MAS Consults On Proposed Revisions To Enterprise Risk Management, Investment And Public Disclosure Requirements For Insurers Guidelines – Insurance

Singapore:

MAS Consults On Proposed Revisions To Enterprise Risk Management, Investment And Public Disclosure Requirements For Insurers Guidelines

01 March 2021

Shook Lin & Bok

On 19 February 2021, the Monetary Authority of Singapore
(“MAS“) issued a consultation paper
inviting public comments on proposed revisions to MAS Notice 126 on
Enterprise Risk Management, MAS Notice 125 on Investments of
Insurers and MAS Notice 124 on Public Disclosure Requirements.

The proposed revisions to MAS Notices 126, 125, and 124 are
intended to align MAS’ rules and regulations for insurers in
line with the development of the Holistic Framework for Systemic
Risk in the Insurance Sector (and corresponding updates to the
Insurance Core Principles) by the International Association of
Insurance Supervisors in November 2019 for the purpose of
mitigating systemic risk in the insurance sector.

1. Applicability of the MAS Notices to Insurers

MAS Notice 126 applies to all licensed insurers, except for
captive insurers and marine mutual insurers. The enterprise risk
management requirements and guidelines in this Notice set out how
insurers are to identify and manage interdependencies between key
risks, and how these are translated into management actions related
to strategic and capital planning matters.

MAS Notice 125 applies to all licensed insurers, with certain
exceptions. This beste private Krankenversicherung für Referendare Notice governs the oversight of investment
activities of an insurer and the investments of its insurance
funds, and where it is incorporated or established in Singapore,
the investments of its shareholders’ funds as well.

MAS Notice 124 applies to all licensed insurers, except for
captive insurers, marine mutual insurers, and run-off insurers.
This Notice sets out requirements for an insurer to disclose
relevant, comprehensive and adequate information on a timely basis
in order to give a clear view of its business activities,
performance and financial position.

2. Key Revisions to MAS Notices

a. MAS Notice 126 on Enterprise Risk Management

The proposed revisions to MAS Notice 126 are meant to strengthen
insurers’ risk management practices, which include the
enhancement of liquidity risk management and stress testing
processes, and to prevent insurance sector vulnerabilities and
exposures from developing into systemic risks.

MAS is proposing that an insurer must adopt the following
additional risk management practices:

1. 1. identify and address concentration risk in its enterprise risk
      management framework, in addition to the risks currently set out in
      MAS Notice 126, which include insurance, market, credit,
      operational and liquidity risks;

1. 1. as part of its Own Risk and Solvency Assessment
      (“ORSA“);

1. 1. 1. 1. perform stress testing on material counterparty exposures;
      1. 1. perform macroeconomic stress testing;
      1. 1. establish liquidity management processes, in particular
            to:
      1. 1. 1. 1. maintain an unencumbered portfolio of liquid assets;
            1. 1. perform liquidity stress testing;
            1. 1. establish a liquidity contingency funding plan to address
                  liquidity shortfalls; and
            1. 1. submit a liquidity risk management analysis as part of the ORSA
                  report.

MAS has also proposed to issue guidelines to provide clarity on
the new requirements to allow insurers to make the necessary
changes to their risk management practices to comply with these new
requirements.

b. MAS Notice 125 on Investments of Insurers

The proposed revisions to MAS Notice 125 are meant to provide
more clarity on MAS’ expectations regarding the investment
activities of insurers.

MAS is proposing to require an insurer to include the following
additional information in their board-approved written investment
policy under Appendix A of MAS Notice 125:

1. 1. establishment of limits for the allocation of assets by type of
      asset and credit, in addition to the existing requirements to
      establish limits for the allocation of assets by geographical area,
      markets, sectors, counterparties and currency;

1. 1. a consideration of whether the formulation of a counterparty
      risk appetite statement is necessary, based on the size of the
      insurer’s counterparty exposures, as well as the complexity and
      form of these exposures.

Additional changes proposed for MAS Notice 125 include the
following:

3. 3. excluding special purpose reinsurance vehicles
      (“SPRVs“) from the requirements under
      paragraphs 8 to 20 of MAS Notice 125, in addition to the existing
      exclusions for captive insurers and marine mutual insurers;
      and

3. 3. exempting an insurer from paragraphs 13 to 14 of MAS Notice 125
      in respect of the part of any insurance fund established and
      maintained for its investment-linked policies under section
      17(1A)(a) of the Insurance Act, in addition to the existing
      exemption from paragraphs 21 to 28 of the same Notice in respect of
      such insurance funds.

c. MAS Notice 124 on Public Disclosure
Requirements

The proposed revisions to MAS Notice 124 are meant to enhance
the public disclosure requirements in the areas of investment risk,
company profile information, technical provisions, and non-GAAP
financial measures.

Based on the existing requirements under MAS Notice 124, an
insurer must disclose such information in its annual returns lodged
with MAS and published on MAS’ website, or in any document
lodged with ACRA and made publicly available by ACRA, or on the
insurer’s official website (which may include an insurer’s
existing Group website).  Such disclosures are also required
to be made within 6 months from the last day of the financial year,
or within 6 months from the last day of the accounting period
applicable to the insurer.

MAS is proposing that an insurer must publicly disclose the
following additional information:

1. 1. quantitative and qualitative information on liquidity risk,
      including:
      1. 1. quantitative information on sources and uses of liquidity,
            and
      1. 1. qualitative information on liquidity risk exposures, management
            strategies, policies and processes;

1. 1. known trends, significant commitments, significant demands and
      reasonably foreseeable events that potentially results in material
      improvement or deterioration in liquidity;

1. 1. quantitative and qualitative information on investment risk,
      including:
      1. 1. quantitative information on currency risk, market risk, credit
            risk and concentration risk, and
      1. 1. qualitative information on the management of investment risk
            exposures, use of derivatives for hedging investment risks and
            internal policies on the use of derivatives;

1. 1. information on its corporate structure, including any material
      changes that have taken place during the year, and key business
      segments;

1. 1. a description of the formula or methodology of financial
      measures used in its disclosures, other than those specified in the
      accounting standards or MAS’ legislation (e.g. non-GAAP
      measures), accompanied by appropriate disclaimers that such
      financial measures do not have a standardised definition within the
      relevant accounting standards and MAS’ legislation and hence
      may not be comparable with other entities.

Additional changes proposed under MAS Notice 124 include the
following:

6. 6. amending the Notice to clarify that the disclosure requirement
      in respect of the determination of technical provisions shall be
      presented based on material insurance business segments; and

6. 6. excluding SPRVs from the public disclosure requirements in MAS
      Notice 124, in addition to the existing exclusions for captive
      insurers, marine mutual insurers and run-off insurers.

3. Closing Date of Consultation

The consultation closes on 19 March 2021 and a copy of the MAS
consultation paper can be obtained here.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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