28 March, 2021

The Louis Dreyfus Company Debt Drama

In a post-climate change scenario, food security will be an increasing concern for nation states.  While there are giant conglomerates such as Cargill Corporation dominating supplies of commodities such as wheat, there is increasing space for other players not so closely tied to one nation state.  It is worth fighting to keep these entities independent.  There may be short-term pain, but there will be long-term gain. 

There are many lessons that can be learned form the Louis Dreyfus Company drama, from astute corporate manoeuvring, to resiliency, and a sense of certainty and perseverance in the face of overwhelming odds.  Some things may be worth fighting for, and even if we lose, we know we tried.



A Closer Look at Some Critical Illness Plans

Critical illness plans are a foundation for building anybody’s portfolio of insurance policies.  In Singapore, it is almost guaranteed that the average person will live long enough to eventually get a critical illness, most likely some form of cancer.  Death is a one time cost.  Critical illnesses are more insidious, and may cost a family two sources of income – the one who is sick, and the one who has to look after him.





BlackRock Supports ESG

ESG, the environmental, social, and governance criteria are a set of standards for a company’s operations.  Asia has been gaining pace in its progress within the realm of ESG and sustainability.  The diversity of different fund markets in Asia means the adoption of ESG in these markets proceeds at a varying pace. 

ESG interest in Asia has increased due to a range of factors.  Regulatory developments have been key in this push, since ethical stewardship of businesses reduces risk, especially exposure to legislative action, regulatory censure, and risky behaviour.  In an age of activist consumerism and investment, it makes sense.  What BlackRock is doing is doing is in line with industry trends, and makes business sense.




To Build a Marketing Team or Hire an External Agency

When starting a company, one of the considerations after fund raising is marketing.  The decision here is whether to hire an external marketing agency, or build an indigenous marketing team.  This is not always so straightforward.  Marketing is a specialised role, and any serious business needs specialists to grow their market share. 

The strategic advantage of having an in-house marketing team is that they have intimate knowledge of the business.  They are directly invested in the success of the company, and its products or services.  The company is its sole concern and focus.  On the other hand, an external marketing agency would have a greater breadth of knowledge and industry contacts.  They would likely be more exposed, and be more current with industry trends.  We need to weigh between business intimacy and market currency.  An in-house team would know the company and its offerings better, while an external team would likely know the wider market better.  This depends on what the company needs at the moment, and there may be different solutions for different markets, or a combination of either. 

At the very beginning, when cashflow is tighter, the budget is a larger consideration.  An in-house team is a greater initial cost than an external marketing team.  The hiring process, and the set-up is a cost in terms of time and opportunity, since an in-house team would need time to get up to speed.  This is why businesses hire an external marketing agency.  An external agency does not have the cost of recruitment, payroll, taxes, and training, as well as supply.  They are hired to provide results and other costs are amortised across several other clients.  A marketing department is a major investment, and unless the returns justify it, it is not a cost a business should bear yet. 

The third consideration is time pressure.  Coming up with a marketing strategy requires time for market research.  When customer growth begins to plateau, when there is pressure from new offerings by immediate competition, or when a new market is sought to offset loss of share in an existing one, it would make sense to hire an external agency, which is agile enough to develop a campaign on short notice based on their knowledge of current trends. 

In general, a better approach would be to hire an agency to handle marketing and get things off the ground.  As market share and the company grows, the next step is to invest in an in-house marketing team whose role is to chart out a long-term overall strategy for the brand.  They work with the external agency, not replace it.  An external agency would still be hired for specific products, specific target demographics, or specific markets.  The marketing department works with the agency, exploiting their creative process while steering the overall branding in a direction desired by management of the company. 

Marketing is an ongoing process.  It is part of the corporate imaging and branding of the business and the products and services it offers.  There is no contention in the need for having marketing professionals, experts in the field.  It is only a matter of balance between an internal department, or an external agency.



Power Dynamic of Language

The following article is expanded from points based on my slide notes for my 90-minute workshop, “The Power Dynamic of Language”, which is about using language to be more assertive in our interactions with others.  This is part of the wider Moneynomist “Seize the Advantage” programme, along with Eric Tan Shi Wei, Gerald Yong Kim Heong, Margrette Lo Foong Quan, Oh Cheng Kok, and Zhuo Shu Zhen.  The Moneynomist team is from AIA Toastmasters Club, and are all past presidents. 

