MAS issues notice on recovery and resolution planning for insurers

30 January 2024

On 29 December 2023, the Monetary Authority of Singapore (“MAS”) published Notice 134 on Recovery and Resolution Planning for Insurers (“Notice”). The Notice sets out the requirements that an insurer notified by MAS (“notified insurer”) has to comply with in its recovery and resolution planning. Recovery and resolution planning aims to reduce the risks posed by a licensed insurer to the stability of financial system, ensure the continuity of functions that are critical to the economy, and enable a distressed licensed insurer to be restructured or to exit from the market in an orderly manner. Currently, notified insurers will be domestic systemically important insurers (“D-SIIs”). The Notice takes effect on 1 January 2025.

The issuance of the Notice follows the publication of a consultation paper on 29 September 2023 in which MAS sought feedback on a draft version of the Notice and on the proposed powers for a statutory bail-in regime for the insurance sector and to stay early termination rights of reinsurers. MAS responded to feedback on the draft Notice on 29 December 2023. MAS’ response to feedback on the remaining proposals will be covered in a subsequent paper.

Highlights of MAS’ response are set out below.

Preparation of RCP

MAS said that all notified insurers must include in a recovery plan (“RCP”) all components listed in the consultation paper, regardless of their licence type and legal entity status.

Review of RCP

MAS will require the RCP to be reviewed annually and upon the occurrence of an event that could materially impact the RCP, and will require the reviewed 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.

Notification to MAS of risk of non-viability

MAS had sought views on the requirement for a notified insurer to 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 implementation of its RCP.

In its response, MAS said that as the framework of recovery triggers would differ amongst the notified insurers due to differences in circumstances, such as insurer-specific regulatory capital requirements, the threshold for notification to MAS should be determined by the notified insurers. Nonetheless, the notified insurer should inform MAS immediately if it assesses that its viability is, or is potentially, threatened or upon the occurrence of any event that may necessitate the implementation of its RCP.

Resolution planning

MAS had sought views on the requirement for notified insurers to put in place adequate measures such that outsourcing arrangements which support critical functions and critical shared services can be maintained in crisis situations and in resolution. As mentioned in the consultation paper, “critical functions” refer to activities performed by an insurer for third parties where failure would lead to the disruption of services that are vital for the functioning of Singapore’s economy and for financial stability due to the insurer’s size or market share, external and internal interconnectedness, complexity and cross-border activities. “Critical shared services” refer to activities performed within the group or outsourced to third parties, where failure of such service would lead to the inability of the insurer to perform critical functions.

In its response, MAS said that it will work with the notified insurers on the identification of “critical functions”, following which insurers will determine what the “critical shared services” are needed to support those functions.

A “function” in the Notice is similar in concept to “business service” as defined in MAS’ Business Continuity Management Guidelines (i.e. an external-facing service that is provided to customers of the financial institution). However, while the identification of a “critical business service” considers the impact on the financial institution itself, the identification of “critical function” considers the impact on the functioning of the broader economy or financial stability.

Implementation timeline

MAS will engage notified insurers on the data and information to be maintained in the management information systems and the transition period needed to comply with the requirement to put in place the relevant management information systems. For insurers who become notified insurers after the Notice takes effect, MAS will provide at least a one-year transition period for these insurers to make the necessary preparations to comply with the requirements in the Notice.

At this time, MAS only intends for the D-SIIs to be notified insurers given their systemic impact. Nonetheless, MAS expects all insurers to have an RCP in place to identify actions that can be taken to restore its financial position and viability under situations of severe stress.

Reference materials

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