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Tan Beng Lee

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Title: Tan Beng Lee


1
Role of Independent Directors in Insurance
Company
12 July 2005, Hong Kong
  • Tan Beng Lee
  • Group CEO
  • Great Eastern Holdings Limited, Singapore

2
1. SINGAPORE LISTED COMPANIES
3
  • Requirement for Independent Directors
  • Spelt out in Code of Corporate Governance
  • Not prescriptive. Code specifies best practices
    but allows deviations, with explanations
  • Must have effective Board comprising
  • People with diverse backgrounds, experiences and
    competencies
  • More than one-third independent
  • Nominating Committee to determine independence

4
  • Definition of Independent Directors
  • No legislative definition, only broad
    indications
  • Independent director - without any relationship
    with company to interfere with his independent
    judgment
  • Examples of relationships
  • Employed by company, currently or in last 3
    years
  • Immediate family member employed by company,
    currently or in last 3 years
  • Accepting any compensation from company in
    current or last 3 years
  • Connected with company which made payments
    exceeding 200,000, or received payments
    exceeding 200,000, in current or immediate past
    year

5
  • Importance of Independent Directors
  • To safeguard interest of ALL stakeholders
  • To balance diverse interests of employees and
    shareholders, especially minority stakeholders
  • To increase long-term shareholder value, in the
    face of shareholder expectations for well-run and
    directed companies
  • To provide effective leadership to manage
    business risk and minimise fraud risk
  • To play important role in watchdog committees
    such as Audit, Nominating and Remuneration
    Committees

6
2. INSURERS INCORPORATED IN SINGAPORE
7
  • Corporate Governance for Insurance Companies
  • MAS proposing Insurance (Corporate Governance)
    Regulations for all insurance companies
    incorporated in Singapore
  • Will be stricter and more onerous than Code for
    listed companies
  • Very prescriptive and specific
  • In Code, one-third Board to be independent
    Regulations require majority
  • Stricter interpretation of independent
    director
  • No level-playing field for all insurer insurers
    incorporated outside Singapore need not comply

8
  • Definition of Independent Directors
  • Definition clearly specified in the proposed MAS
  • 3 main conditions
  • 1st 2nd conditions should not be in any
    relationship with insurer and affiliates same
    as Code
  • 3rd Condition should not be substantial
    shareholder or connected to substantial
    shareholder, including being accustomed or under
    obligation to act according to substantial
    shareholders wishes
  • This 3rd condition is new not in the Code for
    listed companies

9
  • Importance of Independent Directors for Life
    Insurance Companies
  • In life insurance policy, perceived inherent
    conflict between shareholders and policyholders
  • Need to protect policyholders, especially in area
    of product liability

10
  • 3. THE CHALLENGES

11
  • Shortage of Truly Independent Directors
  • Need candidates from diverse backgrounds,
    qualifications, experience and capabilities
  • Shortage of directors with good grasp of
    actuarial knowledge and embedded value concepts
    to contribute effectively to Boards discussions
  • Need to be in touch with changes in life
    insurance industrymarket conduct issues, risk
    management issues etc
  • Already difficult to get good candidates as
    directors, let alone good independent directors

12
  • Evaluation of Independence is Subjective
  • Even after they qualify based on hard criteria
    like qualifications and experience, is there true
    independence of mind and impartiality?
  • Can they lose independence with time, after the
    establishment of friendships, or after they
    become beholden in any way to substantial
    shareholder or management?
  • Board unlikely to appoint a candidate they are
    not comfortable with. Need to ensure a good fit

13
  • Importance of integrity
  • Important to observe Code in spirit, instead of
    blindly following it to the letter
  • Corporate culture is most important
  • Independence is a state of mind. It is
    important. But what is most important is the
    INTEGRITY of the individual to ensure that he
    maintains an independent mind when performing his
    duties as a director

14
  • THANK YOU
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