Expert Commentary

The Singapore Insurance Market

September 2002

Jorn Kristensen and Ang Yew Lee examine Singapore's political, legal, monetary, banking, tax, economic, and regulatory structures, and discuss the future for life and non-life insurance there.

by Jorn F. Kristensen and Ang Yew-Lee
Winterthur Insurance (Far East) Pte Ltd, Singapore

Singapore is situated one degree north of the equator, resting like a full stop at the southernmost tip of Peninsular Malaysia. The tropical island of Singapore commands a strategic position in South East Asia. To the north, it is linked to Malaysia by a 1 km causeway over the Johore Straits, while to the south, across the Straits of Singapore, lies Indonesia, the largest archipelago in the world.

Protected by the rugged mountain ranges of these two giant neighbours, Singapore is spared the brunt of the elements, especially during the monsoon season when rough seas and high winds prevail. The main island of Singapore is about 42 kms from east to west and 23 kms from north to south. The total land area (including that of over 50 smaller islands) is 682.7 square kms.

Often described as an economic miracle because of the high growth rates it achieved over the last two decades, Singapore is today a reputable financial center, a key regional trading center, the world's busiest port, and a top location for investments. The country's asset as a business hub includes its excellent infrastructure, strategic location, skilled and industrious workforce, advanced capabilities, and a government whose approach to business is both pragmatic and flexible. Singapore was ranked the world's fourth most competitive economy by Swiss-based World Economic Forum (WEF) in their Global Competitiveness Report 2001. The rankings are seen as an indicator of growth prospects for the next 5 years.

Singapore is a cosmopolitan city-state at the crossroads of international trade routes. The time zone in which the republic lies and its efficient telecommunications services permit its financial institutions to trade with Europe, the United States, and Japan within a working day. As a result, the republic is now an important financial, foreign exchange, and offshore dollar center.

The republic is also the "clearing house" for the region's wealth, the world's top bunkering port, and the third largest oil refining center after Rotterdam and Houston. In addition, Singapore is a major international air hub served by 64 international airlines providing 3,435 flights a week to 145 cities in 50 countries as of August 2001.

With its excellent communications facilities and strategic geographical position, Singapore is the ideal distribution and transhipment hub for the Asia-Pacific region.

Political and Legal System

Singapore is a republic with a parliamentary system of government. A written constitution provides for the organs of state, namely the executive, the legislature, and the judiciary. The president is the head of state. The prime minister leads the cabinet in the administration of the government. The president appoints the prime minister and the other cabinet members from among the members of parliament.

The ruling People's Action Party (PAP) has, in one generation, transformed an island of slums into a nation with one of the highest standards of living in Asia. The transformation was achieved largely through the government's successful efforts in encouraging foreign investment with pragmatic economic policies and attractive incentives.

The Singapore legal system belongs to the English common-law family, a result of British colonization in the 19th century. Singapore's system closely resembles the English system in terms of the following.

  • Methodology
  • Style of legal thought and reasoning
  • Structure of legal institutions
  • Doctrines of legal classification and procedure

In 1993, the legislature enacted the Application of English Law Act mainly to remove the uncertainty on the extent of English law applicability to Singapore particularly in regard to statute law. This Act provides for the continued application of the common law including the principles and rules of equity. Any local Act provisions shall prevail when inconsistencies arise between these and the provisions of any English enactment. No English enactment shall be part of the Singapore law except as provided in the Act or another written law here.

Although the Singapore legal system borrowed heavily from English law, there are other sources of legal influences. For example, the Singapore Penal Code, Evidence Act, and Criminal Procedure Code were borrowed mainly from India in the 19th century. Singapore company law is also closer to the Australian than the English model. Over time, the local courts have also built up a substantial body of case law.

Monetary System

The Monetary Authority of Singapore (MAS) is the central bank of Singapore. It formulates and executes Singapore's monetary policy. As banker and financial agent to the government, MAS manages the country's official foreign reserves and issues government securities. As supervisor and regulator of Singapore's financial services sector, MAS has prudential oversight over the banking, securities, futures, and insurance industries. It is also responsible for the development and promotion of Singapore as an international financial center.

