Singapore’s Too-Big-To-Fail Insurers to Face Higher Capital Requirements in 2024

Starting next year, four top insurance companies headquartered in Singapore – AIA Singapore, Income Insurance, Prudential Assurance Company Singapore, and The Great Eastern Life Assurance Company – will undergo heightened capital requirements, the Monetary Authority of Singapore (MAS) has announced.

Specifically, the four insurers will have a 25 per cent capital add-on affecting both their higher and lower supervisory intervention levels, as well as their Common Equity Tier 1 and Tier 1 capital requirements.

On Thursday (Sep 21), MAS released its inaugural list of domestic systemically important insurers (D-SIIs). Similar to the domestic systemically important banks (D-SIBs), the failure of any of these insurers could deal a significant blow to both the financial system and the broader economy in Singapore.

Effective from January 1, 2024, the D-SII framework will oversee the yearly impact evaluation of insurers, focusing on criteria such as size, interconnectedness, substitutability, and complexity. This initiative is an evolution and enhancement of the MAS’ prior system for assessing the impact and risks associated with financial institutions.

The uptick in capital requirements is one of several additional measures the D-SIIs will face. According to MAS, these measures closely reflect those applied to D-SIBs. Furthermore, the new 25 per cent capital add-on is set to replace the preceding 25 per cent high impact surcharge which was relevant under the old system.

MAS has expressed confidence that given their current capital standings, these four insurance companies will comfortably meet the stipulated capital requirements under the new framework and maintain sufficient buffers. Additionally, the central bank is working closely with these insurers on recovery planning.

This is geared towards enhancing an insurer’s capability to regain its financial strength and viability during challenging times, and is a facet of the recovery and resolution preparedness measures for D-SIIs.

This resolution planning will augment MAS’ capacity to effectively manage the restructuring or potential exit of an insurer, thereby mitigating negative effects on the financial landscape and economy.

Emphasizing the importance of this revamp, the central bank stated that the enhancement of the D-SII framework is pivotal in MAS’ ongoing endeavors to solidify the robustness of Singapore’s financial sector. In response, Khor Hock Seng, CEO of the Great Eastern Group, voiced confidence in their ability to adhere to the updated capital requirements and remain viable during demanding circumstances.

It’s noteworthy that MAS introduced its initial list of D-SIBs in 2015, which, in addition to local banks, also included international banks under its increased supervisory remit.

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