As scrutiny intensifies around the halted deal between Allianz Europe B.V. and Income Insurance Limited, a significant question has emerged regarding a critical decision made by Mr Edwin Tong, Minister for Culture, Community and Youth, back in 2022.

The spotlight so far has focused on NTUC Central Committee’s claim that they were unaware of the capital extraction clause in the proposed Allianz deal, a revelation that has drawn widespread criticism.

However, a deeper issue appears to have been overlooked: why did Mr Tong, who is also a Senior Counsel, allow NTUC Income’s surplus of S$2 billion to be transferred without setting conditions to protect the funds and ensure their use for social purposes?

NTUC Income, a long-standing co-operative under the NTUC umbrella, had a history of providing affordable insurance and financial services to underserved communities.

In 2022, it was corporatised to become Income Insurance Limited, a move intended to help the organisation gain access to capital and compete more effectively in the insurance sector.

As part of the corporatisation, NTUC Income sought and was granted an exemption from Section 88 of the Co-operative Societies Act (CSA), which would have otherwise required surplus funds to first cover liquidation costs and liabilities, followed by distribution to shareholders.

Any remaining surplus would typically be transferred to a central account benefiting the broader co-op sector.

Mr Tong, in his role as Minister for Culture, Community and Youth, approved this exemption, allowing S$2 billion in surplus funds to be transferred to the new corporate entity.

However, it appears no explicit conditions or safeguards were imposed on how these funds could be used, as revealed by the now-cancelled Allianz deal with Income.

This decision has come under scrutiny because, without specific conditions tied to the exemption, the S$2 billion surplus was left unregulated, potentially allowing it to be used for purposes other than Income’s stated social mission.

In his 14 October speech, Minister Edwin Tong explained that the exemption was granted because NTUC Income was not ceasing operations but merely changing its legal form to a corporate entity. According to Mr Tong, the surplus was necessary to strengthen Income’s capital base and financial adequacy to remain competitive in the insurance industry.

He justified the exemption by stating that NTUC Income would continue its business under a new corporate structure, with the assurance that its social mission would be maintained. This rationale was based on representations made by NTUC Income to MCCY, asserting that the surplus was integral to supporting its future operations and social objectives.

However, the exemption is now the reason why the government, through the Ministry of Culture, Community and Youth (MCCY), ultimately halted Allianz’s Pre-Conditional Voluntary General Offer to acquire Income in July 2024, after reviewing the transaction and finding that it included a capital reduction plan which would see Income return S$1.85 billion to shareholders within three years of the acquisition’s completion.

This projected capital extraction raised concerns, particularly as it contradicted the rationale given by NTUC Income during the corporatisation process, which emphasised the need to build up a stronger capital base.

The S$2 billion surplus was initially carried over to help support Income’s growth and social mission, but the capital reduction plan revealed that a substantial portion of the surplus could have been diverted away from its intended purpose.

The abrupt halt to the Allianz deal, coupled with the government’s urgent push to amend the Insurance Act to allow withholding of approval for the proposed transaction, prompts a closer look at why NTUC Income was granted the exemption from Section 88 in the first place.

Additionally, it raises questions as to why no conditions appear to have been imposed on the surplus funds carried over.

Had conditions, such as ringfencing the surplus for NTUC Income’s social objectives, been set during the corporatisation in 2022, the government may not have needed to intervene at such a late stage to block the Allianz deal.

In Parliament on 16 October 2024, Workers’ Party MP He Ting Ru directly questioned Mr Tong about whether there had been any conditions placed on the S$2 billion surplus when it was carried over during the corporatisation.

Mr Tong’s response offered no clarity on whether any such restrictions were imposed.

This has raised legitimate concerns, especially given Mr Tong’s legal background, as to why this significant amount of money was not regulated or ringfenced for uses aligned with Income’s social mission.

Before entering politics, Edwin Tong was a Senior Counsel at the law firm Allen & Gledhill, specialising in complex corporate disputes and international arbitration.

His legal expertise was widely respected, and his appointment as Senior Counsel in 2015 underscored his stature in the legal field. One landmark of his professional career was representing City Harvest Church pastor Kong Hee in a long-running misappropriation of funds case.

Given this background, it is perplexing that Mr Tong, when overseeing NTUC Income’s corporatisation as MCCY minister, did not anticipate the need for specific conditions to ensure that the surplus would be used to further the social mission of the organisation.

