Income Insurance's risk diversification tempers capital charges

On a stand-alone basis, it is expected to keep a strong business presence in SG.

Income Insurance’s capitalisation remains uncertain due to upcoming accounting changes, business expansion, and potential acquisition, according to S&P Global Ratings.

The revised criteria for analysing insurers' risk-based capital, which S&P implemented, did not alter Income Insurance's ratings. 

S&P noted that its recalibration of capital charges to higher confidence levels increases the required capital, though this is partially mitigated by improved risk diversification. 

Income Insurance continues to have a substantial allocation to riskier assets, such as equities and investment properties, which exposes it to market volatility and may affect its capital adequacy.

The CreditWatch placement reflects concerns that Allianz's potential acquisition could reduce extraordinary support from the Singapore government via NTUC Enterprise, the majority shareholder of Income Insurance. 

This could lead to a downgrade of one notch if S&P expects a decline in government support.

S&P plans to resolve the CreditWatch status within 90 days, awaiting more clarity on the intentions of the insurer's major shareholders and the potential impact of the transaction. 

Whilst a rating downgrade is possible, S&P may affirm the rating if strong government support continues despite NTUC Enterprise's reduced shareholding.

On a stand-alone basis, Income Insurance is expected to maintain a strong business presence in Singapore and satisfactory capitalisation over the next two years. 

However, the potential acquisition by Allianz SE could distract management from its growth strategy in the near term.