A key priority of MAS is to ensure Singapore's economic and financial fundamentals remain sound. MAS operates a flexible exchange rate policy. It manages the Singapore dollar against a trade-weighted basket of currencies of Singapore's main trading partners, and not against any single currency. The primary goal is to maintain price stability to foster long-term sustainable economic growth. As supervisor of the financial sector, MAS ensures that financial institutions maintain high standards of financial management and prudence. This is to maintain the resilience of the financial sector in the face of the challenging external environment.

Banking System

As of March 2001, there were 134 commercial banks, 58 merchant banks, and 63 representative offices of foreign banks in Singapore. In addition, there were eight international money brokers.

Commercial Banks. Commercial banks are allowed to undertake universal banking. They can offer a wide range of financial services in both traditional banking (e.g., loans and deposits) and investment banking (e.g. underwriting and distribution of equity and debt securities, corporate finance, fund management, and unit trust management). Nearly all commercial banks operate Asian Currency Units (ACUs) for foreign currency transactions. Transactions in Singapore dollars are booked in the Domestic Banking Units (DBUs). As of March 2001, there were 31 full-licensed banks, 20 restricted banks, and 82 offshore banks in Singapore.

Of the 31 full-licensed banks, 8 were locally incorporated and the remainders were branches of foreign banks. Full banks can conduct the whole range of banking businesses approved under the Banking Act. Four full-licensed foreign banks were awarded Qualifying Full Bank privileges (QFBs) which allow them to have additional branches and off-premise automated teller machines (ATMs), relocate existing branches as well as share ATMs amongst themselves. From July 1, 2002, QFBs will be allowed to provide services through EFTPOS networks and accept fixed deposits under the CPF Investment Scheme and offer Supplementary Retirement Scheme (SRS) accounts.

All the restricted banks in Singapore are branches of foreign banks. Restricted banks may engage in the same range of banking business as full-licensed banks, except that they may not accept Singapore Dollar fixed deposits of less than SGD250,000 per deposit from nonbank customers and are not permitted to operate savings accounts in Singapore dollars. In June 2001, the "restricted" bank licence was renamed the "wholesale" bank licence to better reflect the range of activities they conduct.

All the offshore banks in Singapore are branches of foreign banks. In addition to the conditions imposed on restricted banks, offshore banks may not accept interest bearing deposits from resident nonbank customers other than approved financial institutions in their DBUs and are not permitted to extend total credit facilities in Singapore dollars exceeding SGD500 million to nonbank customers who are residents in Singapore.

Merchant Banks. The activities of merchant banks include corporate finance, underwriting of shares and bond issues, mergers and acquisitions, portfolio investment management, management consultancy, and other fee-based activities.

Representative Offices. The representative offices of banks are not allowed to conduct any banking business. They act as liaison offices for their parent institutions, providing information on financial and economic conditions in Singapore and the neighbouring countries. They also look after the interest of their parent banks in their relationships with other banks in this region.

In May 1999, MAS announced a program to liberalize access by foreign banks to the domestic banking industry, and on June 29, 2001, the second phase of the program was announced to broaden access to the domestic wholesale banking industry and enhance competition in the domestic retail banking industry.

Taxation System

The types of direct taxes imposed in Singapore are income tax, property tax, estate duty, goods and services tax, and stamp duties. The goods and services tax which was introduced with effect from April 1, 1994 at 3 percent is expected to be increased to 5 percent from 2003.

Companies are taxed on income after deductible expenses, depreciation allowances, trading losses, and donations to approved charities. The rate of tax is 24.5 percent and will be reduced to 22 percent from the year of assessment 2003. It is also expected that there shall be a further reduction of the corporate tax rate to 20 percent from year of assessment 2004.

As part of the strategy to develop Singapore into a premier financial center, The MAS offers concessionary tax incentives for financial institutions to set up operations in Singapore. For the purpose of this article, we shall only mention those related to insurance here.

Tax Incentive Scheme for Offshore Insurance Business. A concessionary tax rate of 10 percent can be granted to insurance companies on income derived from writing offshore insurance business.

Tax Exemption Scheme for Offshore Marine Hull & Liability Insurance Business. This scheme aims to encourage all general direct insurance and reinsurance companies in Singapore to tap the insurance potential of the shipping communities in the Asia Pacific region. It provides tax exemptions for income derived from underwriting profits of offshore marine hull and liability business as well as non-Singapore dividends, realized capital gains, and interest including Asian Currency Unit (ACU) deposits derived from investing premium income from offshore marine hull and liability insurance business and shareholders' funds used to support the offshore marine hull and liability insurance business.

