise and we are proud of having the trust of the community to do so.”
Allianz in July revealed plans to buy a 51 per cent majority stake in Singapore’s Income for S$40.58 a share, three months after selling some of its US insurance businesses. NTUC Enterprise will hold up to a 49 per cent stake post-acquisition.
Baete noted the US sales took place after the company concluded that the capital required to build a market-leading position in the United States was too much for it.
“We are recycling the gains out of the US from selling in a sub-scale space to investing into scale in Asean,” Baete said, adding that a majority stake in Income would propel Allianz “from zero to a leadership position in Singapore”.
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“We have been working for a long time on building a partnership with the Singapore community to acquire Income, a leading provider with lots of upside.”
He said the acquisition of a majority stake in Income will make Allianz the No 1 property and casualty (P&C) and No 3 health insurance provider in Singapore. It will also have a promising start in the life insurance business.
Baete said the investment will make a meaningful difference to Allianz’s presence in South-east Asia. “We actually believe Singapore has the potential to become the Switzerland of South-east Asia,” he added.
When asked about concerns in Singapore and how buying Income will enhance Allianz’s business, Baete told analysts that there was already “a lot of local noise” on how Income’s purpose of serving the working class in Singapore will be fulfilled when the company first corporatised 2½ years ago.
Baete said that while Income is a market leader in P&C insurance and among the top five providers of health and life insurance, the company has been losing market share and profitability relative to the rest of the industry.
He said Allianz was approached by Singapore to explore combining its capabilities in these segments with Income’s local franchise “to bring Income into the 21st century and make them successful”.
“It is very important that this is a partnership. We are fully committed to the cause of Income in supplying affordable access to insurance and healthcare cover, because that is what’s really needed.”
He said Allianz will focus on containing cost inflation and making supplemental healthcare insurance affordable, adding: “We do not expect the acquisition to be derailed as we move forward.”
Baete noted that Income already has some strengths, such as digital capabilities in servicing clients.
“The key thing is there is a lot of upside in terms of underwriting pricing. There is a lot of upside in claims, product design and procurement and particularly on the health and claims side that we have been building out in Allianz over the last many years to make sure margins really improve.”
Baete said: “The story is to bring Income back to be the leading franchise in Singapore and combine that with what we bring.”
He added: “This is why we are in partnership with NTUC Enterprise. This is not a sell-out. They will be involved and they’ll make sure that the franchise and customer access are available to serve us.”
Still, Allianz’s proposed S$2.2 billion offer for Income, which is subject to approval from the Monetary Authority of Singapore (MAS), has triggered concerns over whether it would erode Income’s social mission of providing affordable insurance for Singapore’s lower-wage workers.
Addressing these concerns in Parliament on Aug 6, Second Minister for Finance and MAS board member Chee Hong Tat said that in assessing the offer, MAS will consider Allianz’s track record, financial soundness, and reputation, as well as fitness and propriety.
For example, MAS will assess if Allianz has the financial capacity to support Income when needed, and the willingness and ability to ensure that insurance operations are well run. Effective systems and controls must also be in place to meet its obligations to policyholders for the long term.
He added that MAS will hold Income and Allianz to account in ensuring that there will be no change to the terms and conditions of existing insurance contracts, should the regulator approve the offer.
Income now offers only two low-cost insurance options, NTUC Gift and Income Insurance Luv. It has provided assurance that it will continue with the two low-cost schemes for union members, and keep the premiums affordable for policyholders, especially those in the lower-income segments.
Allianz on Aug 8 posted a better than expected 7.5 per cent rise in second-quarter net profit and said it was on track to meet its full-year target.
The insurer said that strength in its P&C business balanced out claims resulting from natural catastrophes.
Net profit attributable to shareholders of €2.51 billion (S$3.63 billion) in the three months through June compares with profit of €2.337 billion a year earlier. The figure surpassed a €2.367 billion consensus forecast.
Allianz aims to generate an operating profit of between €13.8 billion and €15.8 billion in 2024, a target it confirmed on Aug 8.
Baete said the recent quarter is the company’s best in terms of financials, and added that it will expand its share buyback programme in 2024 to €1.5 billion, up from an original €1 billion. THE STRAITS TIMES
– Additional reporting by Bloomberg, Reuters
