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RBC 2 will not hamper well-managed insurance businesses: MAS

Wednesday, March 4, 2015 - 17:58
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The proposed changes to the risk-based capital framework, or RBC 2, which seeks to reflect the relevant risks that insurers face, will be more risk sensitive and robust but it should not hamper well-managed insurance businesses.

THE proposed changes to the risk-based capital framework, or RBC 2, which seeks to reflect the relevant risks that insurers face, will be more risk sensitive and robust but it should not hamper well-managed insurance businesses.

Ong Chong Tee, deputy managing director of financial supervision at the Monetary Authority of Singapore (MAS) said that the regulator will implement RBC 2 only after it has conducted "a thorough calibration and assessment".

At the Life Insurance Association Singapore's (LIA) 13th annual luncheon on Wednesday, he pointed out that some of the insurers "are naturally anxious" if the required capital buffers would be the same under RBC 2 as it is now.

"This is not our expectation given that risk requirements under RBC 2 are designed to be more risk sensitive, comprehensive and calibrated at a higher competency level," stressed Mr Ong.

There will also be greater differentiation in the capital adequacy ratio (CAR) that assesses insurers' solvency, for firms with varying risk profiles, he said.

In underlining the need for RBC 2, Mr Ong said that the operating environment for global finance including insurance has and will become increasingly complex given the more connected global markets and the vulnerability of contagion.

Coupled with an overall low interest rate environment that now pushes investors, including insurers, to target more risky, higher-yielding products and potential new areas of risks, such as technology risks, he said that it is important for Singapore's insurance capital framework to remain relevant and effective.

It is also important that insurers operating in Singapore are well-capitalised to weather different crises and risks, said Mr Ong.

The public assurance is the first from the MAS since detailed specifications for the first quantitative impact study was released in mid-2014.

A second study will be conducted in the second quarter of the year.

Previously, RBC 2 was expected to be rolled out in 2017.

In his address, Mr Ong also announced that the two key initiatives under the Financial Advisory Industry Review (Fair) - the Web aggregator that allows consumers to compare the premiums and features of life insurance products, as well as features of direct purchase insurance products - will be implemented in early April.

"MAS will continue to work with the industry and consumer groups to conduct regular reviews, to ensure that the product suite and features of the DPI (direct purchase initiative) and even of the aggregator itself, remains relevant in meeting the needs of the consumers."

Together with the balanced scorecard framework for the remuneration of financial adviser representatives and supervisors, the two key initiatives are meant to restore trust in the insurance sector by promoting a culture of fair dealing and empowering consumers to make informed choices.

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