MAS further revises risk-based capital framework governing insurers

SINGAPORE insurers can feel more relieved now that the Monetary Authority of Singapore (MAS) has tweaked the proposed revisions to the framework that sets out capital requirements aimed at enhancing protection of policyholders.

The revised risk-based capital framework, also known as RBC2, will now be more sensitive to insurers' different risk profiles and business activities, thereby more favourable to them.

In turn, policyholders will benefit from better product pricing and asset allocation decisions made by insurers.

The risk of insurers reducing their offerings, specifically participating products that are savings-related such as endowment plans and whole life policies, is also lower.

Said Chua Kim Leng, assistant managing director of banking and insurance at MAS: "Insurers in Singapore are well-capitalised. The purpose of the RBC2 review is therefore not to raise regulatory capital requirements, but to ensure that our framework for assessing capital adequacy better reflects an insurer's activities and risk profile."

A key revision in the latest MAS consultation paper on RBC2 released on Friday relates to capital requirements for equity investment, credit spread, counterparty default and operational risk. These have been recalibrated downwards to more accurately reflect the risks that they pose to insurers.

Another revision relates to the discounting of life insurance liabilities, which has been adjusted to reduce the impact of short-term volatility on insurers' capital adequacy. This will enable insurers to continue providing sustainable long-term insurance products to policyholders.

The recalibrations, said MAS, will create a more conducive environment for insurers to invest in equities and long-dated bonds and offer long-term retirement solutions to consumers.

MAS will conduct a second quantitative impact study to assess the impact of the revised proposals.

The consultation paper, which factors in previous concerns of insurers who were worried that certain capital requirements were too conservative and thereby making it more onerous for them, is available on the MAS website, and comments should reach the regulator by Oct 20.