Published Date: 26 March 2014

"Vigilance for Today, Readiness for Tomorrow" - Address by Ms Loo Siew Yee, Executive Director, Monetary Authority of Singapore at the General Insurance Association of Singapore Annual General Meeting Luncheon, 26 March 2014, M Hotel, Singapore

Good afternoon, Mr A K Cher, President of the General Insurance Association, distinguished guests, ladies and gentlemen.

It is my pleasure to be here at the GIA Annual Luncheon 2014.

In the past few months since taking over as Executive Director of Insurance Department, I have had opportunity at times to look up books on insurance. While there is an abundance of books covering technical insurance issues that are required reading for any serious supervisor, I was also attracted to books detailing the colourful history of insurance, especially general insurance.

General Insurance: An Illustrious History

I found that insurance, much like Life according to prevailing theories on evolution, appears to have originated from the sea – marine insurance. Many of the legends in the long history of insurance are woven from mysterious and romantic stuff – of shipwrecks and salvage, disasters and survival.

In 1547, when the first recorded English marine policy was issued on the vessel Santa Maria, and through to the early 19th century, a ship voyage was considered highly perilous. Insurers, who tended to be individual ‘underwriters’ in those days, were indispensable in facilitating these ventures.

Now, as in the days of old, insurance continues to oil the wheels of commerce, spreading and transferring risks so that economic activities can continue and grow. And of course, insurance is now available for anything from the ubiquitous motor vehicle, to oil rigs and even identity fraud.

Ordinary people too, benefit from insurance, which cushions them from the impact of unforeseen events and allows them make economic decisions that come with risks – such as buying a car or property. A lesser known fact is that insurers, through their risk mitigation efforts, also have a role in promoting public safety. A good example of this is the basic fire safety requirement of equipping buildings with sprinklers – this once revolutionary invention came into widespread use due to the influence of insurers seeking to mitigate their losses from fires. Clearly, insurance has positive externalities that extend beyond its primary role of providing a mechanism for loss-sharing and protection against unforeseen events.

Vigilance for Today, Readiness for Tomorrow

An illustrious history. Fast forward to today, and insurers continue to innovate and find new applications for the concept of risk-pooling. In Singapore, we have seen the introduction of new products such as policies covering losses from poultry avian influenza and intellectual property infringement. At the same time, a challenging and competitive operating environment calls for renewed vigilance, and a strengthening of fundamentals.

Vigilance for Today

Let me touch on the need for vigilance first. In particular, I would like to draw your attention to 2 key risks facing insurers today.

First, interest rate risk.

According to the 2013 Insurance Banana Skins report produced by the Centre for the Study of Financial Innovation, poor investment performance linked to low interest rates was ranked the second key risk facing the insurance industry. In the Towers Watson 2013 Megatrends report, 66% of insurers surveyed indicated that capital management challenges arising from sustained low interest rates and the volatile investment environment will pose a significant threat to their business in the next 2 years.

It is estimated that about 12% of global financial assets (approximately US25 trillion in funds) are managed and invested by the global insurance industry, and a 1 percentage point decrease in interest rates will result in a loss of 6 %1 of global premium income.  In Singapore, the protracted low interest rate environment has indeed affected the investment returns for the general insurance industry. The investment performance of general insurers for the Singapore and Offshore insurance funds declined from an average of S$434mil a year from 2005 to 2007 when average interest rates was 3.1%, to S$145mil a year from 2010 to 2012 when average interest rates was 0.7%2.

 In this environment, competitive pressures could lead insurers to take excessive and unhedged risks in order to improve investment returns. On some occasions, MAS has admonished general insurers to avoid taking on excessive investment risks and focus instead on achieving good underwriting performance. We trust you will continue to heed this advice.

At the same time, interest rate movement will also have an impact on the long-tailed business of general insurers, such as the liability lines of business.  This should be managed appropriately through prudent asset-liability management.  Insurers should put in place a sound investment governance framework and ensure that their investment policies, procedures and controls are in line with their risk tolerance levels.  Investment policies and strategies should be reviewed on a regular basis to ensure that they remain appropriate.

Second, cyber risk.