Abolition of Withholding Taxes on Financial Guarantee Insurance Contracts. To promote financial guarantee business, claim payments made under financial guarantee insurance policies by approved financial guarantee insurers to nonresidents are exempt from withholding tax.

Scheme for Tax-Deductible Special Reserves. General insurance companies can claim tax deduction on specific reserves for reported claims and provisions for incurred but not reported (IBNR) claims if such IBNR provisions are determined using approved statistical methods. With effect from the year of assessment 2003, general insurance companies can claim tax deduction on special reserves set aside for certain offshore risks.

Economic Factors

Despite its lack of natural resources, Singapore has enjoyed good economic growth since 1965. Between the 1960s and the recession of 1985, average annual economic growth rates were over 8 percent reaching a peak of 11.6 percent in 1988. Since then, Singapore's economy has grown at an annual average rate of 8 percent (1988-2000).

Its per capita GNP has also been rising steadily, increasing from SGD2,825 in 1970 to SGD42,212 in 2000.

The Singapore economy grew by a strong 9.9 percent in 2000 but in 2001, its economic growth was dramatically altered as a result of the 911 terrorist attacks. The economy declined by 3.7 percent for 2001.

Singapore's economic growth in 2002 is expected to hit the upper half of the official forecast of 2 to 4 percent following stronger than expected growth momentum in the first 6 months. After four quarters in the red, the year-on-year GDP figure finally turned positive in Q2 with a 3.2 percent rebound. However, the rebound is nascent and fragile as the Q2 uptick was narrowly based and largely statistical.

Market Capitalization. The total number of listed companies in the Stock Exchange of Singapore was 492 and the market capitalization SGD334.7 billion at the end of 2001.

Demographic Factors

Language. The official languages are Malay, Chinese (Mandarin), Tamil, and English. Malay is the national language and English the language of business and administration. English is widely and mainly used in Singapore insurance policy wording.

Population. Singapore's total population was 4 million as of mid-2000. Singapore residents, comprising citizens and residents, stood at 3.3 million. The Chinese made up 76.8 percent of Singapore residents followed by the Malays (13.9 percent) and Indians (7.9 percent). Other ethnic groups accounted for the remaining 1.4 percent.

Persons below 15 years old formed 21.5 percent of the resident population while those aged 65 and above made up 7.3 percent.

The resident population has been growing at an average of 1.8 percent per annum since 1990.

Education System. Education in Singapore embraces primary, secondary, pre-university, tertiary as well as special education for the handicapped. While all schools use English as the medium of instruction as the language is widely used in higher education, government, finance, commerce and industry, pupils also study their mother tongue—Malay, Chinese or Tamil—at various levels of proficiency. At the secondary level, linguistically able students may elect to study French, German, or Japanese as a third language.

The republic has one of the highest literacy rates in Asia at 93.5 percent. English is the most widely-used language in Singapore but many Singaporeans are bilingual, often combining their fluency in English with knowledge of Mandarin, Malay, or Tamil. Singapore's multilingual heritage helps to make it a natural gateway for doing business with the world.

There are some 30 schools catering to the educational needs of the expatriate communities. Of these, 14 schools use English as the medium of instruction and adopt the American, Australian, British, or Canadian education system. The rest are schools established by different countries for their respective nationals, e.g., Dutch, French, German, Japanese, Korean etc. There are also five supplementary schools operating during weekends by the Finnish, Italian, Japanese, Norwegian, and Swedish communities.

Retirement Protection. The Central Provident Fund (CPF) is a compulsory social security savings scheme to which both employers and employees have to contribute. The Fund was set up in 1955 with the aim of providing financial security for wage earners in their old age. Since then, the CPF board has also introduced various schemes for members such as home-ownership, mortgage-reducing insurance, term-life insurance, hospitalization, medical insurance, investments, and education at local approved institutions. The CPF members earn an annual interest at market-related rates on their CPF savings.

