Better governance and disclosure for par policies

Dear Mr Tan,

What are your views about the proposed measures to ensure better governance and disclosure for par policies? Will it help to ensure that the consumers will get a higher bonuses and a better return on their par policies?

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REPLY:

This is just a first step. To ensure its success, a lot of work has to be done over the next few years, to improve the system.

There are two important aspects of the new measures:

a) governance; internal rules that guide the management of the par fund (ie the fund holding the assets of the participating policyholders)

b) disclosure; to disclose the impact on changes in the bonus rates to the participating policyholders

In the ideal situation, the par fund should be managed in the interest of the par policyholders, as follows:

* the fund should be invested to earn a good return over the long term, at an acceptable level of risk

* the expenses should be minimised (so that most of the return will accrue to the policyholders)

* there should be a "fair method" of distributing the surplus between the policyholders and the shareholders

The management has to observe high integrity in managing the par fund and to treat the policyholders "fairly".

In the past, many life insurance companies are operated as "mutual companies"(ie without shareholders). It was easier to ensure that the fund is runned in the interest of the policyholders.

Nowaways, most life insurance companies are operated as stock companies (with shareholders). The companies have to face the challenge of ensuring "fair treatment" of the policyholders, while trying to give the best return to their shareholders.

The proposed new measures try to solve these challenges. It is not easy. But it is worthwhile to make a start.