MAS proposes to enhance the current requirements relating to enterprise risk management, investment risk management and disclosure practices.
MAS (Monetary Authority of Singapore) has issued a consultation paper setting out proposals to enhance the current requirements relating to enterprise risk management, investment risk management and public disclosure practices for insurers.
The revisions are aimed at aligning MAS’ rules and regulations with updated Insurance Core Principles, adopted in November 2019 by the IAIS (International Association of Insurance Supervisors), the international standard setting body for the insurance sector.
The proposed requirements set out in MAS’ consultation paper are designed to strengthen insurers’ risk management practices, which includes the enhancement of liquidity risk management and stress testing processes, and to help prevent insurance sector vulnerabilities and exposures from developing into systemic risks.
MAS proposes to include a new requirement for insurers to identify and address concentration risk in its enterprise risk management framework. This is in addition to the risks currently set out in MAS Notice 126 (Enterprise Risk Management) such as insurance, market, credit, operational and liquidity risks.
To facilitate insurers’ assessment of their concentrated exposures, MAS also proposes to include a new requirement for insurers to perform stress testing on material counterparty exposures and conduct liquidity stress testing as part of their annual ORSA (Own Risk and Solvency Assessment).
In the case of life insurers, ORSA stress tests would typically include macroeconomic risks given their asset and liability profile. Significant insurers will also be required to participate in regular industry-wide stress tests conducted by MAS.
On liquidity risk management, MAS proposes to require licensed insurers to maintain a portfolio of unencumbered liquid assets to meet their liquidity needs under both normal and stressed conditions, based on an assessment of liquidity needs by individual currencies.
A new requirement is also proposed to require insurers to establish a liquidity contingency funding plan which sets out the strategy for addressing liquidity shortfalls
MAS also proposes a separate set of amendments to MAS Notice 125 (Investments of Insurers) to provide more clarity on its expectations regarding oversight and investment activities of insurers.
The consultation paper proposes to require that limits for the allocation of assets by type of asset and credit rating to be established in the board-approved written investment policy.
Insurers will also be required to consider whether the formulation of a counterparty risk appetite statement is necessary, and the factors that should be taken into account in its formulation.
In addition, the paper proposes to enhance the public disclosure requirements in MAS Notice 124 (Public Disclosure Requirements) in the areas of investment risk, company profile information, technical provisions, and non-GAAP financial measures.
The consultation paper, available here, is open for comment until 19 March 2021.