Technology. With 3 out of 5 homes having at least one computer and 1 out of 2 homes having Internet access in the year 2000, Singapore is relatively ahead of many countries in terms of home computer and Internet infrastructure deployment. The rapid increase in ownership especially over the last 5 years is due largely to the national effort in promoting Infocomm and Internet usage in the workforce and among the general public, as well as the emphasis on Infocomm usage in school curriculum.

The rapid uptake of technologies across all groups of the population regardless of housing type, race, or income suggests that digital inclusion is expanding and that PC ownership and home Internet access are no longer luxury items but common resources used by many individuals. Although the various groups are going online at different rates, the statistics do indicate that the foundation for an e-inclusive society is in place.

The Internet is becoming an increasingly vital tool in Singapore's information society given that there are about 1.3 million Internet users and 42 percent of the population aged 15 years and above are Internet users.

Despite the above positive development in technology in Singapore's society, the insurance market does not appear to have achieved much with very few insurers or intermediaries selling personal lines products through their Web sites.

Insurance Market Overview

Singapore has evolved into a premier insurance center in Asia. In December 2001, the insurance market consisted of 40 general insurers, 8 life insurers, 6 composite insurers, 34 general reinsurers, 1 life reinsurer, and 8 composite reinsurers. Singapore is also the largest captive domicile in Asia and has 49 registered captives.

The Singapore general insurance market is relatively small and is considered over-serviced by the 46 non-life companies in the sector. The large number of general insurers is underpinned by the role of Singapore as a major regional service center and its status as an important shipping hub. The high level of competition among general insurers has led to thin margins. This, however, is expected to change with premium rates hardening especially in the wake of the events of September 11, 2001. The hardening premium rate environment also provides the opportunity for prudent non-life companies to address recent pricing inadequacy and to some extent stabilize the overall weak underwriting of the general insurance sector.

There are 14 providers in the Singapore life insurance market, 6 of which also offer general insurance products. Although the total number of life insurers is not excessive, market share composition is highly concentrated. The top four life insurers write 75 percent of total premium income and the 10 smaller companies write the rest. Although the overall Singapore market is considered small and well-developed, its relatively moderate growth prospects could limit the number of companies interested in entering the market.

There are many opportunities for global financial institutions and investors interested in the Singapore insurance industry.

  • The Monetary Authority of Singapore (MAS) has opened entry to the direct insurance industry in Singapore.
  • The 49 percent foreign shareholding limit in locally owned direct insurers has been lifted.
  • MAS adopts an open admission policy for new insurance brokers.
  • Legislative amendments have been made to allow multiline insurers and reinsurers to engage in financial guarantee insurance businesses and to allow financial guarantee insurers to establish branch operations to carry out financial guarantee insurance business in Singapore.
  • Investment limits on Singapore general insurance and non-investment-linked life insurance funds have been liberalized.
  • MAS has reduced the paid-up capital requirement for captive insurers to SGD400,000.
  • MAS has given captive insurers blanket approval to write certain non in-house risks.
  • As mentioned in the discussion of the Taxation System, attractive tax incentives exist for captive insurance, reinsurance, and offshore marine hull insurance activities.

Insurance Industry Development

The general insurance industry increased strongly by 18.8 percent to SGD3.3 billion in gross premiums in 2000. This is fueled by growth in both domestic and offshore insurance business. Domestic business grew by 9.7 percent to SGD1.6 billion, whereas offshore insurance business grew by 29.4 percent to around SGD1.6 billion. Growth in domestic business was in line with the GDP growth of 9.9 percent in the Singapore economy.

Figure 1 below shows the statistics of gross premiums of the domestic business spread over the various classes of insurance.

Figure 1

The general insurance industry continued to produce underwriting profit of SGD17.2 million in 2000 but this was a reduction from SGD19.5 million underwriting profit for 1999. Underwriting profits have been on the decline since 1996. The reduction experienced in 2000 was attributed to higher amounts of net claims incurred which outweighed the increase in earned premiums.

All classes of general insurance business recorded growth in 2000. Motor insurance business, as the largest class, expanded by 13.3 percent due to an increase in the motor vehicle population and the hardening of premium rates. Fire business increased slightly by 1.5 percent during the year. This was in spite of the downward pressure on fire premium rates after the industry agreement on fire premium rates was lifted in September 1999. The marginal increase in premiums could possibly be due to a general increase in the supply of commercial, industrial, and residential spaces in 2000. Workmen's compensation business, still continuing to experience soft rates, grew slightly by 2.6 percent. The increased level of trade activities fueled the growth of marine cargo business which increased by 13.5 percent. Hull and liability business expanded by 14 percent in part due to business brought in by the marine mutuals registered in recent years. Miscellaneous business increased by 9.8 percent due to increased writing of accident and health insurance.

