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.

Apart from upgrading professional competency, consideration will also be given to the technical competency of company directors and other staff involved in the insurance business. We will work with industry to formulate an insurance manpower development strategy. We envisage industry players, training providers and tertiary institutions co-operating to develop programmes that will enhance professionalism in the insurance industry. Conclusion MAS will continue to work together with the insurance industry to achieve international best practices and standards. Over the past two years, MAS has worked hard to build a closer partnership with the financial sector. We will continue to promote an open environment and consult actively with the private sector for its views. The relationship between the regulator and the regulated should be arms length but not adversarial. The regulator has to be firm, but also friendly. Market practitioners can help regulators generate ideas, keep abreast of market developments, anticipate global trends and review  4  BIS Review 44/2002  our financial sector strategies. Candid, thoughtful feedback, including dissenting views, go a long way to ensure that policies are pragmatic and remain relevant. We hope that such a regulatory environment will help to develop well-managed insurers in Singapore, who will take up new challenges, and play a more active and productive role in upgrading our insurance industry, and thus our financial sector as a whole. I wish you fruitful deliberations. BIS Review 44/2002  5