Insurance Funds
1 Section 16(1) of the Insurance Act provides that every registered insurer shall maintain separate funds for Singapore policies and offshore policies. For a registered insurer writing life insurance business, section 16(2) further provides that separate insurance funds for participating and non-participating traditional policies may be maintained for its Singapore policies and offshore policies. In addition, section 16(3) empowers the Authority to require insurers to set up any other insurance funds for different types of policies in respect of each class of business. An example is the separate fund required for investment-linked life insurance business.
2 An insurer writing a small or insignificant portfolio of offshore business may apply to the Authority for exemption from the requirement to set up an offshore insurance fund.
3 All receipts properly attributable to the business to which an insurance fund relates shall be paid into the fund, and the assets comprised in the fund shall be applicable only to meet such part of the insurer's liabilities and expenses as is properly attributable to the fund.
4 However, the fund concept is sometimes not fully adhered to by insurers. Insurers should ensure that there is proper apportionment of common expenses among all the insurance funds established by a registered insurer as well as the Shareholders' Fund. If one fund makes payment on behalf of another fund, settlement of such inter-fund balances should be made as soon as possible but in no circumstances should it exceed three months.
5 The assets of any insurance fund shall be kept separate from all other assets of the insurer. Insurers should ensure that their records and accounts are kept in a manner that allows assets belonging to each insurance fund to be easily accountable and identifiable. There should be no doubt as to the legal entitlement of assets belonging to each insurance fund.
Withdrawal of Fund Surplus
6 Sections 16(6) to 16(10) of the Insurance Act set out the circumstances under which a withdrawal of surplus may be made out of an insurance fund: sections 16(6) to 16(8) apply to life insurance fund which comprises wholly or partly of participating policies; section 16(9) applies to life insurance fund established wholly in respect of non-participating policies; and section 16(10) applies to general insurance fund.
7 If on the last statutory valuation (in the case of a life insurance fund) or in the last statutory balance-sheet (in the case of a general insurance fund), there was shown a surplus of assets over liabilities of a fund, an insurer may withdraw from the fund an amount not exceeding the excess of the surplus over any minimum fund margin of solvency required to be maintained in that fund under section 17 of the Act (see MAS 102).
8 Where a withdrawal of surplus is made from a life insurance fund by way of a transfer of assets other than cash or deposits, the assets shall be transferred at market value.
Switching of Assets between Funds
9 As a general rule, there should be no switching of assets between funds. However, where necessary, switching of assets between funds may be done on the following bases:
i) Life insurance fund assets of direct life insurers shall only be switched at market value. The Appointed Actuary is required to certify that all such transactions are carried out at a fair value and do not adversely affect the interests of the policyholders.
ii) Other insurance fund assets may be switched either at market or book value. Where the assets are switched at book value, the insurer's auditors are required to certify that the financial condition of the fund is not thereby impaired.
10 Insurers are required to keep the Authority informed as and when there is any switching of assets between funds. However, for any switching of property between funds, insurers are required to seek the Authority's prior approval.
11 Insurers are required to provide the Authority information on the type of assets switched, the funds involved, basis of determining the price, the amount transferred, the transaction costs (if any) and the underlying reasons for doing so.