It is important for us to understand what rhetoric is.  Rhetoric is the art of putting forward a coherent, cogent argument, for or against a position, to convince people to believe as you believe and do as you suggest, because it is viewed to be in their interest.  Rhetoric is the very basis of human civilisation.  The moment one man was able to convince a group of others to perform feats, as part of a grander vision, civilisation was born.  What we see of the pyramids, the Great Wall of China, and other feats of engineering, began with the art of persuasion. 

Our purpose, in Toastmasters, is not merely to give speeches, and evaluate them.  We are part of the inexorable march of humanity, in a river of time through the ages.  That is the art of rhetoric, of which Toastmasters covers only the very basics of it. 

Within this framework, we have ethos, pathos, logos, and kairos.  Ethos is the characteristic values of the audience.  The speaker undertakes the speaker persona, and channels the crowd, but subtly influences their positions by appealing to their perceived values, their ethics, their jingoism.  This is also the appeal to their prejudices, and fear of the stranger.  As such, it can go both ways. 

A classic trope, for example, would be Nigel Paul Farage, of the Brexit Party, claiming that Turks will join the European Union, flood the UK through the EU’s freedom of movement, and challenge “British” values.  This may also be found in Adolf Hitler’s attack on the Jews, and how they are subverting the German state. 

On the other hand, it has a positive side.  An example would be Winston Leonard Spencer-Churchill’s famous “Never Surrender” speech, which galvanised the UK, and the Commonwealth, in opposing Nazi Germany.  It is found in Abraham Lincoln’s Gettysburg Address, which appealed to common values, after the Union victory during the American Civil War, among the first steps to heal a divided nation. 

Ethos works with pathos, their appeal to emotion.  It is literally an appeal to their sense of injustice, their perceived injustices, and their rage.  This is the tool of demagoguery, and has a long history.  This is also the best means to move the masses, since the larger the crowd, the lower their intelligence quotient.  People, in large numbers, are easily moved by emotions.  This works in tandem with kairos, which is an appeal to timelessness, the weight of history, and the appeal to the divine.  Religion moves people to great works, and to great violence. 

An example of pathos would be found in Malcolm X’s “House Negro” speech, where he contrasts the “house negro”, who is complicit in the disenfranchisement and oppression of the African-Americans, as accomplices with their White masters; versus the “field negro”, who is barely held in check, ever ready to rise up against their subjugation, and ready to fight for their emancipation. 

A modern, negative example of pathos would be Donald John Trump’s first major campaign speech, where he said that Mexico was sending murders, and rapists, across the borders, and appealed to the fear of the disenfranchised White underclass, and blaming Hispanic immigrants for their plight.  It is illogical, and contrary to facts, but it got him the Presidency of the United States, and disunited the states. 

Logos is, essentially, an appeal to logic.  Whilst there is a need for an underlying, seemingly coherent, and cogent, argument, it is not often necessary.  These types of speeches are used to explain policy, from a position of strength, not to gain votes, or move the masses.  People are often impervious to logic. 

A classic example of logos, in a major speech, would be Marcus Porcius Cato’s speech to preserve the Roman Republic against the imperial designs of Julius Caesar.  Marcus Porcius Cato is better known as Cato the Younger.  His speech ultimately moved the Senate against Caesar, and succeeded.  Rome became an empire after his, and Caesar’s death. 

Before we talk about the power dynamic, we have to understand what power is.  Within the socio-political construct that we call society, power is the capacity of an individual to influence the actions, beliefs, or behaviour of others.  We use the term “authority” to refer to power that is considered legitimate within the social structure.  Power is ethically amorphous.  It is neither just nor unjust, except in its utilisation.  This is as much perspective as it is intent.  Within the context of what we are addressing, we are looking at words as a tool to wield power and impose authority.  Toastmasters is a leadership programme.  There is no point in learning to speak if we never learn to be assertive and exercise power. 

Here, a power dynamic is the way different people or different groups of people interact with each other and where one of these sides has more power than the other one.  This is the dynamic of class warfare. 

The language we think in greatly shapes the way we interact with others.  For example, Germans and Germanic speakers tend to think and interact formally.  This is because, while the modern English language only knows the word “you”, the German tongue differentiates between formal pronouns, such as the singular and plural, “Sie” from informal ones, such as the singular, “Du”, and plural, “Ihr”.  Similarly, German speakers commonly used honorifics such as “Herr”, for “master”, and “Frau” for “mistress”.  Spanish-speakers, on the other hand, tended to use prefer communication on a first-name basis, regardless of rank.  Similarly, Japanese tends to be formal, while colloquial Malay is the opposite. 

