Insurers’ search for yield must not compromise policyholder protection, says MAS assistant MD

[SINGAPORE] The Monetary Authority of Singapore (MAS) is tracking the increasing allocation by insurers globally to private assets, as recent disruptions in private credit surface “important vulnerabilities”, said Marcus Lim, MAS assistant managing director.

In a keynote address at the Life Insurance Association (LIA) annual luncheon on Monday (Mar 30), he noted that insurers may seek exposure to private assets such as private equity or credit. Private credit, for instance, may seem to offer a “natural fit” with insurers’ long-term liabilities.

“Insurers must exercise strong risk management, apply robust stress testing and ensure that the search for yield never compromises the fundamental promise of policyholder protection,” Lim said.

He also spoke about fair dealing. MAS, he said, conducted a thematic review of complaints handling processes across selected banks and insurers “to get a sense of how thoroughly issues are reviewed”.

“One clear lesson is this: complaints should not be treated in isolation. They should be discussed at the board and senior management levels for what they reveal about deeper issues – in products, processes or people.” MAS will publish a paper this year to share the good practices observed.

Private-asset exposures

On private assets, he said insurers’ exposure may be via direct investments or indirectly through asset-intensive reinsurance (AIR). AIR may be used by insurers to transfer asset and insurance risks, most commonly long-duration products, to a reinsurer.

“AIR presents an opportunity for insurers to tap specialised investment capabilities – often in private markets – to support policies with significant investment risk, such as whole life and universal life,” said Lim.

Over the past few months, private credit has been roiled by a spate of bad news. Several funds are seeing a surge in redemptions and have imposed gates. Some have had to revalue assets downwards as well, due to exposure to the software sector which is seen to be under threat from AI.

Lim said: “When liquidity dries up and valuations become opaque, stress can quickly escalate. With AIR, risk does not disappear – it changes form and shows up in collateral quality, market liquidity and the ability to meet recapture obligations under stress.” MAS aims to consult on guidance in this area later this year. Lim also spoke about the capital framework for insurers, where three refinements are being made under Notice 133 which will take effect on Mar 31.

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First is a new capital treatment for qualifying infrastructure investments under the enhanced risk-based capital framework for insurers (RBC 2).

Two, MAS has refined the treatment of structured products to allow insurers to recognise external credit ratings for securitised asset tranches when calculating capital charges. Lim said this would bring the capital treatment in line with the approach to corporate bonds.

Three, MAS will introduce equity counter-cyclical adjustments, designed to “reduce procyclical behaviours during sharp market downswings”. “They will help insurers avoid forced asset sales during stressed market conditions, promote overall financial stability and allow more time for thoughtful portfolio rebalancing.”

Complaints and fair dealing

Lim said that based on complaints data and feedback received from policyholders, the industry has served customers well. “But I also see, in places, a drift from that original promise. There are still instances of insurers failing to provide timely updates to claimants, representatives not explaining terms and conditions clearly, and application rejection decisions that are poorly communicated.

“These are not abstract issues. They shape how policyholders experience insurance at the moments that matter most.”

Investment-linked policies (ILPs) are an example; they are complex and can be difficult to understand, he said. “We will classify ILPs as complex products, signalling that advice is recommended before purchase.” MAS will publish its response to its consultation exercise shortly.

LIA priorities

Meanwhile, LIA president Wong Sze Keed, who was re-elected for a fresh term, outlined LIA’s priorities this year on three fronts. One is to boost financial literacy for the younger generation. It will roll out a series of financial literacy workshops for Gen Z students in institutions of higher learning, starting at ITE College Central and Republic Polytechnic in April. Wong is also chief executive of AIA Singapore.

“We’re turning ‘adulting’ from a source of anxiety into a position of strength. Whether it’s their first pay cheque or their first home, we want them to step into adulthood with confidence,” she said.

Two is to enhance consumer education in the wealth and health fronts. LIA has published a revised guide to ILPs to demystify the product, and clarify benefits, risks and fees. The guide aims to equip individuals to ask smart questions and make confident choices. “To further bolster trust and improve transparency, we will review the development, design, distribution and value proposition of ILPs with a focus on alignment with fair dealing outcomes and the evolving needs of consumers,” she said.

The third is to reinforce the concept of shared responsibility, needed to mitigate healthcare inflation and ensure a sustainable healthcare ecosystem. “Medical inflation, a key concern for both industry and families, is projected to hit an alarming 16.9 per cent this year. This is not merely a statistic. It is a structural challenge that demands our ongoing, collective action,” she said.

Insurers that offer Integrated Shield Plans (IPs) are expected to roll out new riders from Apr 1. Based on requirements from the Health Ministry, the new IP riders will no longer cover the IP deductibles. The co-payment cap will also be raised to a minimum of S$6,000 to keep pace with the increase in bill sizes over time. On average, rider premiums are expected to cost 30 per cent less than existing riders which offer maximum coverage.

Wong said: “The health landscape is evolving rapidly, presenting new challenges and opportunities. Our IP insurers are listening intently to consumers, and continuously developing products to cater to their evolving healthcare needs.”