In recent months, cyber risk has captured attention with a few high-profile cyber attacks and data breaches which targeted commercial entities and government agencies.  Globally, such incidents are on the rise, with hackers increasing in boldness as well as sophistication. Insurers should maintain vigilance in view of the potential severe consequences of such attacks, particularly where sensitive customer data is involved. Insurers must ensure that their technology risk management, security and internal controls are robust and up to date. Monitoring or surveillance systems should be put in place to alert insurers to any abnormal system activities, transmission errors or unusual online transactions. The best practices and IT security measures set out in the MAS Technology Risk Management Guidelines should be adopted where applicable. Insurers should also closely manage risks pertaining to outsourced services.

At the same time, heightened cyber risk also presents new opportunities for general insurers.  Sales of cyber insurance policies have risen in response to this threat, such as in the United States where cyber insurance coverage purchased by companies reportedly averaged US$16.8mil in 20123, an increase of nearly 20 per cent from 2011.  Closer to home, cyber risk is increasingly being seen as an important issue by Asian risk managers4. Yet, it is estimated that even in advanced markets like the US, only about 30% of US companies have cyber insurance cover5.  A contributing factor to this is the lack of historical claims data to allow insurers to price cyber risks accurately. To enhance Singapore’s capabilities in mitigating the region’s cyber risks, MAS is working with the industry to create a ‘test-bed’ for cyber risks. This ‘test-bed’ will bring together insurers, data analytics firms, government agencies and other relevant parties to simulate loss events and generate sets of loss data to improve pricing and coverage. We also aim to raise awareness of cyber insurance through this initiative.

Readiness for Tomorrow

Now, let me talk about strengthening fundamentals. These are things we need to put in place today, in order to be ready for tomorrow. I would like to focus on the new RBC2 framework, and on building talent for the general insurance sector.


The RBC2 review will bring a number of changes to our risk-based capital framework, to improve its risk sensitivity and comprehensiveness of coverage. This will in turn ensure that our insurers remain adequately capitalised and well-positioned to meet risks that may arise in the future. In line with most advanced jurisdictions, the new RBC2 framework will incorporate 2 transparent solvency intervention levels, calibrated at Value at Risk confidence intervals of 99.5% and 90% over a one-year period.

Earlier today, MAS released a second consultation paper and specifications for a Quantitative Impact Study (“QIS”). This was the culmination of many months of hard work and deliberation by the MAS team, guided by the aim of calibrating a framework that is both prudent and reasonable. We have taken into consideration feedback from the first consultation, and modified a few proposals.

Allow me to delve a little into the key proposals.

First, an explicit risk charge will be introduced for insurance catastrophes. According to Swiss Re’s estimations6, natural and man-made catastrophes caused insured losses of about US$44 billion in 2013, which was significantly lower than the US$81 billion of insured losses in 2012.  However, there is global consensus that the increased frequency of extreme events in recent years is becoming the new normal, especially in heavily populated regions.  Between 2000 and 2009, Asia accounted for 41% of global economic losses from natural disasters, and this increased to 81% in 20117. At the same time, flash floods in Singapore and tremors felt after earthquakes in Indonesia are reminders that Singapore is not entirely immune to natural catastrophes. In addition, while Singapore boasts a generally safe operating environment, man-made disasters cannot be ruled out completely. It is therefore important that insurers set aside adequate capital to buffer themselves against these risks.

While an internal model approach for calibrating the insurance catastrophe risk charge is a longer-term aim, MAS is taking a pragmatic approach towards the calibration of this risk charge. MAS has started working with the industry to design standardised catastrophe scenarios for the computation of an appropriate non-life catastrophe risk charge.

A Natural Catastrophe Workgroup was formed in Oct 2013 with representation from industry associations such as GIA, reinsurance brokers, industry practitioners and academic institutions. A regulatory sub-group advises on the design and calibration of catastrophe scenarios for RBC2 and a research sub-group provides strategic direction and identifies gaps for ‘nat cat’ research.

Second, pending the finalisation of the insurance catastrophe risk charge, MAS will not be recalibrating the premium liability and claims liability risk requirements till a later date. The calibration of these risk requirements should not take place in isolation from the insurance catastrophe risk charge.