This is a tool to be used to assert authority, or psychologically subdue people.  When affecting a formal tone, it tends to get the message across more effectively in a command type situation, while using a colloquial form may influence people better in an informal context – pretending to be one of them.  For example, dressing formally for meetings, and speaking formally conveys gravitas, and people tend to automatically listen to you, unless they are, themselves centres of power and influence. 

Likewise, even within the same cultural context, using the same language, people at different socioeconomic classes tend to speak differently.  Recognising this, and having mental agility, allows us to blend in, or subtly assert authority by tweaking the language dynamic.



Multi-Level Marketing Schemes are Simply Pyramid Schemes

MLM is a marketing strategy where wealthy people of ethical inadequacy sell the idea of wealth to the lower classes.  This business model began in the 1800s.  Charles Ponzi, when he started his schemes in 1919.  He paid off old investors with new ones.  In a sense, that is what MLMs are, but on the borders of legality, since there is an actual product or service.  In 1934, Carl F. Rehnborg started the Nutrilite company, the first company to combine the methodology behind direct selling and the Ponzi scheme, and created modern multi-level marketing. 

Multi-level marketing (MLM), is also called pyramid selling, network marketing, and referral marketing.  It is a marketing strategy for the sale of products or services where the revenue of the company is derived from a non-salaried workforce, while the earnings of the participants are derived from a pyramid-shaped or binary compensation commission system. 

While each MLM company has specific financial compensation for the earnings to their participants, the common feature found across all MLMs is that the compensation plans theoretically pay out from only two potential revenue streams.  The first is from commissions of direct sales by the participants to their own retail customers.  The second is from commissions based upon the wholesale purchases by other distributors below the participant. recruited by them, into the MLM.  In the organizational hierarchy of an MLM, they participants are referred to as the down line distributors.  MLM salespeople are expected to sell products directly to end-user retail consumers by means of relationship referrals, and word of mouth marketing.  They are incentivised to recruit others to join the company's distribution chain as fellow salespeople so that they can become down line distributors. 

Logically, this is an untenable system.  The Federal Trade Commission of the US published a study of over 350 MLMs, and found that 99% of the participants lose money.  However, MLMs are popular in some circles because people adhere to the delusion that they can achieve large returns through their networks.  This is statistically improbable.  It works because people are bad at mathematics. 

If we apply statistics, if an MLM recruits 10 people, and they all manage to fulfill that potential of recruiting another 10 downlines, that would mean 110 people selling the product.  If they all manage to recruit another 10, that would mean 10,110 people selling the product.  If we assume each recruited another 10, it would mean 100,010,110 involved in the MLM.  This means, at anything past the third level of distribution, it breaks down, since the odds of there being that many distinct individuals involved is economically untenable, even in an entire region.  If all these people are distributors, then who is buying?  More pertinently, what are they selling that is so special that everybody buys the exact same brand of it? 

Many MLMs do not make money selling products.  If their products were any good, they would be found in retail, where the company can maximise revenue without so many layers of distribution costs.  MLMs make money recruiting gullible people, who then make money from other gullible people.  These joiners pay a premium commission for product packages to become wholesale distributors of largely useless products. 

Despite the logical fallacy of the system, the MLM industry is still one of the world’s fastest growing.  They sell everything from jewellery to essential oils, to make-up, to even household appliances.  In the US, 6.2 million people sold products and recruiting distributors in 2018.  Network marketing industry statistics show that of the 6.2 million direct sellers, 1 million were full-time sellers, while 5.5 million were part-time distributors.  Over 10 million new pitches to US women are made annually, since they are the primary target market.  These women are mostly aged 18 to 54 years, and make up 15% of the female population in the country.  There were US$600 billion in commission payouts between 2009 and 2017.  Revenue for the industry was US$1.5 trillion in 8 years.  Of these, 45% of sales come from Asia.  In 2018, Asia made a total of US$85 billion, followed by Europe with US $38 billion, North America with US $36 billion, and finally, South America with US $27 billion.  Since 2009, the industry has seen exponential growth of $72 billion global sales, from US$117 billion in 2009, to US$189 billion in 2017.  The United States and China are the top MLM markets at 18% of global revenue.  South Korea and Germany tie at 9%.  Japan is at 8%, Brazil at 6%, Mexico, France and Malaysia at 3%, Taiwan at 2%, and finally all the other countries in the world at a combined 21%. 

