1   Good morning, ladies and gentlemen. I am delighted to be with you this morning for the 9th Singapore International Reinsurance Conference. I understand that the SIRC is a biennial event that draws strong support from various participants across the insurance and reinsurance industry; not only in Singapore, but also participants from the region and further afar. I hope this forum in Singapore will continue to foster greater interaction and sharing amongst participants in the insurance fraternity. I am also impressed by the lineup of speakers who are no doubt experts in the range of topics.

2   The conference theme is “Reinsurance: A Whole New World”, allow me to start with some observations in this “whole new world”. 

3   The first observation is that insurers and reinsurers, are increasingly faced with larger and more frequent risks. In a sense, this is not new. It is in the nature of the insurance business to insulate from the unknown and shield from the uncertain. But there are various trends and developments in these current times that can make insurance risk assessment and therefore pricing, more complex than ever before.

4   Firstly, the regionalization or globalization is perhaps at an unprecedented scale. Accompanying that, is an increasingly diverse set of enterprise risks faced by international corporations and global investors. Indeed, multi-national entities, be they manufacturing or service corporations or financial institutions, have to grapple with a myriad of risks arising from operational, market and environmental factors in the different business locations. It is not uncommon for a say a manufacturing company to have its manufacturing process span across different countries, with parts being manufactured in three locations, assembled in two and packaged in one. In addition, for many companies, increased parts of their value chains are being outsourced. As such, companies have had to give greater focus and importance to operational risk management, and adopt more holistic and sophisticated approaches to managing the ensuing risks. Indeed, risk management is now recognised as an important and integral part of business strategy. Insurers and reinsurers as traditional insurance risk takers, and brokers who serve as risk consultants, are in turn faced with the challenges of advising, managing and underwriting these larger and more complex risks of their clients that cut across geographies.

5   Secondly, global warming - and the impact on climate change and the environment - has become an issue and concern to many, with significant implications for the insurance industry. Based on data from Swiss Re’s Sigma, the insurance industry has over the last 3 decades seen a fifteen fold increase in claims arising from extreme weather effects. In 2005, insured losses arising from natural catastrophes hit a record high of US$90 billion. As global growth continues, insurance penetration and insured values will likely increase alongside higher production costs, revenues and incomes. Indeed, AIR (Applied Insurance Research), a risk modeling agency, estimated that insured natural catastrophe losses are expected to double roughly every ten years due to urbanization and economic concentration. One major issue that the industry has to continue to grapple with, is that when historical loss and probability patterns are subject to large and extreme shock events, pricing of the risks can be more challenging and amidst a competitive environment. 

6   A third point is relating to technological advancement and innovations. These often bring new opportunities but present new or unknown forms of risks as well. Insurers, reinsurers and brokers have to keep abreast with developments to be able to provide proper risk advice and help mitigate the potential risks faced by their clients. Insurers and reinsurers who do not fully comprehend the risk implications of the innovations and advancements can run into issues of mispricing and hence, unanticipated exposures in their portfolios.

7   A second observation has to do with the global investment environment. On one side, there is the insurance sector as investors.  Financial investments of insurance companies are not insignificant. As at end-2004, the estimated global assets under management by insurance companies stood at US$14.5 trillion. So while underwriting profitability is key to the long term viability of an insurance company, a prudent and well managed financial investment portfolio is also a key contributor to success. In the life insurance business, many of you will know that investment income is critical to the insurers’ ability to pay their long term business. The investment environment will probably remain a challenging more as global investors compete in the pursuit of higher returns, sometimes at the expense of understanding the risks undertaken. While even in the current state of market uncertainties, one may assess the insurance industry globally has generally not been too negatively affected from an investment point of view, because of the relatively small direct exposures to mortgages and credits, nevertheless, it is worthwhile for insurance companies to also learn from the risk lessons of the current market woes for your investment policies and investment risk management. 

8   But there is also an arguably lesser known side – that of insuring investors. Take again, the recent sub-prime crisis problems as an example. It is not just affecting Wall Street which has already US$35 billion in sub-prime related write-downs and an estimated stock value loss in excess of US$220 billion. You may have recently read of the impact now felt by monoline financial guarantee insurers who sold insurance to banks and investors for bonds backed by mortgages and CDOs. These policies are designed to protect investors from default on the securities. So as insurers enter into the new world of financial innovations and new products, the understanding of the risks and financial structures become of paramount importance.

