2.1 The Monetary Authority of Singapore and the Insurance Act

2.1 The Monetary Authority of Singapore and the Insurance Act

Quick Summary: The Monetary Authority of Singapore (MAS) regulates the whole financial sector, including insurers, insurance brokers and, through the GIA framework, general insurance agents. The Insurance Act 1966 is the main statute. MAS adds subsidiary legislation, legally binding Notices and non-binding Guidelines, and it measures insurer solvency under Risk-Based Capital 2 (RBC 2).

MAS as an Integrated Regulator

MAS was set up on 1 January 1971 under the Monetary Authority of Singapore Act 1970. Regulation of the insurance industry was transferred to MAS in 1977, and securities regulation followed in 1984. One regulator therefore supervises banks, insurers, capital markets intermediaries and financial advisers. This helps MAS apply consistent standards, such as fair dealing and fit and proper requirements, when one group operates across several sectors, for example a bank that also sells insurance.

For insurance, MAS's aims can be summarised as:

1. Soundness: insurers must stay solvent and well managed so that claims are paid.
2. Fair treatment: policyholders must receive suitable advice, clear information and fair claims handling.
3. Market integrity and development: Singapore should remain a trusted insurance and reinsurance centre.

The Insurance Act 1966

The Insurance Act governs the licensing of insurers, the registration and conduct of insurance brokers, insurance agents, insurance funds and capital, returns and inspections, transfers and winding up, and nomination of beneficiaries. It divides insurance business into two classes:

• Life business: life policies and long-term accident and health policies.
• General business: all insurance business that is not life business, including property, liability, motor, marine, travel and short-term accident and health policies.

Licensing

No one may carry on insurance business in Singapore unless licensed or otherwise authorised. MAS licenses direct insurers (life, general or composite), reinsurers and captive insurers; the licensing provision is section 11 of the Act. Other routes include authorised reinsurers (no physical presence in Singapore) and the Lloyd's Asia Scheme as a foreign insurer scheme under Part 2A. Insurance brokers must be registered unless exempt, and general insurance agents register with GIA's Agents' Registration Board.

Fit and Proper Requirements

MAS's Guidelines on Fit and Proper Criteria apply to directors, chief executives and other key persons of insurers and intermediaries. The three criteria are:

1. honesty, integrity and reputation;
2. competence and capability; and
3. financial soundness.

MAS's Regulatory Instruments

The key distinction is between Notices and Guidelines. A breach of a Notice can be an offence or lead to regulatory action. A Guideline is not legally binding, but MAS takes into account how far an institution observes it and may impose more supervisory requirements where weak observance increases risk.

Insurance Funds

Licensed insurers must establish and maintain insurance funds, kept separate from shareholders' assets, for the classes of business they write. Life insurers also keep separate funds for investment-linked, participating and non-participating business. Premiums and investment income for each fund are credited to it, and claims and expenses of that business are paid from it. This ring-fencing helps make sure policyholders' money is used to pay policyholders.

The Risk-Based Capital 2 (RBC 2) Framework

RBC 2 took effect on 31 March 2020, replacing the first RBC framework introduced in 2004. Its requirements are in the Insurance (Valuation and Capital) Regulations 2004 and MAS Notice 133 on the Valuation and Capital Framework for Insurers.

• Total Risk Requirement (TRR): the capital needed to absorb insurance risk (component C1), market and credit risk (C2) and operational risk.
• Financial Resources (FR): the insurer's available capital, made up of tiers of differing quality (Common Equity Tier 1, Additional Tier 1 and Tier 2).
• Capital Adequacy Ratio (CAR):

$\text{CAR} = \frac{\text{Financial Resources}}{\text{Total Risk Requirement}} \times 100\%$

MAS sets two solvency intervention levels:

1. Prescribed Capital Requirement (PCR): the TRR calibrated at 99.5% Value-at-Risk over one year. An insurer meets the capital adequacy requirement at this level if its CAR is at least 100%.
2. Minimum Capital Requirement (MCR): calibrated at 90% Value-at-Risk over one year and set at 50% of PCR. Falling to this lower level, a CAR below 50%, triggers MAS's strongest intervention.

MAS can also require a particular insurer to hold more capital than the minimum if its risk profile justifies it.

Supervision and Enforcement

MAS's supervisory tools include:

• Returns and inspections: regular regulatory returns, on-site inspections and thematic reviews.
• Investigations: powers to require documents and information and to examine persons.
• Directions: for example restricting new business or the transfer of assets when an insurer is in difficulty.
• Transfers and winding up: court-approved transfers of business, and winding up of failed insurers alongside the PPF Scheme (Section 2.2).
• Sanctions on individuals and firms: reprimands, composition of compoundable offences, prosecution, prohibition orders barring unfit persons, and revocation or suspension of licences or registrations.