Globally, the industry has grown by 1.7% annually.  The top three markets are the US, China, and South Korea.  The three countries bring in close to US$90 billion in revenue.  The Direct Selling Association claimed that in 2018, the industry made around US$35.4 billion in the US.  This was an increase of 1.3% over 2017.  This revenue was earned from sales of products or services to 36.6 million people.  Of these, 10.4 million were discount buyers, while 26.2 million were preferred clients.  The majority of distributors were aged between 35 and 44 years, comprising 26% of distributors.  Those aged 45 to 54 years follow closely at 24%, while the figure for 25-to34-year-olds is 19%.  The marketing approach is least popular with people below age 25. Those aged 65 years come in at 8%. 

Despite the fact that only 1% of those direct sellers would make any money, 29% of distributors stay as direct sellers long term.  41% of those who join as direct sellers stay motivated to find income potential in the business.  Together, they drove MLMs to a sales record of US$189 billion in 2017, from US$117 billion in 2009.  In 2017, the number of distributors grew to 166 million worldwide.  Of these, 39% of direct sellers cease being part of an MLM at some point in their life.  The primary reason they cease being MLM marketers is because they no longer want to pitch to family and friends.  One of the reasons people have been taken in by MLMs, is also because of the way they recruit, and essentially, indoctrinate people.  They are like cults.  They create a support structure that is both self-reinforcing, and coercive.  That sort of predatory recruitment means that there are people involved in MLMs who actually require intervention to leave. 

Whilst MLMs are distinct from pyramid schemes, this is on the borders of legality, and there is still much about this system that is clearly unethical.  MLMs emphasise new recruits as a source of income over actually selling their product.  They do deliver a product, which makes it legal, but that is not the primary source of revenue.  This opens these companies up to periodic censure and legal action.  For example, in 2014, Herbalife agreed to pay US$15 million to settle a class action lawsuit regarding their discounting and recruiting process.  This is not the first time any of their policies have been found questionable.  Even after the settlement, the Federal Trade Commission is still investigating them.  Various MLM companies have been sued or prosecuted for their failure to accept refunds, to fraud, to false advertising, to racketeering, to money laundering.  There is a lack of accounting for this business model, which explains why recruiters routinely lie about earning prospects.  They are not held to the same stringent compliance standards of many other industries. 

Due to the nature of their distribution, they quickly reach market saturation in an area.  They then rebrand themselves as a new get-rich-quick opportunity  For example, Nu Skin, the cosmetics MLM, has also been known as IDN, Big Planet, Pharmanex, and Photomax in the last 30 years.  They do this because they target the same vulnerable, gullible demographic, who fall for this, over and over, again; or the recruiters who take advantage of these people for money. 

In summary, the only people who have managed to get really wealthy from MLMs are the founders of these companies, and the very first movers, who often have a relationship with these companies themselves.  They have no qualms about lying about their products, emotional blackmail, and other forms of underhanded selling.  Everyone else is a dupe.



Three Steps to Inspirational Leadership

Leadership requires inspiration.  There is no leadership if the people are not inspired, even if that inspiration is borne of fear.  To inspire means to influence.  Our ability to influence is one of the foundational skills of leadership.  Too many people believe that our ability to inspire is tied to our status in society, our intellect, even our bank account.  It helps to have money, it helps to be connected, but it is not a requisite to be inspiring and influential.  This is tied to charisma, and charisma is a learnable skill. 

Dale Harbison Carnegie said, “The only way on earth to influence other people is to talk about what they want and show them how to get it.”  Essentially, people are inherently selfish, and they are interested in what they gain first.  We always shape our conversation with that is in it for them.  There are a few foundational steps we need to implement to become that inspirational leader, and build influence. 

Influence is never periodic.  It is based on building trust and consistency in values and actions.  People trust certainties.  People who are uncertain, people who are erratic, people who are temperamental, are not trusted.  People must feel that we have their genuine interests at heart, and are invested in their success.  Only then, would they be inclined to listen to us, and be directed to a specific direction. 

