Four insurers have been designated as “systemically important” by the Monetary Authority of Singapore (MAS) within the country: AIA Singapore, Income Insurance, Prudential Assurance Company Singapore, and Great Eastern Life Assurance Company.
This classification marks a significant development as it will subject these companies – domestically systemically important insurers (D-SII) – to elevated regulatory standards and closer supervision. The rationale behind this move is rooted in the potential substantial impact their collapse could have on the nation’s economy.
Under this framework, the identified insurers will face additional supervisory measures, closely resembling those applicable to domestic systemically important banks. This will encompass intensified supervision and higher capital requirements to act as a buffer against potential losses. Additionally, these insurers are mandated to develop recovery and resolution plans, along with robust management information systems.
The new regulatory requirements set by MAS are set to take effect on January 1, 2024, marking a pivotal shift in oversight.
“Enhancing the D-SII framework is part of MAS’ continuous efforts to strengthen the resilience of Singapore’s financial sector,” MAS financial supervision deputy managing director Ho Hern Shin said in a report from The Straits Times.
Presently, the framework is already in place for seven domestic systemically important banks, namely Citibank, DBS, UOB, OCBC, Standard Chartered, Maybank, and HSBC.
A recovery plan is intended to reinforce an insurer’s capacity to restore its financial strength and viability during distress, while a resolution plan aims to facilitate timely and orderly restructuring or exit in case of failure. Such measures aim to minimise the impact on the financial system and the broader economy.
Considering their existing capital positions, the four insurers are anticipated to sustain compliance with the capital requirements under this framework, maintaining adequate buffers.
The identification of these insurers as systemically important was based on four key factors: size, interconnectedness with other components of the financial system and the economy, substitutability (the ability to be replaced), and various business, structural, and operational complexities.
The MAS assesses an insurer’s size using the share of Singapore Insurance Fund (SIF) total assets and share of SIF gross written premiums as measures. Essentially, the larger the firm and its share of domestic activity, the higher the likelihood that its failure or distress will negatively impact the domestic economy and financial markets.
It’s worth noting that the thresholds for each indicator will be carefully adjusted, factoring in annual industry data, although specific threshold details are not disclosed by MAS.
It is also worth noting that Singlife, a government-approved insurer providing the Medishield Integrated Plan, was not deemed systemically important, though the regulator did not provide further commentary on this decision.
The framework also incorporates a two-year data assessment period before an insurer is designated as a D-SII or removed from this classification. Once designated, an insurer will retain this status unless notified otherwise by MAS.
MAS will continue to closely monitor developments in the financial system and international assessment methodologies to ensure the ongoing appropriateness of the framework, making necessary refinements when warranted.
Elsewhere in the country, Singapore has ended Hong Kong’s half-century reign as the world’s freest economy, according to the most recent rankings compiled by a Canadian think tank that cited eroding judicial independence as one factor.
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