9   If we have a perfect storm of a big catastrophe loss event happening at the same time as a financial market crisis, one can expect considerable stress on the insurance industry. Unfortunately, these are not improbable events even if deemed relatively low probabilities. If we look back 20 years ago, three days before the infamous Black Monday crash on Oct 19 in 1987 when stock markets plunged more than 20%, London was hit and damaged by its worst storms in nearly 300 years.  The September 11 attacks resulted in a similar double whammy, coupling massive losses with plunging stock markets and asset values.

10   On the regulatory front, there are moves towards greater convergence of supervisory approaches and increasing cooperation among regulators. The International Association of Insurance Supervisors (IAIS) has issued various Standards on insurance supervision to promulgate best practices amongst insurance regulators. 

11   Efforts have also been made by the IAIS to engender greater transparency in reinsurance, with the publication of the annual Global Reinsurance Market Reports being one of the outcomes from these efforts. The EU’s Reinsurance Directive will result in reinsurance becoming a more regulated activity throughout the EU, and group-wide supervision, at least within the EU, will have a more formal basis.

12   There is also a greater focus on insurers’ solvency, and a move away from one-size-fits-all supervision. The proposed Solvency II regime for Europe is a clear example of the push for a more risk-sensitive and risk-based solvency regime for insurers. Various countries in this region are also exploring, or have already introduced, risk-based solvency regimes and risk-focused supervisory approaches.

13   So what do these changes mean for the insurance and reinsurance industries? Industry players will need to evolve with the changing landscape to ensure that they remain competitive, relevant and profitable. Indeed, we are already seeing changes in the way some insurers operate and manage their business.  

14   Firstly, we have seen insurers, reinsurers and brokers committing resources and efforts into research to better understand new risks, and also in working together to develop innovative solutions and products. Perhaps more can be done. In a recent Risk Global Report 2007  by the World Economic Forum, the study noted that there still exists a fundamental disconnect between risk and its mitigation across various risk categories, examples in Economic, Environmental, Geopolitical, Societal, and Technological aspects. The report noted that while the levels of risk are rising in almost all of these areas, the mechanisms in place to manage and mitigate these risks are still inadequate. Some contributing factors include lack of prioritization, resources and understanding on their risk exposures. I wonder if there is scope for the industry to do more as a collective body.

15   It is positive that insurers and reinsurers are making great strides in developing further their risk management techniques. With the advances in computing power and speed, catastrophe risk models and other risk models have become more sophisticated and refined. As I alluded earlier, these models will never be able to quantify maximum probable losses with 100% accuracy. But they are nevertheless useful in providing a reasonable guidance for insurers and reinsurers to base their pricing models. In addition, there is heightened awareness and increased use of dynamic financial analysis tools for a more holistic risk management approach to the business. A recent study by Celent, a consultancy firm, showed that insurance companies are spending, and making more investments in technology to improve their systems in risk management, product development and applied research. The study highlighted that insurers in the US, Europe and Japan and China spent about US$10 billion on enterprise software in 2006 alone - a positive indicator, in my view. 

16   Another point is the usage of alternative risk transfer methods such as risk securitizations, derivatives and sidecars have been on the increase, especially following the post-Katrina capacity crunch.  Securitization, which had been used by the banks quite extensively, has gained acceptance within the insurance industry. More insurers are exploring and pushing the envelope as they look to further tap the capital markets. I note that the issuance of insurance-linked bonds has doubled over the last 2 years, and 2007 is expected to see a record issuance volume of between US$5 to 6 billion.

17   The use of securitisation to transfer insurance risk may become a more common alternative as a risk management tool for the insurance industry. It is interesting to note that the spreads of cat bonds have generally not widened nor reacted as other credit instruments had, in the credit market turmoil, and I am told that this low correlation has attracted greater attention from investors over the last few months. But I would reiterate again, that there can be valuable lessons that the insurance industry can take away from the recent sub-prime debacle in the further development of the insurance securitisation market. 

18   I am confident that the insurance, reinsurance and broking industry will be able to navigate the ever changing market landscape, and take advantage of the opportunities that arise, from a position of strength. 