The second part of gaining influence is to master the art of effective communication.  This is distinct from rhetoric, which is mastery of speaking.  Part of effective communication is learning to listen and understand the underlying message, and not just the apparent meaning of the words, looking for cues in the inflections, pauses, and tonal changes.  This is how we understand people, and this is how we connect with them.  Part of this is asking questions to develop a deeper understanding.  This is asking the right questions to develop a deeper, more sincere understanding of people, and their perspectives.  It is difficult to motivate people when we do not have a gauge of their values and motivation. 

The third part of gaining influence to inspire to be generous with knowledge and to be giving.  We share our experiences, our life lessons, and our resources.  Receiving anything means giving, investing in the right people so that we can reap a return.  People follow when they can gain something, and benefit from that experience of being a follower.  They are investing their time to gain some form of advantage.  This means constructive criticism, mentoring, and coaching, depending.  Leadership is through example, not just words. 

Finally, to inspire people is to give them a reason to believe, to paint them a picture of what we can all achieve together, and make them understand that we are all part of something greater together.  This means having a clear plan, managed expectations, and regular updates.  People follow when they believe a leader is credible, and there is a direction.  Everybody wants to part of progress.  Everybody wants a challenge, and the taste of success.  Leadership is about bringing them there, especially through difficult phases.  Inspirational leadership is about painting a picture of where we want to go.



27 March, 2021

How Life Insurers Actually Manage Risk: The Actuarial Architecture Behind the Policy

Most policyholders think of life insurance as a straightforward transaction.  You pay a premium.  The insurer promises to pay a sum assured when a specified event occurs.  The contract is signed.  The direct debit is set up.  The policyholder files the document and thinks no more about it.

What they do not see is the industrial-scale risk management architecture that sits behind that contract — the actuarial frameworks, reinsurance arrangements, underwriting disciplines, and portfolio diversification strategies that make the promise credible.  Understanding that architecture does not merely satisfy intellectual curiosity.  It explains why insurer selection matters, why not all policies are equally secure, and why the balance sheet of your insurer is the most important number in your financial plan that most people never look at.

The Nature of Insurance Risk

An insurance contract transfers risk from the insured to the insurer.  That statement is simple.  The mechanics are not.  Significant insurance risk is defined technically as the possibility of paying significantly more when the insured event occurs than in a scenario where it does not, in conditions that have commercial substance.  This is not merely the probability of a claim.  It is the uncertainty of the amount of that claim, combined with the randomness of its timing.

The principal risk the insurer faces is that actual claims and benefit payments exceed the carrying amount of its insurance liabilities.  The insurer has estimated, using actuarial models, what it expects to pay across its entire portfolio over the policy term.  It has priced premiums accordingly. If reality diverges from the model — if mortality rates rise, if critical illness claims accelerate, if catastrophic events cluster in time — the insurer pays more than it collected.

Two factors aggravate this risk significantly.  The first is a lack of risk diversification across types and amounts.  An insurer that concentrates its book in a single risk category — say, high-sum-assured whole life policies for HNW individuals — has less statistical stability than one that distributes risk across age groups, income levels, policy types, and geographies.  The second is adverse selection — the tendency of higher-risk individuals to seek insurance more actively than lower-risk ones, distorting the risk pool in ways that push actual claims above actuarial expectations.

The Participating Fund: Sharing Risk with the Policyholder

For contracts with a discretionary participating feature — the participating fund that underpins whole life and endowment policies — the risk architecture includes a mechanism for sharing insurance risk with the policyholder.  Discretionary participating features entitle policyholders to receive additional benefits or bonuses in addition to guaranteed benefits.  These bonuses are non-guaranteed.  They depend on the future performance of the participating fund, the premiums invested, and the insurer's overall performance.  The insurer retains discretion to vary the amount and timing of bonus distributions.

This discretion is not a technicality.  It is the mechanism by which the insurer manages the gap between what its fund earns and what economic conditions require it to distribute.  In a strong year — AIA’s participating fund returned 10.9% in 2025 — the insurer declares bonuses from the surplus.  In a weak year — all Singapore participating funds were in the red in 2022 — the insurer draws on reserves accumulated in prior strong years to smooth the distribution.  The smoothing mechanism protects the policyholder from year-to-year volatility.  It also protects the insurer from having to distribute more than it has earned.