Third, there will be some allowance for diversification benefits. MAS has taken on board industry feedback on this issue. The second consultation paper presents a few ways in which such allowance may be made. One of these is to recognise diversification between different asset classes, as well as between the asset and liability risk charges. This is consistent with a recent study conducted by the Singapore Actuarial Society8which noted that diversification benefits exist between various asset classes, and between asset and liability risks.

The consultation will be open for 3 months. As this is a significant project for the insurance sector, do study the paper carefully and provide your comments. We look forward to your feedback and submissions for the QIS in the coming months.

MAS also intends to work closely with you to ensure a smooth transition from RBC to RBC2. While diligence is required, rest assured that sufficient preparation time will be provided.

Raising Competencies and Building Talent

Finally, raising competencies and building talent.

Insurers need people with skills and expertise to succeed in an increasingly competitive business environment. As consumers become more sophisticated and discerning, insurers must also innovate by developing new products, and raise the professionalism of their staff. In addition, insurers must put in place the necessary human and system resources to respond to a more demanding regulatory environment. The ability to attract, develop and retain employees with the right expertise and values is a critical success factor in fostering a vibrant and sustainable insurance industry.

We recognise GIA’s contributions in building the industry’s talent pipeline through its Global Internship Programme (“GIP”).  MAS, in partnership with the industry, has recently developed an Insurance Talent Development Framework, which maps out training and career progression pathways for both new entrants and experienced insurance professionals. New industry-wide programmes will be launched in 2014 across a spectrum of roles and seniority levels. This includes the Insurance Executive Assistant Programme and the Insurance Management Associate Programme for entry-level professionals, as well as the Insurance Specialist Programme and the Insurance Leadership Programme for experienced industry professionals. We strongly encourage GIA member companies to invest in talent development, and enrol your fresh graduates and existing staff in these industry-wide programmes.  MAS will continue to work with GIA to raise the profile of the general insurance sector, and expand the depth and breadth of training programmes to better cater to the growing needs of the industry.

Concluding Remarks

Before closing, I would like to commend GIA for the many initiatives it undertook in the past year to educate consumers on general insurance and to raise public awareness of certain key issues.  These include the Mediacorp TV programme Exposed! on motor insurance fraud, the Motoring & U Consumer Education Seminar, and the General Insurance & U series in Sunday Times’ Sunday Invest.  Keep up the good work.

On motor insurance, GIA continues to work closely with MAS to further enhance consumer education.

Now, let me conclude by circling back to my opening theme. Insurers have a long and illustrious history, being indispensable in supporting economic activities, meeting individuals’ protection needs and responding to new needs and challenges. For insurers to continue to fulfil this role in a sustainable way, we must not only be vigilant against the risks of today, but also build the fundamentals that will prepare us for tomorrow.

Thank you.


1 Source: Swiss Re Sigma report (http://media.swissre.com/documents/sigma4_2012_en.pdf )
2 Data extracted from statistics and domestic interest rates on MAS’ website (http://www.mas.gov.sg/Statistics/Insurance-Statistics.aspx
3 Source: Business Times Invest (http://www.btinvest.com.sg/insurance/general-insurance/cyber-liability-insurance-on-the-rise-as-the-weight-of-data-grows/ )
4 Source: Source: Strategic Risk’s Asia Risk Report 2013
5 Source: Experian (http://press.experian.com/United-States/Press-Release/despite-praising-benefits-of-data-breach-cyber-insurance-most-companies-remain-uninsured.aspx )
6 Source: Swiss Re’s preliminary sigma estimates on losses arising from natural catastrophes and man-made disasters (http://www.swissre.com/media/news_releases/nr_20131218_sigma_natcat_2013.html )
7 Source: The Asia Pacific Disaster Report 2012 (http://www.unisdr.org/files/29288_apdr2012finallowres.pdf )
8 Source: Presentation at the 17th East Asian Actuarial Conference(http://www.actuariesasia.org/past_conference/17th_eaac/ckfinder/userfiles/files/04_Plenary%203_1-Jim%20Qin%20&%20Zhu%20Yan.pdf )