The guidelines for internal governance will deal with the main responsibilities for the Board, stress the importance of transparent and performance-linked compensation; emphasise the need for the integrity of financial information; encourage fair dealings with the members of the public who are policy-holders and urge insurers to engage in regular communications with policy-holders. BIS Review 44/2002  3  Life insurance companies are entrusted with the management of long term funds. We are considering more rigorous corporate governance requirements for life insurers. We intend to formally introduce and enforce the corporate governance framework for the insurance industry later this year. Imposing risk-based capital requirements In a world of new and increased risks, appropriate levels of capitalization are necessary. Insurers face mounting complexities, given the increased volatility of asset risks and the diversity of liability risks. In Singapore, as in many other countries, the existing statutory framework of solvency and capital adequacy for insurers is essentially a "one-size-fits-all" approach. This is clearly no longer appropriate, since different insurers have acquired different levels of exposures to financial risks and developed different underwriting specialties. In banking, a risk-based capital approach is well-established. There are clear guidelines from the Bank for International Settlements, and a new standard is undergoing extensive worldwide consultation. For the insurance industry, the same level of regulatory consensus does not as yet exist. MAS has formed two work groups comprising industry practitioners, representatives of professional associations and regulators to develop risk-based capital models for life and non-life insurance.

Lee Hsien Loong: Best practices in insurance regulation Keynote address by Mr Lee Hsien Loong, Deputy Prime Minister of Singapore and Chairman of the Monetary Authority of Singapore, at the International Insurance Society’s 38th Annual Seminar, Singapore, 15 July 2002. *  *  *  Introduction Mr Douglas Leatherdale, Chairman of the International Insurance Society, distinguished guests, ladies and gentlemen, I am pleased to address this seminar organised by the International Insurance Society. It is an honour for Singapore to be hosting this prestigious event again. These are trying times for the insurance world. Insurers are coping with extraordinary losses arising from the Sep 11 tragedy. High profile corporate scandals involving household names such as Enron and Worldcom are depressing market sentiment. Sustained declines in asset values mean that insurers can no longer rely on investment returns to offset poor underwriting results. New risks facing insurers Over the past decade, insurers have forayed deeper into financial markets in pursuit of higher profitability - both as investors and as intermediaries. As investors, they are exposed to the vagaries of volatile capital markets. As intermediaries, they are taking on new financial risks. Insurers investing in credit derivatives effectively take on bank credit risks. Insurers who underwrite professional indemnity policies for bank directors and officers, effectively assume banks' operational risks. Insurance company managers must keep abreast of these developments. They must understand how their companies' risk profiles have changed, and how new activities can have opposing effects on both sides of the balance sheet.