New framework catapults Singapore’s insurance sector resilience: S&P Global Ratings

Although the framework could raise operational costs, it will run some benefits.

Singapore's recent implementation of a framework for domestic systematically important insurers (D-SIIs) is a positive development for the country's insurance sector, said S&P Global Ratings.

This move is expected to enhance the industry's resilience and bolster market confidence.

The Monetary Authority of Singapore (MAS) has become the first regulator in Asia to implement a D-SII framework that includes recovery and resolution planning.

"While the strengthened regulatory oversight will raise operational costs for D-SIIs, we think the overall benefits to the insurance sector outweigh the costs," said S&P Global Ratings credit analyst Eileen Tay.

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"Given an increasingly complex risk landscape, a higher bar on supervision encourages D-SIIs to maintain high standards of governance and risk management." Tay added.

The designated D-SIIs include AIA Singapore, Income Insurance, Prudential Assurance Co. Singapore, and the Great Eastern Life Assurance Co..

These four companies collectively account for approximately 70% of the assets within Singapore's life insurance funds.

Designated D-SIIs will face increased capital requirements, including a 25% capital add-on. This adjustment does not immediately impact the financial situation or ratings of these insurers, as it replaces the previous 25% "high impact surcharge" under MAS' existing framework.

Generally, the D-SII requirements enhance MAS' existing framework for assessing the impact and risks associated with financial institutions while providing greater transparency, including previously undisclosed details such as the capital surcharge for the four major insurers.