Plans afoot to turn insurance co-op NTUC Income into corporate entity; move won't affect existing policies

SINGAPORE — Singapore’s sole insurance co-operative, NTUC Income, has announced that it would be converted into a corporate entity. The proposed move is expected to be completed by the second half of this year — subject to regulatory approvals and other conditions. 

The conversion will not change existing policyholders' policy coverage, benefits and terms, the insurer said on Thursday (Jan 6).  

The proposed change will allow it to compete "on an equal footing" with other Singapore and regional insurers. 

NTUC Income, founded in 1970, is the only insurance co-operative in Singapore and it is committed to creating a "positive social impact" through its offerings, its website states. 

A co-operative is defined as a group of people coming together voluntarily to further collective interests over personal financial gain. Unlike commercial companies, shares of co-operative members are not for capital appreciation but for advancing the co-operative’s mission.

Mr Andrew Yeo, chief executive officer of NTUC Income, said in an address to the media over video conference that the plan came in the midst of “intensifying headwinds”. 

“These include a mature domestic market, evolving regulatory expectations and requirements, as well as increased competition from insurers with extensive distribution scale and access to growth channels and markets locally and regionally.”

He added that the need to be more competitive was compounded by technology players entering the insurance sector and “playing to customers’ increasing demand for more diverse and targeted products and solutions”. 

"Thus, Income is looking to corporatisation to achieve operational flexibility and to gain access to more strategic growth options to compete on an equal footing with other insurers locally and regionally." 

HOW WILL POLICYHOLDERS, SHAREHOLDERS AND EMPLOYEES BE AFFECTED?

Mr Yeo said that there would be no changes to the policy coverage, benefits and terms for existing policyholders as a result of the proposed move, which would change only NTUC Income's legal form. 

“For policyholders, they will continue to have accessible, competitive and comprehensive products and services,” he added. 

The move will mean that the new company, which will be called Income Insurance, would be governed by the Companies Act.

This means that it would have no restriction on institutional investors holding corporate shares and have more flexibility in accessing capital to expand its business.

For instance, shareholders of the new company would have one vote a share, unlike ordinary co-operative shareholders who hold only one vote regardless of the number of shares held.

And, unlike co-operative shares, the value of the new company's shares will not be capped at par value, which is S$10 a share.

Mr Yeo added that to preserve “co-operative identity”, institutional members of the proposed new corporation must be co-operatives and trade unions. 

After the move, which will see the co-operative being liquidated, existing institutional and ordinary members of NTUC Income who hold co-operative shares will receive an equivalent number of shares in the new company on a one-for-one basis, and their co-operative shares would be cancelled. 

The new entity will also have flexibility when distributing net surpluses and is not subject to a statutory cap on dividends, which it declares to shareholders under the corporate structure, Mr Yeo said. 

For employees of NTUC Income, he gave the assurance that existing employment contracts, benefits and roles would not change, and staff members can expect more opportunities for career growth.

NEW ENTITY WILL REMAIN FINANCIALLY INCLUSIVE

Mr Yeo also said that the corporation would continue helping Singaporeans improve their financial well-being, including those who are under-served.

NTUC income said that it was pledging S$100 million over a decade towards sustainability causes such as those in support of education for youth and children in need, seniors and the environment.

Associate Professor Chen Renbao from the department of finance at the National University of Singapore Business School said that the move is a timely one.

This is because Singapore has progressed economically since 1970 when NTUC Income was founded and so, the co-operative structure may not be as relevant today. 

“The intention, in the beginning, was probably to help those who need (financial) assistance, but Singaporeans (on average) are more affluent today as compared to 50 years ago. So, nowadays, the initial objectives may not be that prominent or important,” he said. 

Assoc Prof Chen also said that in general, when an insurance firm with a co-operative structure makes a move to become a company, it would mean that the profits are no longer shared among all stakeholders, including the policyholders, but will now belong to the shareholders of the firm. 

“This does not mean that the company will exploit the policyholders, as it may only make the profits it thinks it deserves, but it may provide even better services for the policyholders (such as offering better coverage) and still have more funds for the company’s development.”

Assoc Prof Chen added that the products and services to be expected from NTUC Income should it be corporatised will depend on the "particular direction" it chooses to take.  

Its CEO said, for instance, that the firm will "remain committed" to drive financial and social inclusion moving forward.