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May 2019

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Singapore - Insurance group supervision

Source: Asia Insurance Review | Aug 2014

The Monetary Authority of Singapore (MAS) has been consulting since February 2012 on a regime to supervise insurance groups and sub-groups headquartered in Singapore. 
By Ms Anna Tipping, Partner, Norton Rose Fulbright (Asia) LLP

The Monetary Authority of Singapore (MAS) has been consulting since February 2012 on a regime to supervise insurance groups and sub-groups headquartered in Singapore. 
 
Once adopted, this will align Singapore’s insurance regulatory regime as regards group supervision with Insurance Core Principle 23 of the International Association of Insurance Supervisors (IAIS). The Insurance Core Principles (ICPs) provide a globally accepted framework for the supervision of the insurance sector and comprise a risk-based approach to risk management, capital adequacy and group supervision resulting in a closer alignment between risk and strategic management. Alignment with the ICPs is an important part of the International Monetary Fund’s Financial Sector Assessment Programme.
 
New regime
In essence, any insurance group or sub-group that is headquartered in Singapore will, unless adequately supervised on a group-wide basis by another insurance regulator, fall to be regulated by the Monetary Authority of Singapore. An insurance group or sub-group will exist if there is either a financial holding company (FHC) that has a controlling interest in an insurer licensed in Singapore or an insurance company licensed in Singapore owns a controlling interest in another insurer located in Singapore or elsewhere.
 
The MAS will designate the FHC or the controlling insurer parent of the group as applicable for supervision. 
The most relevant aspects of the proposed new regime include:
 
any acquisition, directly or indirectly, of a major stake in any company will require the prior approval of MAS and the disposal of a major stake must be notified to MAS even if the operation is not in Singapore. A major stake is 10% or more of the shares in issue or voting power in a company. Stakes held by affiliated entities are aggregated for this purpose;
 
the parent entity of the group must provide information to MAS on the activities of any unregulated entities in the group and the key persons governing the unregulated entities;
 
the board of the parent entity must be suitably qualified, competent and able to discharge its oversight role objective and free of undue influence. The nature and significance of the group will determine the level of regulation and scrutiny;
 
there will be a group level capital requirement in addition to the solo entity level requirements. The default basis for determining the group level capital requirement and satisfaction thereof will be the consolidated method. MAS will determine a single group-wide Prescribed Capital requirement (PCR) and Minimum Capital Requirement (MCR). Non-regulated entities will be deconsolidated such that surplus will not count but deficit will be deducted from the available group capital.
 
a group will be required to report on a quarterly basis intra-group transactions and exposures (including cross-shareholdings, guarantees and loans, service arrangements and reinsurance) and risk concentration (including counter-party, counter-party groups, industry sectors, service providers and natural disasters). Large transactions, being those involving more than 5% of the group’s available capital, must be separately reported.
 
Early preparation will be key
While there is currently no date for adoption of the proposals, what is certain is that any insurance group that will fall to be supervised by the MAS on a group basis will need to undertake significant internal preparation in order to be able to comply with this regime. Early preparation and appropriate dialogue with the MAS will be key to a successful transition.
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