Special Address by Ms Luz Foo
Executive Director, Monetary Authority of Singapore
At the 8th ASEAN Insurance Congress 2011
23 November 2011, Pan Pacific Hotel

Distinguished guests,

1    Good morning and a very warm welcome.  I would like to thank AITRI and the ASEAN Insurance Council for inviting me today to this biennial event held in conjunction with the ASEAN Insurance Council meetings.  Singapore is very pleased to host this year’s ASEAN Insurance Council Meeting and ASEAN Insurance Regulators Meeting (AIRM). 

2    It has been three years since the global financial crisis, and we are not out of the woods yet. The global economic recovery is faltering and concerns of financial contagion are increasing.  The insurance industry was not severely impacted at the last financial crisis.  I hope insurers will be able to sufficiently withstand the renewed financial turbulence as we enter into another period of uncertainty.

3    First, the industry is facing higher risks on the investments front with the economic and market uncertainty. Generally, life insurers with larger asset bases and who provide guaranteed returns are much more vulnerable to investment shocks and long periods of low investment returns, compared to the general insurers. Second, much of the general insurance industry is also being challenged in its core insurance business. Insurance markets continue to remain very soft in many business lines, and we have seen significant insurance losses over the last 15 months with the bulk occurring in the Asia Pacific.  The recent catastrophic flooding in Thailand and in the many other Southeast Asian countries, will add substantially to the record losses experienced in the region. Clearly, the industry is facing challenges on several fronts. 

4    During the last crisis, the importance of enterprise risk management and good corporate governance standards became apparent. The core business of insurers is taking and managing insurance risk, and most do this quite well.  However, enterprise risk management goes further. It starts with a clear articulation of an insurer’s risk appetite. A good framework of controls and processes must be put in place to identify, measure and manage the key functions and risks across the organization, to ensure that these remain within the predefined tolerance limits. A holistic approach should be taken, recognising that many risks are interconnected and can have an impact on each other, especially during times of stress. The aim is to minimise unexpected losses faced by the insurer outside of its tolerance level. There must also be a clear emphasis on risk adjusted returns which influences its capital management and better guides the insurer in its strategic and corporate business decisions.

5    An insurer with an effective risk management process and a strong risk culture in place will have a competitive edge. I believe this will be the primary driver of success.  A 2010 Standard & Poor’s report highlights the value of ERM. It cites that reinsurers with excellent and strong ERM had shown resilient earnings and capital, under diverse and testing market conditions between 2005 and 2009. They were observed to have kept underwriting discipline and had prudent investment portfolios. Insurers with strong ERM would be in a better position to tap new business opportunities.     

6    Many insurers see Asia as providing new opportunities for growth. In addition, the upcoming finalization of the ASEAN Framework Agreement for Services (AFAS) is expected to increase the cross border flow of insurance services.  However, ASEAN markets have very different risks which need to be understood well, especially by new players looking to enter these markets. For instance, prior to the recent Thailand floods, many insurers and reinsurers did not regard Thailand as a catastrophe flood-prone area and flood risks in Thailand were not modeled. As such, the extent of the loss exposures was unexpected. More research is needed in new and emerging market risks, and we should guard against short term, naive or reckless underwriting that chases top line premium growth. 

7    From a regulator’s perspective, an insurer looking to expand into other domestic markets would be expected to have the following: (i) A strong capital and financial position to support its business foray; (ii) sound management and technical expertise, to ensure proper management of the operation and sound underwriting; and (iii) a robust risk management framework given the increased scale and complexity of risks faced in operating a regional business. These are areas which ASEAN insurers will need to focus on if they are to become regional players.

8    At the foundation of these capabilities is having the right people. The value of good human judgment and experience cannot be underestimated, and having qualified staff to implement and support risk management within the organization is critical. An insurer may have the best risk management framework, but it is useless without the right people and risk culture.    

9    I am happy to see that a range of relevant topics will be covered during the Congress. I wish all of you a very fruitful seminar with active discussions and a good exchange of views. Thank you.