Claims Experience. The claims experience of the various classes of domestic business was varied. In general, there was a slight worsening of experience in 2000 with the incurred loss ratio increasing from 62.2 percent to 63.9 percent. The incurred loss ratio of the miscellaneous category changed marginally from 44.5 percent in 1999 to 44.4 percent in 2000. The incurred loss ratio for motor business improved slightly from 89.0 percent to 87.7 percent propped up by a larger premium base. On the other hand, the claims experience of the remaining major business classes deteriorated. Cargo business saw its incurred loss ratio worsening from 34.5 percent to 42.5 percent in view of a few large claims. Likewise, incurred loss ratio for fire business deteriorated from 37.5 percent to 39.3 percent following a few medium-sized fire losses. The incurred loss ratio for workmen's compensation continued to climb from 76.6 percent to 87.8 percent. This was due to soft premium rates, increasing number of common law claims, as well as rising medical costs.

Figure 2

The life insurance industry experienced strong growth in new business sales in 2000. New annual premiums for life insurance business increased 27.7 percent to SGD705.6 million. New single premium business registered high growth of 87 percent to SGD3.3 billion. New single premiums for annuity business expanded by 52.7 percent to SGD266.2 million.

A total of 613,609 policies were sold in 2000 providing life insurance coverage of SGD28.7 billion. Of this number, 35.7 percent were whole life policies, 33 percent were endowment policies, 26 percent were health policies, and 5.2 percent were term policies. The average new business premiums decreased from SGD1,586 to SGD1,425 for annual premiums but increased from SGD21,670 to SGD22,893 for single premiums. The average sums insured per policy declined from SGD66,800 in 1999 to SGD46,700 in 2000.

Business in force grew at a faster pace in 2000. Total individual annual premiums in force expanded slightly by 8.3 percent to SGD4.9 billion in 2000 up from SGD4.5 billion in 1999. The average annual growth over the past decade was 21.5 percent.

As of the end of 2000, there were 4 million individual policies in force that provided SGD202 billion of insurance coverage. It is estimated that 78 percent of the Singapore population is covered by life insurance. Life insurance premiums per capita increased by 30 percent to SGD2,616 in 2000.

The group business market performed relatively well in 2000. New annual premiums for group business increased by 20.3 percent to SGD38.7 million. At the end of 2000, total annual premiums in force rose by 11.8 percent amounting to SGD151.6 million.

New single premiums for life annuity business increased by 52.7 percent to SGD266.2 million in 2000. Greater public awareness on the use of annuities for retirement planning contributed to the increased sales of annuities. The number of contracts in force expanded by 27.2 percent to 22,864 while annual benefit payments to annuitants grew by 31.3 percent to SGD103.7 million.

Income and Benefit Payments. Total premium income of the Singapore life insurance funds in 2000 was SGD8.5 billion, an increase of 31.8 percent over 1999. Income from single and annual premium policies amounted to SGD3.3 billion and SGD4.9 billion respectively. Proportion of total premium income from single premium policies rose from 27.7 percent to 39.2 percent while that from annual premium policies declined from 69.7 percent to 57.9 percent. Investment and other income decreased by 39.4 percent to SGD1.7 billion. Benefit payments amounted to SGD2 billion in 2000, an increase of 5.9 percent over 1999. This was primarily due to increase in maturity payments and death and disability payments. Maturity payments and payments for death and disability claims accounted for 37.8 percent and 10.6 percent of total benefit payments respectively.

Assets and Liabilities. As of the end of 2000, total assets of the Singapore life insurance funds increased by 22.2 percent to SGD34.8 billion comprising mostly "admitted assets." Investments in equities and other securities accounted for 27.3 percent and 28.3 percent of total admitted assets respectively. Loans (comprising mortgage loans, policy loans, and other secured loans) accounted for 13.5 percent while cash and deposits accounted for 12.8 percent. Investments in government securities and public authority securities rose by SGD1.1 billion to SGD3.8 billion accounting for 11.1 percent of total admitted assets. Land and buildings and other assets accounted for 7 percent of total admitted assets. The distribution of liabilities remained stable. Actuarial reserves held by life insurers to meet future benefit payments accounted for 83.7 percent of total liabilities.

