MAS publishes framework for designating domestic systemically important insurers

30 October 2023

On 21 September 2023, the Monetary Authority of Singapore (“MAS”) published its framework for designating domestic systemically important insurers (“D-SIIs”), and the inaugural list of four D-SIIs.

The D-SII framework, which formalises and updates an existing framework, will take effect on 1 January 2024. It seeks to identify insurers whose individual distress or disorderly failure would cause significant disruption to Singapore’s financial system and economic activity.

Assessment methodology

The D-SII framework adopts an indicator-based approach premised on four factors (size, interconnectedness, substitutability and complexity) to assess insurers’ systemic importance. MAS’ assessment involves a two-stage process:

  • Stage One - Preliminary selection: MAS will select insurers that cross the threshold of any impact indicator in the size, interconnectedness and substitutability categories. As complexity itself is not a sufficient reflection of systemic importance, MAS will only select an insurer which is high in complexity if it is also near the threshold of an indicator in any of the other three categories.
  • Stage Two - Detailed consideration: MAS will subject insurers selected in the first stage to a second stage review. Detailed consideration under the second stage is necessary to mitigate the limitations associated with an otherwise mechanistic indicator-based approach. MAS will exercise supervisory judgement along with the consideration of other supervisory information. MAS will make an overall assessment, taking into account all four factors of systemic importance. The results of the overall assessment will be approved by senior management of MAS.

MAS states that it will monitor developments in the financial system as well as international assessment methodologies to ensure that the D-SII framework remains appropriate and make refinements when required. MAS will announce the outcome of the review upon its completion where there are changes to the framework.

MAS will assess insurers’ systemic importance on an annual basis.

Policy measures

Besides more intensive supervision, D-SIIs will be subject to appropriate policy measures, including:

  • Higher capital requirements: A 25% capital add-on will apply, increasing a D-SII’s higher and lower supervisory intervention levels, as well as Common Equity Tier 1 (CET1) and Tier 1 capital requirements. This add-on replaces the 25% high impact surcharge applicable to the four D-SIIs under the existing framework.
  • Recovery and resolution preparedness: Recovery planning will bolster an insurer’s ability to restore its financial strength and viability in a period of distress. Resolution planning will enhance the ability to ensure the timely and orderly restructuring or exit of an insurer if it fails, so as to minimise impact to the financial system and economy.

Background

MAS published a consultation paper on the D-SII framework on 25 October 2022. Its Response to the feedback received was published on 21 September 2023.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg: