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Regulating insurers in a low-yield environment

Source: Asia Insurance Review | Aug 2015

The insurance industry is in the midst of a yield crunch. Regulators will need to watch insurers closely to ensure that they do not give in to pressures to pursue alternative financial investments recklessly. Meanwhile, insurers need to take ownership of their risks and keep in view new and emerging risks on their horizons.
   Ms Lee Wai Yi, Director & Head (Supervisory Analytics Division), of the Monetary Authority of Singapore (MAS), was speaking about challenges to the industry at the Insurance Risk and Finance Research Conference 2015 held in Singapore in June. She noted that while some of their global counterparts were turning to mortgage bonds, infrastructure financing and products that are typically not in the insurance space, Singapore’s insurers remain prudent in not pursuing reckless investments. Their exposures remain relatively limited as they offer mostly participating policies with low guarantees.
   However, faced with pressures to find good assets and yields, insurers may turn to new investment avenues which increase their exposures. This is where regulation would help keep an eye on them, in the form of guidelines for board-approved investment policies, ERM frameworks and stress-testing, risk-based supervision and macro-prudential surveillance, in which MAS monitors the interactions between insurance and broader financial systems. 
   Ms Lee also emphasised that insurers should bear in mind emerging risks and trends, such as Nat CATs, the Internet of Things and an ageing population, which can also present new opportunities for growth. She highlighted cyber threats as one area MAS was looking at closely, where insurers should also step up their response capabilities.
   “Our role as regulator is not to overregulate and stifle innovation, but to prepare ourselves to help position insurers to take hold of opportunities as they arise. This will allow insurers to carry out their reporting roles in the economy and society on a sustainable basis,” said Ms Lee.
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