Martin Lee @ Sg
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Consultation Paper On Insurance Resolution

The Monetary Authority of Singapore (MAS) announced a few days ago that it is reviewing two sets of measures in order to further strengthen the protection of insurance policy owners.

masOne set of measures seeks to enhance MAS’ powers relating to the resolution of insurers in Singapore. This governs the power of MAS to act in the event that an insurer is insolvent or is in danger of being insolvent or liquidated.

This is important as policies particularly for life insurers as policies written by them tend to be long-term in nature, and early termination of the policies could cause a substantial loss to the policy owner due to a low surrender value or inability to take up new insurance cover.

Policies written by general insurers are less critical as they are always on an annual renewable basis anyway.

The proposed changes are summarized below and interested parties are encouraged to submit electronic feedback to MAS on the changes by 29 January 2010 to 6229 9694 (fax) or [email protected] (email).

Pre-Liquidation Stage

1. MAS is to be given the powers to:

(a) take control of an insurer;

(b) make a determination for the sale or transfer of the assets and liabilities of a failing insurer without the prior consent of the insurer’s policy owners and creditors, subject to the Minister’s approval;

(c) make a determination for the transfer of ownership of the insurer either via a compulsory restructure of share capital for Singapore incorporated insurers or the forced sale of shares of a failed insurer, subject to the Minister’s approval; and

(d) apply to the High Court to impose a moratorium such that no resolution shall be passed and no order shall be made for the winding up of the insurer, and no legal proceedings shall be commenced.

2. Voluntary schemes of transfer for life insurance portfolios are to be approved by MAS before submission to the High Court for confirmation.

3. There will be a provision in the Insurance Act to exclude the application of any claw-back mechanism in the Companies Act to transfers of assets to another insurer that have been directed or approved by MAS, to prevent the unwinding of any prior transfers undertaken.

Insurer in Liquidation

4. MAS is to be given the powers to approve the appointment of a liquidator (whether local or foreign), and to add, revoke or vary conditions on the liquidator.

5. There will be provisions in the Insurance Act to:

(i) require the liquidator to seek to sell/transfer portfolios of the failed insurer to other insurers (including a run-off entity) as far as
reasonably practicable;

(ii) continue with the business of the insurer until the portfolios are transferred, unless otherwise decided by the Court; and

(iii) grant powers to the liquidator to carry out its duties in (i) and (ii).

6. MAS is to be given the power to appoint an independent actuary to assess the value of the liabilities to be transferred.

The entire consultation paper with rationale for the changes can be found here:

Insurance Resolution Consultation Paper

If these changes are adopted, it will give MAS sufficient powers to protect the interest of life insurance policy holders should an insurer becomes insolvent. And great powers, of course comes with great responsibilities.

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