Ultimately, the decision to grant the exemption without stipulating how the surplus would be used could have opened the door to the type of capital extraction that was proposed in the Allianz deal.

This situation now raises a critical question: Did Mr Tong allow the exemption to pass with minimal scrutiny because NTUC Income is affiliated with NTUC, a labour movement closely linked to the People’s Action Party, or was this a failure of competence on the part of a seasoned lawyer?

by Jason Tan

Premiums for MediShield Life, Singapore’s mandatory national insurance scheme, are set to increase by up to 35%, with an average rise of 22%, starting from April 2025.

This adjustment follows recommendations from the MediShield Life Council, an 11-member panel chaired by Mrs Fang Ai Lian, the former chairwoman of Ernst & Young. These increases are linked to an expansion of coverage, offering higher claim limits and broader protection for policyholders.

According to the Ministry of Health (MOH), the premium hikes will be distributed over the next three years. Notably, the rise will disproportionately affect older Singaporeans.

However, the MOH has committed to financial support measures aimed at alleviating these increases for most citizens. Over 90% of Singaporeans will benefit from S$3.4 billion in MediSave top-ups and S$700 million in premium subsidies, ensuring that most individuals will not pay out-of-pocket during this period.

Justifications for the Premium Hike

The upcoming changes are primarily driven by efforts to enhance the adequacy of MediShield Life coverage. As healthcare costs in Singapore rise, these adjustments are seen as essential to maintaining the scheme’s sustainability. Additionally, the MOH emphasised the importance of ensuring MediShield Life remains robust enough to meet its future liabilities.

A key factor being reviewed alongside premium adjustments is the Capital Adequacy Ratio (CAR).

The CAR reflects the scheme’s ability to meet its obligations under adverse conditions, such as higher-than-expected claims or sharp declines in investment returns.

The Monetary Authority of Singapore (MAS) mandates a minimum CAR of 120%, but most insurers, including MediShield Life, aim for a target closer to 200%.

This target provides a buffer to ensure the scheme’s financial resilience. In 2017, MediShield Life’s CAR was said to be similar to private insurers, between the range of 205% and 282%, ensuring that the scheme is well-positioned to meet its liabilities without the need for sudden premium adjustments.

The high level of reserves held by the MediShield Life Fund ensures that policyholders can feel confident the scheme will continue to meet claims even in adverse conditions.

This practice is especially relevant given the mandatory nature of MediShield Life, which contrasts with private insurers that face potential lapses in coverage when policyholders switch providers or fail to renew policies.

Potential for Premium Moderation

While the premium increases are designed to secure the long-term viability of MediShield Life, some observers have suggested that a review of the scheme’s CAR could potentially reduce the scale of these hikes.

MediShield Life is funded primarily through special issues of Singapore Government securities, which pay a steady interest rate of 4% per annum, so the scheme may not face the same volatility in investment returns as private insurers.

In 2023, the MediShield Life Fund reported holding S$13.8 billion in these government securities. This stable investment yielded an estimated interest of S$0.55 billion annually, which could potentially be used to offset some of the planned premium increases.

With total liabilities of around S$10.7 billion, the investment returns, combined with the high CAR, may provide an opportunity to lower the quantum of the planned premium adjustments.

The MOH has not yet indicated whether these considerations will be incorporated into its review. However, the potential to leverage the fund’s significant reserves and steady investment income has raised questions about whether the current rate of premium hikes is necessary.

Some analysts suggest that, by reducing the CAR from its current target of 200% to a slightly lower but still safe threshold, it may be possible to moderate the scale of the upcoming increases.

Financial Support and Future Implications

For most Singaporeans, financial support from the government will be key to managing the premium increases.

The MOH has assured that the majority of policyholders will receive enough in subsidies and MediSave top-ups to offset the increased costs, especially over the next three years.

As part of the support package, elderly policyholders, who are expected to be most affected by the premium hikes, will receive targeted subsidies to prevent excessive financial strain.

The total cost of the premium increases, over the next three years, is estimated to be around S$6.5 billion. If spread equally across the three years, this would represent an increase of approximately S$2.17 billion per year.

However, given the anticipated support from government subsidies, it remains unclear how much of this burden will ultimately fall on policyholders.

In light of these considerations, reviewing the CAR could help reduce the quantum of the premium increases, balancing the need for financial security with more moderate premium adjustments.