top concerns for singapore insurers

top concerns for singapore insurers - new regulations, shortage of talent

in a latest survey conducted by Pwc and the centre for the study of financial innovation, singapore insurers cited regulation as the top risk concern over the time horizon for the next 2 to 3 years. The survey polled some 500 insurance practitioners across 40 countries, of which 22 were from singapore.

citing the new European Union's Solvency II* directive coupled with changes in the International Financial Reporting Standards, will also affect insurers here in our tiny red dot nation, especially those which are subsidiaries and joint ventures of european insurers.

Mr Bob Gibson, the director of the Asian Acturial Practice at PwC said:

“There are many aspects to Solvency II which also brings up other issues, for example, the impact on the need for capital, the pressure on costs, and the pressure on making investment returns with this risk captial."

Mr Gibson also said insurers here were probably a year away from full implementation of the new standards.

he said; “While many of the practices of Solvency II may be seen as an overhead, they do give the opportunity for management to raise the standard in some way, to embrace risk management."

with the new directive on Solvency II and new corporate governance standards, insurers have also expressed their concern on the shortage of talent well versed in these areas of expertise.

Mr Alywin Teh, the Singapore Insurance Leader at PwC, said,

“When those regulations come into the local marketplace, there will be severe shortage of talent (well versed in Solvency II. There will be a need to skill our people up."

there are also other risks that our local insurers are concerned with including the ability to raise capital and investment performance which are highly correlated with their international counterparts.

*from wikipedia:

Solvency II is the updated set of regulatory requirements for insurance firms that operate in the European Union. Once the Omnibus II directive is approved by the European Parliament, Solvency II will be scheduled to come into effect on 1 January 2013.

The rationale for European Union insurance legislation is to facilitate the development of a Single Market in insurance services in Europe, whilst at the same time securing an adequate level of consumer protection. The third-generation Insurance Directives established an "EU passport" (single licence) for insurers based on the concept of minimum harmonisation and mutual recognition. Many Member States have concluded that the current EU minimum requirements are not sufficient and have implemented their own reforms, thus leading to a situation where there is a patchwork of regulatory requirements across the EU. This hampers the functioning of the Single Market.

Solvency II will be based on economic principles for the measurement of assets and liabilities. It will also be a risk-based system as risk will be measured on consistent principles and capital requirements will depend directly on this. While the Solvency I Directive was aimed at revising and updating the current EU Solvency regime, Solvency II has a much wider scope.

A solvency capital requirement may have the following purposes:

To reduce the risk that an insurer would be unable to meet claims;
To reduce the losses suffered by policyholders in the event that a firm is unable to meet all claims fully;
To provide early warning to supervisors so that they can intervene promptly if capital falls below the required level; and
To promote confidence in the financial stability of the insurance sector
Often called "Basel for insurers," Solvency II is somewhat similar to the banking regulations of Basel II. For example, the proposed Solvency II framework has three main areas (pillars):

Pillar 1 consists of the quantitative requirements (for example, the amount of capital an insurer should hold).
Pillar 2 sets out requirements for the governance and risk management of insurers, as well as for the effective supervision of insurers.
Pillar 3 focuses on disclosure and transparency requirements.

my comments:

while i am not an expert to comment on the new solvency and international financial reporting standards, i share the concerns of our insurers.

while raising the bar on solvency and international financial reporting standards are rightful and desirable, my take is there should never be a case of either insufficient regulation or being over regulated. because there can be little (which carries exposure of risks ) or even too much of a good thing and the changes come with risks to the insurers themselves, like the impact on the need for capital, the pressure on costs, and the pressure on making investment returns with this risk captial."

furthermore, in the upcoming implementation of the new regulations, the industry will face a severe shortage of talent well versed in the new Solvency II requirement.