Conducting Insurance Business in Singapore

In accordance with Section 3 (1) Part II of the Insurance Act Chapter 142, no person shall carry on any class of insurance business in Singapore as an insurer unless the person is registered by the Authority under this Act in respect of that class of business. Any person who contravenes this shall be guilty of an offense and shall be liable on conviction to a fine not exceeding SGD75,000 or to imprisonment for a term not exceeding 3 years or to both and, in the case of a continuing offense, to a further fine of SGD7,500 for every day during which the offence continues after conviction.

A person who desires to carry on insurance business in Singapore as an insurer shall apply in writing to the Authority for registration and furnish such information as the Authority may require. In assessing an application, the following factors are taken into consideration.

  • The domestic and international rankings
  • The present and past credit ratings
  • Track record and reputation, with regard to compliance with regulations and the strength of internal control systems
  • Commitment to contribute to Singapore's development as a regional insurance hub and an international financial center

As it is important that the Singapore industry develops in areas of product innovation and the use of alternative distribution channels, applicants with a strong record in these areas, or in specialist and niche fields, will receive favourable consideration from the authority.

Minimum Paid-Up Share Capital. The paid-up share capital of an insurer shall be an amount not less than SGD25 million. In the case of a capitve insurer, the amount is SGD400,000.

Margins of Solvency. The fund margin of solvency of an insurance fund established in respect of general insurance business to be maintained by an insurer at all times during any accounting period relating to Singapore policies shall not be less than:

  1. SGD5 million
  2. 50 percent of net premium income of the fund in the preceding accounting period or
  3. 50 percent of loss reserves of the fund as at the end of the preceding accounting period

whichever is the highest.

For a captive insurer in respect of general business, the fund established relating to Singapore policies shall not be less than:

  1. SGD400,000
  2. 20 percent of net premium income of the fund in the preceding accounting period or
  3. 20 percent of loss reserves of the fund as at the end of the preceding accounting period

whichever is the highest.

As for life business, the fund margin of solvency of an insurer relating to Singapore policies shall not be less than the sum of the following items:

  1. 3 percent of the insurer's liabilities in respect of non-participating policies and 2 percent of such liabilities in respect of participating policies as at the end of the preceding accounting period
  2. 0.1 percent of the sum insured at risk for policies whose original term is 2 years or less and 0.2 percent of the sum insured at risk for policies whose original term is more than 2 years as at the end of the preceding accounting period and
  3. 50 percent of net premium income from accident and health policies of the fund in the preceding accounting period

but in no event shall the aggregate fund solvency margin maintained be less than SGD5 million.

It may be worthwhile to note that at the time of this writing, the MAS is introducing new capital requirements for life companies. In summary, the requirements result in companies being required to provide capital where they:

  • Provide product guarantee;
  • Do not match guarantees by investing in guaranteed investments;
  • Have lowered product prices for guaranteed products in anticipation of higher investment returns from mismatching.

The proposal follows international trends in regulation and is a necessary update to the existing regulations. However, once there are appropriate product capital requirements, there is no real justification for a high level of minimum paid-up capital. The relatively high level of minimum capital of SGD25 million provides an effective barrier to entry for many prospective new players.

For captive insurer in respect of life business, there shall be maintained in the fund assets not less than the amount of the liabilities of the fund.

There are different but less onerous solvency requirements for reinsurers and offshore general and life business.

Authorization and Supervision. The Insurance Act places on the MAS the responsibility of registering and supervising insurance companies in Singapore. The approach of the MAS to the supervision of insurance companies has been described as one of "minimal control supplemented by self-regulation" which, in practice, means that insurers and insurance intermediaries capable of self-regulation are allowed considerable freedom in carrying out their business, with a minimum of interference from the MAS. There is, for example, no statutory control over premium rates and policy wordings. However, the Insurance Department actively monitors the financial solvency of insurers and requires considerable details to be provided on such aspects as reinsurance recoverables and loss reserves, which are two areas of concern to any regulator. Insurers requiring closer supervision are indeed subject to close monitoring and control.

