MAS Consults on Proposed Group Capital Framework and Catastrophe Risk Requirement for Designated Financial Holding Companies (Licensed Insurer)

In order to refine the enhanced regulatory risk-based capital (“RBC 2“) framework for insurers in Singapore, including the group capital framework applicable to Designated Financial Holding Companies (Licensed Insurer) (“DFHCLIs“), the Monetary Authority of Singapore (“MAS“) issued the following:

1. Consultation Paper on Proposed Changes to the Group Capital Framework for Designated Financial Holding Companies (Licensed Insurer), which closes on 25 August 2025 (“GCF Consultation Paper“); and

2. Consultation Paper on Proposed General Insurance Catastrophe Risk Requirement, which closes on 5 September 2025 (“GCR Consultation Paper“).

The key proposals under the GCF Consultation Paper which apply specifically for the group capital framework include:

1. Non-insurance entities (“NIEs”): incorporating the risk charging approach for NIEs of a DFHCLI;
2. Joint ventures (“JVs”): enhancing the capital treatment for JVs of a DFHCLI; and
3. Non-controlling interests (“NCIs”): introducing a limit to the recognition of capital from NCIs in group financial resources.

These proposals will be incorporated into MAS Notice FHC-N133 on Valuation and Capital Framework for Designated Financial Holding Companies (Licensed Insurer) (“Notice“), which sets out the valuation and capital requirements for all DFHCLIs, and which is based on the RBC 2 consolidation approach.

The key proposals under the GCR Consultation Paper include:

1. GCR Risk Charge: incorporating the general insurance catastrophe risk requirement (“GCR Risk Charge“) under the RBC 2 framework;
2. Singapore Insurance Fund (“SIF”) and Singapore Insurance Fund (“OIF”): the computation approach for the GCR Risk Charge for the SIF and the OIF, respectively; and
3. Aggregation: the aggregation approach proposed to be adopted when aggregating GCR Risk Charges.

Key Proposals under the GCF Consultation Paper

Incorporating the Explicit Risk Charging Approach for NIEs of a DFHCLI

1. Currently, the Notice sets out that the group total risk requirement includes the risk requirement relating to that of any NIE that belongs to the DFHCLI, but it does notspecify the risk charging approach for such NIEs.

2. MAS proposes to introduce an explicit risk charging approach for NIEs of a DFHCLI, to promote transparency and comparability of risk requirements for NIEs and to clarify the treatment of NIEs that are not subject to any sector-specific capital requirements. MAS seeks comments on:

• • The proposed classification of NIEs into the following three categories: (i) insurance-related; (ii) non-insurance financial; and (iii) non-financial. The purpose of this proposed classification is to better understand the specific risks that each type of NIE is exposed to;

• • Whether there are other examples of businesses that might fall under insurance-related and non-insurance financial entities (with the rest of the businesses falling under non-financial entities); and

• • The proposed method to risk charge a JV that conducts insurance business, i.e. to apply a risk charging approach which is differentiated by: (i) the nature of the NIE’s business, i.e. whether insurance or financial-related; and (ii) whether the NIE is subject to any sectoral capital requirement.

3. Further: (i) MAS may impose an additional capital charge if the proposed formula does not appropriately capture all material risks of the NIE to the overall financial holding company group; and (ii) MAS also proposes to incorporate the proposed risk charging approach for NIEs in assessing the materiality of an NIE to the financial holding company group.

Enhancing the Capital Treatment for JVs of a DFHCLI

4. Currently, a JV of a DFHCLI is accounted for using the equity method investment as per the accounting standards, and hence is subject to an equity risk charge based on the Notice.

5. MAS seeks comments on the proposed approach below:

• • To apply consolidation for a JV that conducts insurance business (i.e. that assumes risks or undertakes liabilities of insurance policies), such that the JV’s assets and liabilities would be risk charged according to the RBC 2 group capital framework. This would be appropriate since the RBC 2 framework is designed to capture the relevant risks of an insurer.

• • The following entities may continue to be accounted for using the equity method investment approach referred to above: (i) JVs of DFHCLIs that have sought prior MAS approval that consolidation for the JV is not feasible; and (ii) JVs that do not conduct insurance business.

Limiting the Recognition of Capital from NCIs in Group Financial Resources

6. Currently, capital from NCIs from a legal entity of the DFHCLI is not transferable to meet another legal entity’s financial obligations.

7. MAS seeks comments on the following proposals:

• • That a limit should be imposed on the recognition of NCIs in group financial resources to reflect the non-fungible nature of NCIs at the group level; thus, any capital from NCIs in excess of the prescribed limit would not be recognised in group financial resources; and

• • The proposed formula in determining the NCIs limit (i.e. the limit on NCIs from a legal entity) should take the lower of the following: (i) the entity’s risk requirement at the solo level (based on RBC 2) that is supported by the NCIs; or (ii) the consolidated group total risk requirement supported by the entity’s NCIs, as determined by a prescribed formula.

Key Proposals under the GCR Consultation Paper

Incorporating the GCR Risk Charge under the RBC 2 Framework

1. MAS proposes: (i) to incorporate the GCR Risk Charge, which is a charge that captures the risks associated with extreme or irregular events whose effects are not sufficiently captured in requirements for premium liability risk and claim liability risk, under the RBC 2 framework; (ii) that the charge would apply to all direct insurers writing general insurance business and relevant reinsurers writing general insurance business; and (iii) the approach to compute the charge.

2. MAS seeks comments on the proposed recognition of renewal or reinstatement of reinsurance, as follows:

• • An insurer should account for the effect of reinsurance, where applicable, in the derivation of the GCR Risk Charge; and

• • Renewal or reinstatement of reinsurance may be assumed, and the reinsurance recoveries and the costs of renewal or reinstatement can be considered if the following conditions are met: (i) the renewal or reinstatement is consistent with previous business practice and documented strategy; (ii) the renewal or reinstatement is realistic regarding the availability of the arrangement and its costs; and (iii) any additional risk stemming from the risk mitigation arrangement is also taken into account.

