Purpose
1 Section 16(2) of The Insurance Act, stipulates that if in the case of a direct life insurer where no part of the surplus of assets over liabilities from its non-participating (non-par) policies is allocated by way of bonus to its participating (par) policies, the insurer is required to establish and maintain separate insurance funds for its par and non-par policies, subject to the conditions of the Authority. The basis to be used by insurers in establishing and maintaining separate par and non-par funds is described below.
Basis for the Par and Non-par Funds
Amount of Assets
2 The amount of assets to be allocated to the non-par fund should not be more than the aggregate of the following:
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(a) |
The amount of the liabilities of the insurer in respect of the non-par policies, and any amounts estimated to be required to provide for outstanding claims arising before the end of that period under those policies for which the fund is liable; and |
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(b) |
The amount of any other liabilities of the insurer in so far as the assets allocated to the fund will be applicable or be treated as having been applicable to meet those liabilities. |
3 The par fund shall comprise assets of the Singapore Insurance Fund (SIF) less the amount transferred to the non-par fund.
Valuation of Liabilities
4 The policy liabilities are to be valued according to the minimum basis prescribed under the Insurance Regulations. Any more stringent valuation basis can be used provided this basis has been used since the financial year 1991.
5 Approval from the Authority is required if, after the establishment of separate funds, the insurer decides to use a valuation basis less stringent than that used to determine the liabilities of the non-par fund.
Allocation of Assets
6 Any asset of the SIF that can be determined as belonging to the par or non-par fund, such as policy loans, should be transferred to the respective funds. Assets from shareholders' funds transferred to the SIF to meet the solvency margin requirements can also be held in the non-par fund. All other assets should be divided so that the non-par fund portion of each asset shall be equal to the ratio:
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Non-par liabilities less assets identifiable as belonging to non-par fund |
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Total assets of SIF less total assets identifiable as belonging to par and non-par funds |
Consequently, the par fund shall comprise the balance of each asset.
7 Should the insurer find it necessary to switch assets between its par and non-par funds to achieve a better matching of assets and liabilities, this will have to be in accordance with MAS Notice 101.
Allocation of Investment Income and Expenses
8 The basis for allocating investment income and expenses to the par and non-par funds shall be in accordance with Section 16(3) of the Insurance Act which stipulates that the insurer shall pay all the receipts properly attributable to the business into the fund it relates to and the assets comprised in each fund shall be applicable only to meet the insurer's expenses as is properly attributable to that fund.
Documents to be Submitted to the Authority
9 The following documents shall be submitted to the Authority prior to the separation of the SIF into par and non-par funds:
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(a) |
A copy of the balance sheet of each fund at the effective date; |
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(b) |
A list of the assets of each fund stating their book and market values at the effective date; |
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(c) |
Appointed Actuary's certificate on the actuarial valuation of each fund; |
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(d) |
External auditor's certificate that the funds are established in accordance with the conditions set by the Authority; and |
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(e) |
The basis of apportioning expenses to each of the separate funds. |
10 The insurer should not effect the separation of the SIF until the Authority is satisfied that the insurer has complied fully with the conditions.
