INSURANCE (AMENDMENT) BILL

Order for Second Reading read. 3.30 pm

The Minister for Finance (Dr Richard Hu Tsu Tau): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

The Insurance Act was last amended in 1986. In view of the insurance developments that have taken place since, further amendments to the Act are necessary to ensure that it remains relevant for the effective supervision of the insurance industry.

The first regulatory measure, which will take effect from 31st December 1993, deals with the allocation and distribution of profit from life insurance business. A substantial proportion of life policies sold in Singapore is of the participating (or par) type, that is, the policyholders share the profit arising from the participating life business each year. Presently, the Act requires that participating policyholders get at least 80% and the insurer not more than 20% of the total amount of the profit distributed each year. However, this "80/20" rule is no longer relevant as most life insurers now allocate 90% or more of the distributable profit to policyholders. Clause 5(c), therefore, amends the "80/20" rule to the "90/10" rule which will be phased in over a period of five years commencing 1993. The amendment also clarifies that where an insurer chooses to receive less than the maximum allowable profit in a given year, the insurer cannot seek recovery of the difference in future years.

Life policies may be of the non-participating (or non-par) type. Profit accrued from such non-participating life business need not be distributed to the non-par policyholders. Clause 5(a) requires insurers to keep a separate fund for their non-par business if they do not wish to share the profit from such business with policyholders. Otherwise, the "90/10" rule will apply, that is to say, profit accrued from the non-par business will be subject to the "90/10" rule in distribution to the par policyholders.

The second regulatory measure introduces the concept of the "Appointed Actuary" for direct life insurers and will take effect from 1st January 1994. Traditionally, an actuary is involved in determining the premium rates, designing insurance products, valuing policy reserves and recommending profit distribution to participating policyholders. Given the greater volatility in the economic and financial environment, and a greater concern with the financial solvency of life insurers, this traditional role is increasingly viewed as limited and inadequate. In line with the United Kingdom and Canada, the concept of an "Appointed Actuary" is adopted in which the role and responsibility of the actuary is expanded. Some of the new responsibilities of the actuary relate to the investment of assets and the assessment of capital adequacy to support new business growth and the long-term financial solvency of the insurer. Clause 8 empowers the Authority to approve the appointment of an actuary and to prescribe the duties of the appointed actuary.

These two new regulatory measures have been extensively discussed and agreed with the insurance industry.

To minimise the possibility of abuse and problems of conflicts of interest by the insurers, clause 9 introduces restrictions on the amount of unsecured loans given by the insurer to its directors and employees.

In view of the public interest involved in the bond and guarantee business and that such activities are closer to insurance, clause 2 empowers the Authority to control persons engaged primarily in such business under the Insurance Act. Persons already licensed under the Monetary Authority of Singapore Act, Banking Act, Finance Companies Act, Securities Industry Act or Futures Trading Act will however be exempted.

The Authority has found it necessary from time to time to issue directives to carry out its functions under the Insurance Act. Clause 20 empowers the Authority to issue directions via notices and circulars to insurers while clause 19(b) makes provision for penalty for non-compliance with such directions issued.

With the development of offshore insurance business, two other types of insurers have merged from a market structure originally consisting of direct insurers. In view of this substantial change in the market structure and to facilitate references when drafting regulations, notices and circulars, clause 3 provides for the registration of insurers by the type of insurer, namely, direct insurer, professional reinsurer or captive insurer, in addition to the existing practice of registration by class of business.

The other amendments made by the Bill do not warrant any special mention in addition to what has been stated in reference to them in the Explanatory Note.

Sir, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Dr Richard Hu Tsu Tau].

Bill considered in Committee; reported without amendment; read a Third time and passed.