Tan Kin Lian: NTUC Enterprise needs a proper mechanism to safeguard interests of policyholders

Letter to the chairman and CEO of NTUC Enterprise, the controlling shareholder of NTUC Income from Mr Tan Kin Lian, former CEO of NTUC Income.

by Tan Kin Lian,

Dear

I have to explain a serious concern about the proposed sale of 51% of NTUC Income to Allianz. By paying $2.2 billion, Allianz will have full control over the total assets of $43 billion, as shown in Income's annual report of 2023.

A large part of the assets are liability to policyholders, who have taken up life, general and health insurance policies with Income. Under the insurance regulations, the insurer has to meet their obligations to these policyholders. In theory, the interest of these policyholders are protected under the regulations.

In 2022, Allianz paid a fine of $6 billion to the US government for unethical practices in the management of investment funds by their subsidiary operating in America. The investment funds were tightly regulated, but it was still possible for the funds to be mismanaged.

I wish to point out a bigger concern with the participating life insurance policies of Income. This represented the bulk of the total liability and amounted to 74% of the total assets in 2021. (I am not able to get the proportion in 2023 but I guess that it should be about the same).

These obligations to the participating life insurance policyholders could amount to $32 billion (74% of $43 billion).

Prior to 2007, when I was the CEO of Income, about 90% of the liabilities were contractual in the form of guaranteed benefits and vested bonuses that were declared yearly. About 10% were discretionary and took the form of terminal bonus payable when the policy became a maturity claim, death claim or is surrendered.

I believe that Income's practice had changed since I left, and that a larger portion of the payout under the participating policies now take the form of the non-guaranteed terminal bonus. I do not know what this proportion is, but I guess that it could be between 20% to 35% of the total payout.

If this proportion is 25%, it would amount to $8 billion. It would be possible for a controlling shareholder to spend this amount away, through all kinds of payments, without breaking the current regulations or obligations to the policyholders. I am not suggesting that the controlling shareholder would carry out this unethical practice, but the risk exists and it would be difficult to detect if indeed it was done.

Regardless of the actual proportion of the discretionary payments (i.e. terminal bonus), it is important that NTUC Enterprise as the current controlling shareholder has in place a proper mechanism to safeguard the interests of the participating policyholders, if they wish to cede their control to the new majority shareholder.