Response to "Transparency in Insurance - Policyholders Underpaid" (ST Forum, 6 August 2009)
I refer to "Transparency in Insurance - Policyholders Underpaid" (ST Forum, 6 August 2009).
The letter suggests that insurers have been building up “orphaned money” by under-declaring bonuses to participating policyholders. This is not the case in Singapore. With the introduction of the Risk-Based Capital framework in August 2004, insurers in Singapore are required to record the total amount of assets held in the participating fund as backing the liabilities to the participating policyholders. This means that all assets in the participating fund belong to the participating policyholders. The issue of “orphaned money” therefore does not arise.
In addition, there are rules governing the distribution of bonuses for participating funds. Under the Insurance Act, when insurers declare bonuses to participating policyholders, they can distribute not more than $1 to shareholders, as compensation for their management of the fund, for every $9 of bonus declared to policyholders. This ensures that insurers have an interest to manage the participating fund properly to achieve reasonable long-term returns for policyholders in accordance with the stated investment objectives of the fund.
These requirements ensure that there is no incentive for insurers to intentionally under-declare bonuses in the hope of building up large amounts of “orphaned money” to benefit their shareholders in future.
MAS informed insurers in July this year that the definition of a participating policy in the First Schedule of the Insurance Act will be amended to provide even greater clarity that the assets of the participating fund belong to participating policyholders.