The five steps range from "Normal" to "Viability at Risk" and terminally, "Winding Up or Closure". Insurers assessed to be on the more critical steps will receive more stringent and intrusive supervisory actions. MAS draws the analogy between the risk classification of an insurance firm and the medical assessment of a patient's health. If an insurer is classified as being on the "Viability at Risk" step, it will probably be admitted to MAS' Intensive Care Unit. However, MAS is not regulating for a no-failure regime. We encourage industry consolidation. In today's competitive environment, size brings financial strength and facilitates diversification on both sides of the balance sheet. But it is not possible, and also not desirable, to operate on the basis that we will never, under any circumstances, allow a financial institution to fail. That way lies moral hazard. Improving corporate governance and internal controls A risk-based supervisory approach relies heavily on the strength of company leadership and management. Corporate governance is thus critical. MAS expects the Board of Directors to provide clear strategic leadership and set consistent corporate values. Management teams must operationalise these strategies while upholding the spirit of the corporate values. Given the nature of the insurance business, corporate values need to be guided by risk management concerns. What is the company's risk appetite? What should be its risk tolerance limits? What is the level of risk management skills in the company? How profitable is the underwriting of various classes of risks?

Insurers should hone their skills in these new areas and take advantage of emerging opportunities. One important opportunity is in health insurance, especially financing the health care needs of the aged. This is a challenge that is facing governments around the world. It is no different in Singapore where the population is aging rapidly. Health insurance can play a greater role in financing old age medical care than it now does. MAS plans to introduce in 2003, a regulatory framework for this specialized area of insurance. We will be seeking feedback from local industry on this. The government recently announced the launch of Eldershield, a national long-term care insurance scheme to be underwritten by private insurance companies. Eldershield provides a basic level of benefits, which many Singaporeans will wish to supplement. This will create opportunities for insurers to structure and market appropriate Long-Term Care policies. Credit insurance and political risk insurance are two other promising areas. Globalisation and lower barriers to cross-border trade will spur continued internationalization of trade and support strong demand for credit and political risk insurance. Being located in Asia, a region that has traditionally witnessed strong trade flows, Singapore is wellplaced to develop further as a hub for such activity. Several new specialist insurers and brokers have in recent months set up a presence in Singapore, including financial guarantee insurers and trade credit insurers and brokers. Another growing area of business is bancassurance activity. Life insurance products sold through the bancassurance channel now account for 25% of new life insurance business.