For contracts with fixed and guaranteed benefits and fixed future premiums — term life, for example — no such mitigation exists.  The insurer has made an unconditional promise.  If the promised benefit costs more than the pricing model anticipated, the insurer absorbs the loss.  This is why underwriting discipline is more intensive for guaranteed benefit products.  The insurer cannot adjust the outcome after the contract is signed.

How Insurers Manage the Risk They Accept

The insurer’s first line of risk management is portfolio construction.  The larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome.  This is the law of large numbers applied to mortality and morbidity risk.  An insurer with one million policyholders can predict aggregate claims with considerably more precision than an insurer with ten thousand — even if individual claim timing remains entirely unpredictable.

The underwriting strategy that flows from this insight is diversification across risk type and population segment.  Diversification by age — balancing younger policyholders with lower mortality risk against older ones generating more claims.  Diversification by sum assured — balancing small retail policies against larger HNW mandates.  Diversification by policy type — balancing term life against whole life, critical illness against disability income, individual policies against group schemes.

The insurer that achieves sufficient scale and diversity across all these dimensions reaches a statistical equilibrium where portfolio-level claim experience converges reliably toward actuarial expectation.  The insurer that concentrates too heavily in any single dimension takes on concentration risk — the risk that a specific event affecting that concentrated segment produces claims far above expectation.

Reinsurance: The Risk the Insurer Transfers

For risks that exceed what the insurer chooses to retain on its own balance sheet, reinsurance provides the mechanism for risk transfer.  Mortality risk and morbidity risk above the insurer's retention limits are ceded to reinsurers.  The retention limit — the maximum claim the insurer absorbs before reinsurance responds — is set based on underwriting expertise, capital position, portfolio size, and the insurer’s specific risk appetite.  A Singapore-domiciled insurer writing a US$300 million single life policy does not retain US$300 million of mortality exposure on its own balance sheet.  It cedes the excess to a global reinsurer — Munich Re, Swiss Re, Hannover Re — with the balance sheet depth to absorb the risk.  The most common arrangement for established products is yearly renewable term reinsurance.  The insurer pays a reinsurance premium annually for the excess mortality or morbidity coverage.  The reinsurance premium reprices each year based on the insured’s current age and risk profile.

For new products or risk types with greater uncertainty in claim experience — a novel critical illness category, a new market segment, a product with limited actuarial data — quota share arrangements or co-insurance are used.  Under quota share, the reinsurer takes a defined percentage of every risk from inception, sharing both premium and claim proportionally.  This reduces the insurer’s per-policy exposure while providing the reinsurer with a broad sample of the risk profile.

Catastrophe reinsurance sits above all of this as the protection against tail events — a pandemic, a natural disaster, a terrorist event — that generates claims simultaneously across a large portion of the portfolio.  The catastrophe reinsurance responds when aggregate losses from a single event or series of related events exceed the insurer’s catastrophe retention limit.  The 2020 COVID-19 pandemic tested this layer of protection across the global insurance industry simultaneously — an event for which many insurers' catastrophe models had not fully prepared.

Geographical Concentration: Singapore’s Specific Risk

Singapore insurers face a structural geographical concentration that cannot be fully diversified within the domestic market.  Most of an insurer’s Singapore portfolio comprises risks resident in Singapore — a city-state of 6 million people, 733 square kilometres, and a single economic environment.  This concentration means that economic shocks, public health events, or catastrophic occurrences affecting Singapore affect a disproportionate share of the insurer’s portfolio simultaneously.  The diversification that reduces variability at the individual policy level does not diversify the portfolio against systemic Singapore-specific risks.

The mitigation is geographical expansion. Singapore’s major insurers — AIA, Prudential, Great Eastern, Manulife — are regional businesses operating across Southeast Asia, South Asia, and North Asia.  Their Singapore portfolios represent one geographic segment within a much larger regional book.  A claim event specific to Singapore affects Singapore-sourced policies but not the Malaysian, Indonesian, Thai, or Hong Kong portfolios.  The regional diversification provides the systemic risk protection that the domestic market alone cannot.

This is the actuarial logic behind the regional expansion strategies of Singapore’s insurers.  It is not merely commercial ambition.  It is portfolio risk management.  An insurer whose entire book is Singapore-domiciled is more exposed to Singapore-specific systemic events than one that has distributed its risk across multiple jurisdictions with different epidemiological, economic, and catastrophe risk profiles.

