I REFER to last Thursday's reply by the Monetary Authority of Singapore (MAS), 'Interests of policyholders protected: MAS', in which MAS stated that my letter ('Transparency in insurance: Policyholders underpaid', Aug 6) suggested that insurers have built up 'orphaned money' by under-declaring bonuses to participating policyholders.

I never suggested that. In fact, I said orphaned money comes from a different source: policyholders who leave the fund early, before their policy matures.

Life insurers acknowledge that early surrenders receive less than their full asset share. The underpayments accumulate and form a slush fund commonly known as 'orphaned money'.

MAS claims I believe life insurers under-declare bonuses in order to build up orphaned money, but this would be difficult and I doubt it happens.

Bonuses are cut only in downturns, when the policyholders' fund has suffered losses. They would need to be cut in good times for the bonuses to add to orphaned money. This has probably never occurred.

Whether orphaned money exists depends on just one thing: Do life insurers pay less than the proportionate ownership - called asset share - to policyholders who leave the fund before their policy matures? To give a frame of reference, it would be like a unit trust paying less than the net asset value when investors sell.

If MAS or the life insurers say, 'We pay early surrenders their full asset share and always have', then that is the end of it. I have made an error, orphaned money does not now exist, it never has and I apologise.

The MAS reply, however, talks about the 90:10 insurance rule and the risk-based capital regime. These do not address the question of whether the full asset share is paid to policyholders when they exit the fund. That is the only way to know if orphaned money exists.

It would be easy for MAS or life insurers to disclose if they pay the full asset share. They are the only ones who can answer the question as they are the only ones with the data.

If orphaned money exists, then we can move on to the second step of determining how much it is and where it is held since - at present - no Singapore life insurer carries an account labelled, 'orphaned money'.

Larry Haverkamp

This article was first published in The Straits Times.