&P has lauded Singapore's recent adoption of a framework for domestically systemically important insurers (D-SIIs) as a favourable step for the nation's insurance sector.
The measure is anticipated to elevate the industry's ability to withstand challenges and boost market confidence, according to an SBR report.
Recently, the Monetary Authority of Singapore (MAS) pulled a first in Asia by implementing a comprehensive D-SII framework encompassing recovery and resolution planning. It named AIA Singapore, Income Insurance, Prudential Assurance Company Singapore, and Great Eastern Life Insurance Company as “systemically important.”
These four entities collectively manage approximately 70% of the assets within Singapore's life insurance funds. With the D-SII designation, they are also expected to handle heightened capital requirements, including a 25% capital add-on, although this adjustment does not immediately impact the financial situation or ratings of these insurers, as it replaces the previous 25% “high impact surcharge” within MAS' existing framework.
Broadly, the D-SII requirements enhance MAS' prevailing framework for evaluating the impact and risks associated with financial institutions, providing increased transparency, including previously undisclosed details like the capital surcharge for the major insurers.
"While the strengthened regulatory oversight will raise operational costs for D-SIIs, we think the overall benefits to the insurance sector outweigh the costs," S&P credit analyst Eileen Tay said. "Given an increasingly complex risk landscape, a higher bar on supervision encourages D-SIIs to maintain high standards of governance and risk management.”
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