Consultation Paper Framework For The Investigation of Policy Liabilities for General Insurance Business

24 August 2001

MAS announced in Mar 2000 that it would require certification of loss reserves of general insurers and reinsurers by a qualified actuary from accounting year 2001.  The Insurance Act will be amended to put in place the enabling provision for this requirement.

2        A first consultation paper was sent to the general insurance industry and the actuarial and accounting professions in Oct 2000.  In Mar 2001, MAS formed a Working Group comprising actuaries to develop the framework for the investigation of policy liabilities for general insurance business.  The Terms of Reference and list of members of this Working Group are at Annex 1 (PDF, 7.36KB).  The recommendations of this Working Group have been accepted by MAS and are embodied in this consultation paper.

3        The certification of policy liabilities will apply to all general direct and reinsurance companies.  Captive insurers are exempted from the requirement.

Enabling Provision in the Insurance Act

4        The proposed enabling provision in the Insurance Act would state that a general direct insurer and reinsurer would:

  1. Need to have an investigation made by an actuary or other person approved by the MAS into its insurance policy liabilities at the end of every accounting period; and
  2. Lodge with the MAS such abstract of the report of the investigation and certificate signed by such person.

The key features of the framework for such an investigation are highlighted in the paragraphs below.  We would like the industry's feedback on this framework.

5       The statutory definition of an actuary will also be expanded.  This will give MAS the flexibility to consider actuaries who are fellows of other actuarial institutions and impose other criteria such as the relevant work experience. Insurers may use the service of their in-house actuaries, whether or not they are based in Singapore, or engage the services of consulting actuaries.  Further details are at Annex 2 (PDF, 13.8KB) (proposed revised Notice 204 and proposed amendments to Insurance (Actuaries) Regulations).

Highlights of the Valuation Framework

6       In developing the valuation framework, the Working Group has taken into consideration international trends toward fair value accounting and transparency and generally accepted actuarial principles.  The Working Group was also cognisant of the MAS' move towards a risk-based capital approach of which this valuation framework is but the first phase of what needs to be put in place.

7      In the proposed framework, the liabilities for general insurance policies shall be not less than the amount of premium and claim liabilities as valued by the actuary.  The framework stipulates that the amounts derived have to be best estimates with a provision for adverse deviation to achieve a 75 per cent confidence level that the reserves are sufficient.  The relevant details are given in the following Annexes:

  1. Annex 3 (PDF, 9.8KB) - Proposed amendments to Insurance Regulations
  2. Annex 4 (PDF, 10.9KB) - Proposed amendments to Insurance (Accounts and Statements) Regulations, which include the schedules on the Abstract of the Actuary's Report and Certificate of the Actuary, which will be public documents; and
  3. Annex 5 (PDF, 25.4KB) - Proposed new MAS Notice 209 - Guidance Notes for the Actuarial Report.

Responsibility of Principal Officers

8        Certification of policy liabilities by an actuary provides an independent view of the amounts to be set.  Notwithstanding this, Principal Officers would still be held responsible for the financial soundness of their general insurance operations.

Transition Provisions

9        The financial impact of the actuarial investigation is unknown and could result in the need for insurers to increase their reserves, which could then impact their solvency position.  Hence implementation of the framework will be in phases. Insurers will be required to have this investigation commencing from accounting year 2001. However, they can still maintain the reserves determined as per their current practice for purposes of the 2001 Statutory Returns to be submitted at the end of Mar 2002. The results of the actuarial investigation under this proposed framework for accounting year 2001 will only have to be submitted to the MAS by the end of Jun 2002. Subsequent years' statement of actuarial investigation and actuarial report would have to be submitted by end of Mar of the following year together with the other Statutory Returns.

10      Where additional financial resources are necessary, the insurer should propose a plan to meet the higher reserves required for MAS' consideration. This phased implementation would also allow actuaries and insurers more time to ensure that they have the system in place to support the actuarial investigation that is required.

Briefing and others

11     The Working Group will conduct a briefing for the industry. Feedback should be submitted to the MAS by 24 Sep 2001. Where necessary, the framework would be fine-tuned and thereafter, MAS would issue the Insurance Regulations and Notices.

12     If you have any queries on the draft framework, please contact Mr Tan Chin Kwang (DID: 62299428, email: chinkwang@mas.gov.sg) or Ms Koh Hong Eng (DID: 62299805, email: hekoh@mas.gov.sg).

 

Last Modified on 26/11/2016