Tan Beng Lee

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Role of Independent Directors in Insurance
Company
12 July 2005, Hong Kong

• Tan Beng Lee
• Group CEO
• Great Eastern Holdings Limited, Singapore

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1. SINGAPORE LISTED COMPANIES
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• 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

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• 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

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• 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
  

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2. INSURERS INCORPORATED IN SINGAPORE
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• 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

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• 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
  

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• 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
  

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• 3. THE CHALLENGES

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• 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

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• 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

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• 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

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• THANK YOU