Singapore to impose higher capital requirements on too-big-to-fail insurers
Michelle Zhu
FROM next year, four insurers in Singapore will face a 25 per cent capital add-on to increase their higher and lower supervisory intervention levels, as well as Common Equity Tier 1 and Tier 1 capital requirements.
The insurers are: AIA Singapore, Income Insurance, Prudential Assurance Company Singapore and The Great Eastern Life Assurance Company.
These four comprise the Monetary Authority of Singapore’s (MAS) inaugural list of domestic systemically important insurers (D-SIIs) announced on Thursday (Sep 21).
Like domestic systemically important banks (D-SIBs), failures of these particular insurers have been assessed to have a significant impact on the financial system and broader economy in Singapore.
The D-SII framework comes into effect on Jan 1, 2024, to facilitate the annual impact assessment of insurers based on their size, interconnectedness, substitutability and complexity.
It formalises and updates MAS’ existing framework for impact and risk assessment of financial institutions.
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The higher capital requirements are among additional measures to be imposed on D-SIIs. MAS said they largely mirror those applicable to D-SIBs. The 25 per cent capital add-on replaces the 25 per cent high impact surcharge that was applicable to D-SIIs under the existing framework.
Given their current capital positions, MAS said the four insurers are expected to continue meeting the capital requirements under the D-SII framework with adequate buffers.
The central bank has also been engaging these four on recovery planning, which will bolster an insurer’s ability to restore its financial strength and viability in a period of distress.
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This comes as part of another measure applicable to D-SIIs, namely recovery and resolution preparedness.
Resolution planning will enhance MAS’ ability to ensure the timely and orderly restructuring or exit of an insurer if it fails, so as to minimise impact to the financial system and economy, said the central bank.
“Enhancing the D-SII framework is part of MAS’ continuous efforts to strengthen the resilience of Singapore’s financial sector. It ensures that domestic systemically important insurers are subject to higher regulatory standards and closer supervision.”
Commenting on the announcement, Great Eastern Group chief executive officer Khor Hock Seng said the group’s ability to meet MAS’ higher capital requirements “also demonstrates that (they) can operate viably in more challenging scenarios and situations.”
MAS published its inaugural list of D-SIBs in 2015 together with the framework for identifying and supervising such banks.
Aside from Singapore’s local banks DBS, UOB and OCBC, foreign banks Citibank, Maybank, Standard Chartered and HSBC were also classified as D-SIBs to come under the additional supervisory measures.
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