Why This Matters for the Policyholder

The actuarial architecture described here is not academic.  It is the mechanism that determines whether the insurer can honour the promise it made when it accepted the premium.  The insurer’s financial strength rating — its ability to pay claims when they arise — is a direct function of the quality of its risk management architecture.  An insurer with robust underwriting discipline, appropriate reinsurance coverage, well-constructed portfolio diversification, and adequate catastrophe protection can absorb adverse claim experience without threatening its ability to pay policyholders. An insurer without these foundations cannot.

MAS’s Risk-Based Capital framework imposes minimum capital adequacy requirements on Singapore-domiciled insurers, requiring them to maintain capital above specified thresholds relative to their risk exposure.  AIA Singapore’s solvency ratio consistently exceeds 250% — more than two and a half times the minimum regulatory requirement.  That surplus is not idle capital.  It is the buffer that absorbs adverse experience before policyholder obligations are threatened.  The policyholder who selects an insurer based on premium cost alone — without examining the insurer’s financial strength, solvency ratio, reinsurance programme, and participating fund track record — is optimising the wrong variable.  The cheapest premium is irrelevant if the insurer cannot pay the claim.

The actuarial architecture that makes the promise credible is invisible to most policyholders.  It should not be.  It is the most important thing an insurer offers — more important than the product features, the rider options, or the adviser relationship.  The policy is only as good as the balance sheet behind it.


Terence Nunis | Executive Chairman, Equinox Zenith | Author, The 1% Playbook: The Billionaire Cheat Code



25 March, 2021

The Red Sycamore Story

Red Sycamore Pte. Ltd. is focused on three areas which we feel can contribute to the betterment of humanity.  They are renewable energy, food security, and healthcare.  These will be major areas of concern in a post-climate change world.  To that end, one of our key projects is the production and distribution of the next generation electric vehicle, one powered by graphene batteries, and compliant with ESG principles.  We are not just building the green vehicle of the future, but we are shaping the future of logistics, and transportation policy. 

Red Sycamore has secured commitments for US$400 million, and is planning to raise up to US$2 billion in the next 18 months from SFOs, and institutional investors.  This is to expand production of electric vehicles and batteries in Indonesia, Malaysia, and Singapore.  Red Sycamore also has an interest in a proposed joint venture in Thailand.  There are two verticals ready to list, and we are projecting a market valuation that is conservatively well in excess of US$4 billion within 24 months.

This opportunity developed out of a phone call to arrange funding for an impact investment fund in the region.  That conversation then expanded based on our shared values, and concern for climate change and its effects.  Southeast Asia is one the growth regions of the world.  According to the WEF, Indonesia alone is projected to be the 5th largest economy in the world by 2030.  Singapore, Indonesia and Malaysia have all enacted policy to change over to electric vehicles within the decade.  We are here to change the world.




23 March, 2021

Proper Financial Advise is Necessary for CPF Investments

I find it difficult to sympathise with stupid people.  When we have cases like this, the primary cause seems to be greed.  There is little to fault with the system.  There are levels of compliance, and a balanced scorecard system.  There are thousands of financial advisors working for banks, fund houses, and insurers.  There is a fact find and KYC system.  And yet, we keep hearing of many cases where people invested in something that promised them ridiculous yields, without considering the plausibility of it.  Greed blinds people to consequences. 

In general, it is important to understand risk tolerance, investment horizon, and the nature of the investment.  What is the underlying asset?  What if there is a turn in the market?  What about political risk, and currency exposure?  This is why there is a need to have proper financial advise.




The Appeal of Asian Bonds

Two quarters later, the Federal Reserve remains dovish on interest rates, despite the passage of a record stimulus package.  Because of the change of policy on the 2% inflation target, they have more leeway in policy.  The emphasis is on economic recovery, and less on inflationary fears.  Federal Reserve is committed to keeping policy rates on hold until the US labour market has achieved maximum employment, and inflation averages 2% over time.  This would imply that the US policy rate will stay at 0% to 0.25% until well into 2023.  10-year Treasury bond yield will likely be capped at 1% due to inflationary fears. 

For Asian bonds, growth outlook is supported by better management of the Covid-19 pandemic than in Europe and North America. Countries across the region will register positive growth as the region opens up faster than the rest of the world.  The subdued inflation and attractive yield differential between Asian sovereign bonds and US Treasuries make Asian debt instruments appealing.