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

1.SINGAPORE LISTED COMPANIES

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 oPeople with diverse backgrounds, experiences and competencies oMore than one-third independent oNominating Committee to determine independence

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: oEmployed by company, currently or in last 3 years oImmediate family member employed by company, currently or in last 3 years oAccepting any compensation from company in current or last 3 years oConnected with company which made payments exceeding $200,000, or received payments exceeding $200,000, in current or immediate past year

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

2.INSURERS INCORPORATED IN SINGAPORE

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

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

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

3.THE CHALLENGES

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 Board‘s discussions  Need to be in touch with changes in life insurance industry…market conduct issues, risk management issues etc  Already difficult to get good candidates as directors, let alone good independent directors

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

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

THANK YOU