The MAS is empowered to inspect the books, accounts, and transactions of insurers and intermediaries. The objectives of inspections of registered insurers are to ensure that they are financially sound, properly managed on sound insurance principles, fair in their claims settlement procedures, and in compliance with the insurance legislation and market agreements. Insurance intermediaries are inspected to determine whether they comply with the insurance legislation and whether they conduct their business in a fit and proper manner.

Under Section 43 of the Insurance Act, the MAS is further empowered where it is satisfied that the affairs of an insurer are being conducted in a manner likely to be detrimental to the public interest or to the interests of the policyholders or prejudicial to the interests of the insurer, to issue such directions to the insurer as it considers necessary, including instructions to:

  1. Employ such management personnel as may be necessary to enable it to conduct its business on sound insurance principles;
  2. Remove any of its directors or any person whom the MAS considers unfit to be associated with it;
  3. Dispose of or recover (including amounts illegally or improperly paid) any of its assets;
  4. Stop renewing or issuing further policies of the class of business to which the direction relates;
  5. Make such reinsurance arrangements as the MAS may specify; and
  6. Take action to make good any shortfall in any specific assets or solvency margins or secure the custody of the assets;

The MAS is ultimately empowered to revoke the licence of an offending insurer.

Regulation of Intermediaries. Intermediaries are prohibited under Section 33 of the Insurance Act from placing domestic insurance business other than reinsurance or risks insured with P & I Clubs, with insurers which are not locally registered. However, with the prior approval of the MAS, intermediaries may place an exceptional risk with an overseas insurer if it is not reasonably practicable to place the risk in the Singapore market. Such approval has to be obtained on a case-by-case basis. However, the approval of the MAS is not required for placements of business with Lloyd's of London if the broker or agent involved is licensed by the MAS under Section 36(6) of the Insurance Act.

Under a market agreement, insurance brokers in Singapore handling direct business are all required to be members of the Singapore Insurance Brokers' Association (SIBA) before members of the General Insurance Association (GIA) of which all direct general insurers are members can accept risks from them. General insurance agents have to be registered with the Agents Registration Board of the GIA in order to be able to place business with members of GIA.

Life insurance agents, each of whom is tied to one company only, handle most of the business of the direct life companies. Individual insurance companies have agency contracts with their agents and also set internal guidelines which are consistent with the MAS' minimum standards for agents and agency systems. In particular, the MAS requires life insurers to include a specified code of conduct within any agency agreement it concludes with any agent and to ensure that agents receive adequate training. Before life products and unit-linked products can be sold, life agents are required to pass specified examinations. Life insurers are required to set up a compliance unit to monitor the conduct of its agents. This unit is expected to carry out periodic inspections of the agency units and its agents.

Conclusion

After the difficult years of the Asian Financial Crisis in 1997 followed by the September 11 outrage in 2001, the Singapore non-life insurance sector has stabilized due to the current environment of hardening premium rates which should alleviate widespread pricing inadequacy and poor underwriting experience over the past 4 years. New industry-wide measures to rein in the rising cost of claims are also in the course of being implemented. The full benefits of all these measures should be reaped in 2003. Against this backdrop of hardening premium rates and new measures to rein in the rising cost of claims, the industry faces the challenge of rising reinsurance premium rates and a volatile investment setting.

As for the life sector, a difficult investment backdrop was insurers' main challenge in 2001 made worse by low interest rates and asset value volatility. However, the tentative pick-up in markets will benefit insurers' investment earnings and capital positions. Risk-based capital, which seeks to value insurers' assets and liabilities on a market rather than book basis is a positive development. On the other hand, insurers will have to cope with volatility in their balance sheets as profits and losses will mirror market fluctuations.

Ang Yew-Lee is the Managing Director of Winterthur Insurance (Far East) Pte Ltd, Singapore which is a subsidiary of the Winterthur Swiss Insurance Group. He is also responsible for the business coordination for XL Winterthur International (XLWI) between their home office, other overseas business units and XLWI's strategic partners in Malaysia, Thailand, and the Philippines. He has 26 years experience in the insurance industry and has been exposed to all areas of the industry assuming senior management positions in the last 19 years of his career. Mr. Ang is an Associate of the Chartered Insurance Institute and a Chartered Insurer.

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