19   One opportunity that has presented itself, as I am sure you all will be cognizant, is Asia. Asia accounts for half of the world’s population, but just a third of global GDP and a fifth of global exports. The potential for further growth is enormous. As a region, Asia is expected to outperform other continental blocs in terms of pace of economic growth for several decades to come. Asian economies are also increasingly resilient. Many Asian economies have built up a cushion of foreign reserves, and are running current account surpluses.  There is now less reliance on external financing and there is greater intra-Asian trade which presently accounts for around 50% of the region’s total trade volume.

20   The strong economic growth prospects and rising affluence in Asia will result in a higher demand for asset protection and insurance coverage across a wide range of personal and commercial lines. According to Swiss Re’s latest figures, the growth rate on non-life insurance for South and East Asia was over 10% (at 15%) in 2006 . To cite some figures for example, Vietnam’s non-life insurance sector enjoyed a five-year high of 20% growth in the first half of this year and the Indonesian insurance industry is projected to grow by 15% in 2007.  Indeed, Asian overall premium growth is expected to remain strong for 2007.

21   The case for insurers to grow local and regional capacity in Asia has never been stronger. Asian risks are increasingly being brokered, underwritten and retained within Asia. 

22   Singapore’s economic prospects is tied to the Asian one.   We have seen good growth in our insurance industry, and is now a leading insurance and reinsurance centre, with a critical mass of players, be they direct insurers (including Life, General and Composite), reinsurers or captives.

23   I understand from the brokers, that with the entry of several specialist insurers, Singapore is fast becoming a centre for placement of Asian energy, trade credit and political risks. Our growth in the maritime industry has also seen good corresponding demand for marine cargo and hull coverage.

24   MAS will continue to support a vibrant and dynamic insurance industry here, and to work with participants towards a sound and progressive insurance and reinsurance sector. On the regulatory front, a Risk- Based Capital framework was introduced in 2005, and we are continually reviewing our regulatory framework to make it pro-business while maintaining high standards and prudence. We are refining the solvency rules for reinsurers, and have recently concluded our consultation on changes to the regulatory framework for marine mutual insurers. This is part of the overall efforts in ensuring that Singapore's operating environment continues to be conducive.

25   We recently issued a consultation paper to propose a framework for insurance securitization. We will be publishing our responses to the feedback received in due course. To further facilitate development in this area, we will be extending the existing tax scheme for asset securitization to include insurance securitization. This will serve to create an efficient tax environment for the structuring of insurance securitization vehicles and for issuances out of Singapore.

26   Another key area for the industry to innovate and stay competitive is the availability and quality of talent. To raise the level of skills and competencies of Singapore’s financial sector workforce, the financial industry implemented the Financial Industry Competency Standards (FICS) framework in 2005 to benchmark competency standards of financial professionals to international best practices. Standards for activities within various insurance job families have been put in place, ranging from underwriting to claims management in both life and general insurance. The Singapore College of Insurance (SCI) plays a key role in this national initiative, having recently been appointed as the lead provider for FICS accredited training and assessment programs for general insurance and life insurance.

27   At the executive-level, the latest collaboration between the Chartered Insurance Institute (CII) and Singapore College of Insurance (SCI) is timely.  This is aimed at raising overall standards of professionalism in the insurance industry through the provision of CII training courses and professional qualifications by the SCI in Singapore and specific countries in the Asia-Pacific region.

28   I am also pleased to inform you that the MAS has a Finance Scholarship Programme (FSP) and that we intend to introduce an individual development track, that awards partial scholarships to outstanding individuals to pursue specialized Masters programmes in top-ranked Universities. This will complement the existing company-sponsored track, where the FSP provides co-funding with financial institutions to sponsor their scholars for these postgraduate programmes. By casting the net wider to include individuals who form another key source of specialist talents, we will be able to accelerate the development of specialist capabilities in the targeted fields of financial engineering, risk management and actuarial science.  This will strengthen our knowledge base in these areas, and enable the financial sector to move up the value chain to undertake more sophisticated and complex front-end activities.

29   I strongly encourage industry professionals like yourselves and the industry associations to take the lead in promoting professional education and the upgrading of competencies within the insurance industry. 

30   As we all know, manpower development is not only about talent stock but also talent flow, ie the pipeline. Again, I am heartened that the insurance sector in Singapore has been proactive in profiling the different aspects and career opportunities within the insurance and risk management industry at the local tertiary institutions. This will help to capture mindshare and raise awareness amongst the student population, to hopefully excite and attract some of the best and brightest into the interesting and challenging world of insurance. 

31   On this note, I wish you all a good conference ahead with much stimulating discussions.