German insurer Allianz expects a return on investment (ROI) in the double digits over time from its takeover of Income Insurance, the company’s chief executive Oliver Baete said on August 8.
During Allianz’s Q2 2024 earnings briefing in Frankfurt, Baete said, “the key thing is there is a lot of upside in terms of underwriting pricing. There’s a lot of upside in claims. There’s a lot of upside in product design, and there’s also a lot of upside in procurement, particularly on the health and the claims side that we’ve been building out in Allianz over the last many years.”
Baete also added that the acquisition creates a very strong home base Allianz, adding that the insurer has been domiciled in Singapore since 1991 but never had an operating business in the city-state. “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.”
In July, Allianz confirmed its plans to acquire a 51% majority stake in the Singapore-based Income Insurance for SG$40.58 per share. The remaining 49% stake post-acquisition would be held by NTUC Enterprise.
The acquisition has come under a high degree of scrutiny, with local concerns being raised about the deal’s impact on competition and the affordability of insurance products.
Former NTUC Income CEO Tan Suee Chieh and diplomat Tommy Koh are among those who have voiced objections, citing potential misalignment with Income Insurance’s mission to serve low-income workers. The Monetary Authority of Singapore (MAS) last week defended Allianz’s acquisition, with Transport Chee Hong Tat saying there would be no adverse impact on competition or existing policyholders.
On these concerns, Baete said that around two and a half years ago, a lot of “local noise” came up around the purpose of this institution serving the working class in Singapore and its deteriorating market share.
“We were approached by the community,” Baete says, “[to ask] how can we combine the capabilities that we have in each of [life, health, and P&C] segments and how do we bring income into the 21st century and make them very successful?”
“The story is to bring income back to be the leading franchise in the state of Singapore and combine that with what we are bringing,” Baete added.
He also pointed out that Allianz is still in partnership with NTUC Enterprises and that the deal is “not a sellout”. “They will be involved, and they’ll make sure that all the franchise and the customer access are here to serve us. So we really believe in bringing the best of both things.”
The transaction is expected to be completed either in Q4 2024 or Q1 2025. Some analysts have cautioned that the purchase price appears high and that Allianz will need to achieve significant cost and revenue synergies to justify the investment.
“Allianz will need to prove that it can generate significantly higher returns from this business to justify the price paid,” said analysts from Keefe, Bruyette & Woods.
The group would become the fourth-largest composite player in Asia, up from ninth currently, and the top property and casualty (P&C) insurer in Singapore following the completion of the deal.
Using 2023 numbers, it would also raise its Asia’s operating earnings to €835m, an 11% increase from the €751m it achieved without Income Insurance and up from €565m in FY22, according to Fitch CreditSights.
