MAS Consults on Proposals to Augment Resolution Regime for Insurance Sector

8 October 2023

On 29 September 2023, the Monetary Authority of Singapore (“MAS“) issued a consultation paper to seek comments on the following key proposals to augment the resolution regime for the insurance sector.

(a) New requirements on recovery and resolution planning (“RRP“)

(b) Powers for a statutory bail-in regime for the insurance sector.

These proposed enhancements take reference from international standards by the Financial Stability Board (FSB). The consultation closes on 31 October 2023.

RRP Requirements

MAS proposes to set out the new RRP requirements in a new MAS Notice on Recovery and Resolution Planning for Insurers (“Notice“). The Notice will apply to insurers notified by MAS (“notified insurers“), which will initially comprise domestic systematically important insurers (D-SIIs).

MAS seeks comments on proposals to require a notified insurer to, among other things:

(a) In relation to a recovery plan (“RCP“):

prepare a RCP with specified mandatory components, such as a framework of recovery triggers identifying the points at which appropriate recovery options may be taken;
require the RCP to be approved or endorsed by the board of directors (for a locally incorporated notified insurer), or the chief executive in Singapore (for a non-locally incorporated notified insurer);

review the RCP annually and upon the occurrence of an event that could materially impact the RCP, as well as create a framework to test the RCP’s feasibility and effectiveness on a regular basis;

inform MAS immediately if the notified insurer assesses that its viability is, or is potentially, threatened or upon the occurrence of any event that may necessitate the RCP’s implementation;

(b) maintain and submit data and information to MAS for resolution planning, resolvability assessment and conduct of resolution;

(c) ensure the maintenance, in crisis situations and in resolution, of outsourcing arrangements which support critical functions and critical shared services;

(d) maintain robust management information systems that will produce information required for RRP, resolvability assessment and the conduct of resolution in a timely manner; and

(e) appoint an executive officer as the key person to oversee the recovery planning process and the maintenance and submission of information to MAS for resolution planning.

MAS targets to issue the Notice on 1 January 2024 and for it to take effect on
1 January 2025.

Statutory Bail-in Regime for Insurance Sector

MAS has statutory powers to carry out the bail-in of liabilities under the Monetary Authority of Singapore Act 1970, which currently applies to Singapore-incorporated banks and designated bank holding companies. MAS now proposes to extend the statutory bail-in regime to Singapore-incorporated licensed insurers and designated insurance holding companies (“bail-in insurers“) as follows.

(a) The bail-in regime is proposed to apply to equity instruments (except ordinary shares), unsecured subordinated liabilities and certain types of unsecured senior liabilities. It will not apply retrospectively to instruments issued before the effective implementation of the bail-in regime.

(b) The restrictions on eligible instruments and disclosure requirements under regulations 25 and 26 of the Monetary Authority of Singapore (Resolution of Financial Institutions) Regulations 2018 will also apply to the statutory bail-in regime for the insurance sector.

(c) MAS will also be granted statutory powers to either convert into equity or write down bail-in insurers’ contingent convertible instruments and contractual bail-in instruments, whose terms had not been triggered prior to entry into resolution.

Temporary Stay on Termination Rights of Reinsurers

MAS had previously obtained the statutory power to stay the early termination rights of reinsurers in connection with their contracts with a ceding insurer or reinsurer in resolution. However, the maximum duration of such stays had not been prescribed.

MAS now proposes a maximum duration of two business days for stays on reinsurers’ rights to terminate coverage relating to periods after the commencement of resolution. This coheres with the maximum stay duration catered for financial and non-financial contracts.

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