Proposed Allianz-Income deal will lift German financial giant to top five insurers in Singapore

THE proposed offer from Allianz to acquire a majority stake in Income Insurance is likely to cement its position as the top general insurer in Singapore, a high-growth insurance market in the Asia-Pacific (Apac) region, said industry observers.

Some also noted that the local insurance market may see some consolidation, given the strong interest here and the current number of insurers.

The Monetary Authority of Singapore (MAS) indicates there are 16 insurers classified under life insurance and 50 classified under general insurance in Singapore. There are also nine that are classified by MAS as composite, which means they may offer life and general insurance.

On Wednesday (Jul 17), Allianz announced plans to launch a pre-conditional voluntary cash general offer to buy 51 per cent in Income for 1.5 billion euros (S$2.2 billion), or S$40.58 per share.

The offer price represents a 37.3 per cent premium over the net asset value of the shares as at Dec 31, 2023. The deal is subject to regulatory approval.

GlobalData practice head of insurance Ashutosh Sharma said the acquisition will propel Allianz – which had a 0.4 per cent market share in 2022 – to a top-five spot among all insurers in Singapore. Income was at fifth place with 7.3 per cent in that same year.

In terms of general insurance, Allianz will become the leading general insurer in Singapore, with an anticipated market share of 12.7 per cent, he added.

GlobalData Insurance Intelligence Center noted that Allianz was ranked seventh in terms of market share for general insurance in 2022, at 4.1 per cent. Income, meanwhile, was second at 8.6 per cent.

In life insurance, Allianz will now enter the segment through Income. It was ranked sixth in market share for Singapore’s life insurance sector, with 7.2 per cent in 2022, data from GlobalData showed.

Meanwhile, Martina Seydoux and Trung Tran, insurance analysts at CreditSights, said the proposed transaction will move Allianz up to become Asia’s fourth-largest composite insurer, from ninth place. It will also lead Singapore in three segments – property and casualty, health and life insurance.

They estimated that the deal would add 2.6 billion euros to Allianz’s insurance revenue, representing 1.6 per cent of FY2023’s numbers, as well as add operating earnings of 84 million euros, which is 0.6 per cent of Allianz’s total amount.

“Allianz expects to gain from synergies and improve capital efficiency with this acquisition,” they said in a note.

Income will benefit from having financial backing from the German giant. Frank Yuen, vice-president and senior credit officer at Moody’s Ratings, said the capital support from Allianz will enhance Income’s financial flexibility to pursue other initiatives, including mergers and acquisitions (M&A) and inorganic growth.

“Income Insurance will also benefit from the strong asset management capabilities of Allianz, which could help expand its product scope and client reach,” he said.

Strengthening competitive position

In an interview with BT, Allianz chief executive Oliver Baete said the insurer aims to be a market leader in the countries it operates in, and for companies to be successful, they need to have a significant size.

“In a highly competitive market, it is even more important to have a leading share,” he said.

GlobalData’s Sharma said Singapore is a high-growth mature insurance market and the fastest-growing life insurance market in the region, recording a compound annual growth rate (CAGR) of 10.3 per cent from 2019 to 2023.

The Republic also recorded the second-highest growth in the general insurance market for mature markets in Apac, with a CAGR of 6.6 per cent from 2019 to 2023. The outlook for both markets in Singapore remains buoyant, he added.

CreditSights’ Tran said through the deal, the combined entity would have increased capital strength, and other insurers “should anticipate heightened competition and aggressive price bidding”.

“Nonetheless, we are not overly concerned about the current competition, as it remains within healthy limits. Market prices tend to fluctuate cyclically, and the insurers in Singapore have robust risk control functions to manage these variations,” he said.

Moody’s Yuen believes the near-term impact on Singapore’s competitive insurance landscape “will be limited, with several established Apac insurance groups already having material market shares”.

In addition, the insurance industry in Singapore may also face further consolidation, said observers.

CreditSights’ Tran views Singapore “a strategic platform for the broader, fast-growing South-east Asia region” and that there continues to be strong interest here.

“Given the considerable number of insurers currently in the market, we believe further consolidation could occur,” he said.

Kanishka de Silva, senior director of insurance at Fitch Ratings, said: “South-east Asia continues to show faster growth compared to some of the more mature markets in the region and we expect it to continue attracting global insurers.”

Tom Marlatt, Apac director of insurance at Clearwater Analytics, said insurers and insurance asset managers have “strongly indicated an expectation that a bottleneck of merger and acquisitions deals in this region could be pushed through this year”.

“The insurance industry globally is trending towards greater consolidation, so this deal should not come as a huge surprise, and we can likely expect further deals before the year is out,” he said.

That said, GlobalData’s Sharma noted that there has been a declining trend in M&A activities in the insurance industry in Apac, and expects the trend to continue or stabilise over the short term.