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Source:
www.mas.gov.sg |
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KEYNOTE ADDRESS BY MR LOW KWOK
MUN, EXECUTIVE DIRECTOR (INSURANCE), MONETARY AUTHORITY OF SINGAPORE |
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AT THE 2ND ASIAN CONFERENCE ON CORPORATE
GOVERNANCE AND DIRECTORS' AND OFFICERS' LIABILITY INSURANCE 23 JAN
2006 |
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An Excerpt |
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To give you an idea of the significance of
the insurance industry in Singapore, total sums insured in the Singapore
life insurance industry amounted to more than $330 billion as at
end-2004. |
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As a comparison, total deposits of non-bank
customers in the domestic banking unit, which are largely S$-denominated
deposits, amounted to only slightly more than $220 billion as at end-November
last year. These include deposits of both individuals as well as corporations. |
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If foreign currency deposits are added,
total deposits in Singapore's banking system amounted to about $490
billion. Though not exactly comparable, the exposure of policyholders to
life insurance companies is almost as large as the exposure of
depositors to banks... |
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MAS strongly believes that the standards of
corporate governance for banks and direct insurers need to be higher
than that for other commercial entities, to take into account the unique
roles they play in the financial system and the economy. |
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This is why in September last year, we
issued an enhanced set of guidelines on corporate governance for all
banks and direct insurers operating in Singapore. |
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The guidelines are based on the Code of
Corporate Governance issued by the Council of Corporate Disclosure
and Governance (CCDG) that are applicable to companies listed on the
stock exchange. Given the unique characteristics of the banking and
insurance industries, we supplemented the CCDG's guidelines with
additional principles and guidelines. |
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The guidelines are not mandatory, but
are best practices that MAS would strongly encourage all banks and
direct insurers to adopt. |
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We also introduced a set of regulations
that are mandatory for the locally-incorporated banks and
significant direct life insurers. |
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The regulations contain elements that
MAS believes are essential for good corporate governance. These
elements are built upon the basic principle that the Board of
Directors has the primary responsibility to ensure that the
financial institution operates in a prudent and sound manner, with
the interests of depositors and policyholders adequately
safeguarded. |
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A key element of good corporate
governance is the strength and quality of the Board of Directors,
coupled with sufficient independence within the Board to ensure that
key decisions are made after due consideration has been given to the
interests of all stakeholders. |
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In MAS' corporate governance
regulations, we have made it a requirement that one-third of the
members of the Board of Directors should comprise individuals who
are independent of the institutions' management, business
relationships and substantial shareholders. |
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During our public consultation on the
guidelines and regulations, views were expressed about whether it is
more important to have well qualified directors who understand the
business or directors who are independent but have little
appreciation for the complexities of the financial industry. |
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Some have argued that given the limited
pool of financial expertise in Singapore, it would be difficult to
find individuals who know the business as well as satisfy the
independence criteria laid down by MAS. |
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As a regulator, MAS views that both
qualities are equally important. Directors of financial institutions
should understand the intricacies of the business so that they can
perform their responsibilities effectively. |
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For example, the Board of Directors of a
life insurance company should be adequately equipped to review
reports produced by the company's actuary, and satisfy themselves of
the strength of the company's financial condition. |
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In addition, the Board would have to
review the company's reinsurance strategy as well as its
underwriting strategy. |
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All of these require the directors to
have sufficient knowledge of insurance, or at the very least,
adequate knowledge of financial markets so that they are able to
raise pertinent questions to senior management to satisfy themselves
that the company's business is well managed. |
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At the same time, there should be
sufficient independence within the Board of Directors to serve as a
check-and-balance for key decisions that the Board has to make. In
the case of a non-financial corporation, it is acceptable to assume
that a director's primary responsibility is to protect the interests
of the shareholders who appointed him. |
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But in the case of a financial
institution, such as an insurance company, to which members of the
public or policyholders have entrusted their funds, the directors of
the insurance company have the added responsibility to safeguard the
interests of its policyholders... |
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It should be emphasised that the
requirement for a minimum number of independent directors on the
Board of an insurance company should not dilute shareholder control
or stifle efficiency in Board decisions. That is why MAS only
expects a minimum of a-third of the Board of Directors to be
independent. |
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We do recognise that some life insurance
companies have relatively small operations and a small Board. It may
not be practical at this moment to require them to enlarge their
Board and appoint new independent directors. |
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Therefore, we have decided to focus the
independence requirements on the direct life insurers whose
operations are more significant. |
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We have set the threshold at $5 billion
in assets, but we will review this at a later stage taking into
account international developments as well as our experience in
applying the requirements on the significant life insurance
companies. Having said that, all insurance companies are still
encouraged to adhere to the higher standards on Board independence
where possible and if their circumstances warrant it. |
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Full Text of Speech |
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Source:
www.mas.gov.sg News Release 23
Jan 2006 |
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FrontPage Edition: Thu 26 Jan 2006
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