Analogy - there are no poor people in Singapore

There is a debate in the Straits Times Forum about the existence of "orphaned money" in the participating fund of a life insurance company.

In my letter, I gave an example of a life insurance fund with assets of $15 billion and liabilities of $13 million (calculated from the individual liabilities of all individual policies), leaving "orphaned money" of $2 billion.

The reply of the Monetary Authority of Singapore, Life Insurance Association and Singapore Actuarial Society, is that under the law, all money in the participating fund belongs to the participating policyholders, hence the question of "orphaned money" does not arise.

This is similar to the argument that as Singapore is a wealthy nation, and as all the wealth of the state belongs to the people, there are no poor people in Singapore. Tell that to the people who cannot pay their electricity bill or buy food.

Orphaned money in Life Insurance Fund

There is some debate in the Straits Times Forum about "orphaned money" in the participating fund of a life insurance company.

The term "orphaned money" is coined by Larry Haverkamp (who writes as Dr. Money in The New Paper) to refer to the money that is left in the participating fund when a policyholder terminates his or her policy and receives less than the "asset share" under the policy. The asset share is calculated as the premiums received, investment income earned, less the charges taken from the policy.

The Monetary Authority of Singapore has stated that the insurance companies are required to use the concept of asset shares in the distribution of bonuses on participating policies and to follow an approved "governance framework" involving the appointed actuary and the top management.

I hope that the MAS can clarify how this arrangement works, and how the interest of the policyholders are protected under this framework. If the life insurance companies pays less than the asset share on the termination of the policy, what recourse does the policyholder have? Does the policyholder even know about this fact, as the asset share is not disclosed to him (i.e. lack of transparency).

Some jurisdiction requires the asset share to be calculated for each policyholder and for the full asset share to be paid to the policyholder on termination of the policy after it has been in force for a certain number of years. I suggest that Singapore should adopt this approach.

The Monetary Authority of Singapore, Life Insurance Association and the Singapore Actuarial Society have stated that under the law, all money in the participating fund belongs to the participating policyholders and, therefore, the existence of orphaned money does not arise.

I am not able to follow this reasoning. We know that there are orphans in Singapore. These are children whose parents are no longer around. Can we say that as these orphans are being cared for by the state, they are no longer "orphans"?

I am inclined to follow Larry Haverkamp's reasoning that money in the participating fund that is taken from the asset share of terminated policies should be termed as "orphan money". In actuarial literature, the term used is the "estate".

However, I wish to raise the following fundamental issues:

a) Currently, there is no legal requirement that the asset share attributed to an individual policy should be paid to the policyholder on the termination of the policy, even on maturity. It is possible for a policyholder, on maturity, to receive less than the asset share, on the reasoning that the money is required to "smooth" the bonus for the remaining participating policyholders?

b) Why is there a need to penalise the policyholder of a surrendered policy by paying less than the asset share, when the high expenses and other charges have already been deducted from the asset share of the policy? Already, the asset share for a policy in the early years may be less than half of the total premiums paid.

I hope that the Monetary Authority of Singapore will address these fundamental issues that affects the long term savings of over one million policyholders and their families.

Tan Kin Lian

Watchdog thinks $20m is in bag for Lehman fund

Phila Siu
Tuesday, August 25, 2009

The Consumer Council is confident it will get HK$20 million from the government to beef up its litigation fund as it prepares to take its first Lehman Brothers minibond case to court. The extra cash will increase its litigation fund to HK$35 million.
Chief executive Connie Lau Yin- hing said the Consumer Legal Action Fund will also be used for other litigation.

The first minibond case seeks to recover HK$500,000, but the council declined to name the bank involved and would not provide any information about the investor.
The council has received 11,919 minibond complaints so far and resolved 1,169 cases.

Lau said 20 cases were originally ready to proceed to litigation, but were settled out of court. She said the extra HK$20 million is needed because more cases will emerge if the test case is satisfactory. "Feedback from the government about the application is very positive. We are waiting for the approval," Lau said.

She said looking for a suitable lawyer took some time because many have connections with the big banks, and were not willing to represent the minibond investors.
The first case to go to court had to be carefully chosen because it has to be representative of most cases.

She also said staff have been working around the clock because getting the required documents from banks took a long time. "There are constraints, we cannot force the banks to give us the documents and information we need," she said.

But legislator Kam Nai-wai did not accept Lau's reason for the delay. He said the council's slow reaction has given the public the impression that the council is a toothless tiger.

"The council should have applied for funds long ago. It should have known Chief Executive Donald Tsang Yam- kuen has promised the government will do everything it can to help the minibond investors," Kam said. But he said he knew getting the documents from banks can be a headache as he had dealt with many angry investors.