The mistake was in allowing this type of "gambling" product to be sold to the general public. There is no way that any investor will be able to assess the risk of losing all their money. They had to rely on the advise of the financial adviser (i.e. insurance agent) and the credit rating agency. The Monetary Authority of Singapore should not have allowed the general public to gamble away all of their money for a small increase in interest rate.
Great Eastern Life made the mistake of selling this product, but several other insurance companies also sold similar products. NTUC Income, which was managed by me during this period, avoided this type of product, resulting in a decline in our market share.
Most policyholders who bought the product were probably told that there is a risk, but were probably assured (wrongly) that the risk is very small. It would be fair for the policyholders to take partial responsibility and bear a portion of the loss. Some policyholders might not have been told of the risk, or might have been misrepresented about the risk, but this is a separate matter.
It is magnanimous (highly generous) of Great Eastern Life to offer a full buyback of this investment product. I congratulate them for this goodwill gesture, which is costly to their shareholders. I hope that all policyholders who got back their money understand that they have been generously treated.
Great Eastern Life has to write off a loss of $250 million. It could be more, if the credit market continue to deteriorate. It could be less, if the credit market improves in the future. No one knows what the future will hold.
I like to wish all the best to Great Eastern Life and hope that they will be rewarded for their generosity, through an improvement in the credit market. In the best possible case, they may fully recover the $250 million that was set aside. At that time, I hope that the policyholders will not ask for the interest to be paid to them (as it would be an unfair expectation).
Whatever the outcome, Great Eastern Life would probably be rewarded by the goodwill gained from the compensated policyholders, their families and friends and the general public in Singapore.
I call on the other insurance companies who have sold similar products to offer a buyback arrangement. It does not have to be as generous as Great Eastern Life, but it should share the loss (or gain) equally between the policyholders and the insurance companies. This would be a fair settlement.
Tan Kin Lian