The Computation Approach for the GCR Risk Charge for the SIF

3. Overview: MAS proposes to: (i) prescribe a set of standardised scenarios which would cover both natural catastrophe risk and man-made catastrophe risk for the SIF, as this would capture the more relevant local catastrophe risks and ensure that the results would be more comparable across insurers; and (ii) supplement this set of standardised scenarios by requiring insurers to consider an “Own Bespoke” scenario annually.

4. Natural catastrophe risk: MAS proposes to include flooding as the only prescribed scenario for SIF natural catastrophe risk. MAS seeks comments on: (i) one of the flood scenarios (i.e. multiple higher probability flood events with shallower flood depth); and (ii) the parameters assumed for the same. 

5. Man-made catastrophe risk: MAS proposes to include the following prescribed scenarios for man-made catastrophe risk (which are adopted from the Insurance Capital Standard’s prescribed scenarios with slight adjustments where applicable): (i) a fire or explosion (which may be due to a terrorist attack or other causes such as negligence); (ii) an economic event affecting mortgage insurance, trade credit and surety; and (iii) a pandemic. MAS seeks comments on the parameters assumed for these prescribed scenarios and whether a different set of parameters would be justified. 

6. “Own Bespoke” scenario: MAS proposes to include the “Own Bespoke” scenario to allow for insurers to consider the most relevant and material risks which they may be exposed to, and which have not been considered in the prescribed scenarios referred to above. These risks should include both natural catastrophe risks and man-made catastrophe risks. Examples can include an earthquake, a plane crash, a cyberattack, or a collision of two large cargo ships. MAS seeks comments on: (i) the proposal to include the “Own Bespoke” scenario; and (ii) the proposed requirements for the same (as set out in the GCR Consultation Paper).

The Computation Approach for the GCR Risk Charge for the OIF

7. Overview: Similar to the approach adopted for the SIF, MAS proposes that: (i) the OIF GCR Risk Charge would cover both natural catastrophe risks and man-made catastrophe risks, with a prescribed set of standardised scenarios for the man-made catastrophe risks so that the results would be more comparable across insurers; and (ii) to supplement these standardised scenarios, insurers would be required to consider an “Own Bespoke” scenario annually.

8. Natural catastrophe risk: MAS sets out various details for computing the natural catastrophe risk charge, including:

• • Covered perils: The perils that should be covered. The impact of catastrophe claim events should include not only the main peril but also the secondary perils associated with the main peril.

• • Computation approach: The considerations for calculating the loss amounts resulting from natural catastrophe events. The natural catastrophe risk charge should be the annual aggregate losses which are calculated as the aggregation of losses across all regions and all perils (i.e. the whole-of-portfolio approach).

• • Governance requirements: That in computing the loss amounts resulting from natural catastrophe events for the OIF, insurers may use natural catastrophe models, which can be either vendor models or proprietary models built in-house, subject to insurers meeting prescribed governance requirements. MAS seeks comments on: (i) the prescribed safeguards set out under the prescribed governance requirements; (ii) whether insurers would face significant challenges in meeting these safeguards; (iii) suggestions on other safeguards that would be useful for the governance of natural catastrophe models; and (iv) whether to include an additional safeguard of having an independent reviewer (e.g. an external auditor) to review and confirm compliance with the prescribed governance requirements; and

• • Immaterial exposures: Some insurers might have immaterial exposures to OIF natural catastrophe risk, and their exposures might not justify the costs of acquiring and maintaining a natural catastrophe model. MAS proposes using the simplified approach of continuing to require insurers to hold a 25% capital add-on in lieu of the GCR Risk Charge for the OIF, if the OIF business of the insurer falls below a prescribed materiality threshold. MAS seeks comments on: (i) this proposed simplified approach; and (ii) suggestions for setting the materiality threshold for OIF natural catastrophe risk.

9. Man-made catastrophe risk: MAS proposes to adopt the same prescribed scenarios set out for SIF man-made catastrophe risk, to OIF man-made catastrophe risk as well. MAS seeks comments on: (i) the parameters assumed for these prescribed scenarios; and (ii) whether a different set of parameters would be justified.

10. “Own Bespoke” scenario: MAS proposes to impose the same proposed requirements set out for the SIF “Own Bespoke” scenario, on the OIF “Own Bespoke” scenario as well, save that these proposed requirements would only apply to man-made catastrophe risk. This is because, unlike with the SIF, the natural catastrophe risk charge for the OIF is on a whole-of-portfolio basis and would have considered all perils across all regions; as such, there is no need for insurers to consider the relevant and material risks for the natural catastrophe category under the OIF “Own Bespoke” scenario. MAS seeks comments on: (i) the proposal to include the “Own Bespoke” scenario for OIF man-made catastrophe risk; and (ii) the proposed requirements for the same (as set out in the GCR Consultation Paper).

The Proposed Aggregation Approach to be Adopted when Aggregating GCR Risk Charges

11. Aggregation: MAS seeks comments on: (i) the proposal to aggregate the underlying computed risk charges across the scenarios in deriving both the SIF GCR Risk Charge and the OIF GCR Risk Charge, respectively; and (ii) whether insurers are currently holding additional reserves to address general insurance catastrophe risk and how such catastrophe reserves are determined.

12. Summation: MAS also seeks comments on the proposed approach of simple summation when aggregating the SIF GCR Risk Charge and the OIF GCR Risk Charge to derive the total GCR Risk Charge, given the adjusted fund concept under RBC 2.