MAS 102 23 May 1998  NOTICE TO ALL INSURERS INSURANCE ACT, CAP 142 This Notice replaces MAS 102 dated 31 Jan 95. MARGINS OF SOLVENCY 1       Section 17 of the Insurance Act provides that every registered insurer shall maintain: a) a fund margin of solvency in respect of each insurance fund established under the Act; and b) a margin of solvency. Insurers are required to maintain enhanced margins of solvency as prescribed in Regulation 3 of the Insurance Regulations 1992, the Insurance (Amendment) Regulations 1993 and Insurance (Amendment No.2) Regulations 1998. Fund Margin of Solvency General Business 2       The Singapore Insurance Fund margin of solvency is prescribed as follows: (a) in the case of a direct insurer - An amount not less than: i) $5 million; ii) 50% of net premium income of the fund in the preceding accounting period; or iii) 50% of loss reserves of the fund as at the end of the preceding accounting period, whichever is the highest; and (b) in the case of a reinsurer - An amount not less than: i) $1 million; ii) 20% of net premium income of the fund in the preceding accounting period; or iii) 20% of loss reserves of the fund as at the end of the preceding accounting period, whichever is the highest (c) in the case of a captive insurer - An amount not less than: i) $400,000; ii) 20% of net premium income of the fund in the preceding accounting period; or iii) 20% of loss reserves of the fund as at the end of the preceding accounting period, whichever is the highest 3       The Offshore Insurance Fund margin of solvency is prescribed as follows: (a) in the case of a direct insurer - An amount not less than: i) $1 million; ii) 20% of net premium income of the fund in the preceding accounting period; or iii) 20% of loss reserves of the fund as at the end of the preceding accounting period, whichever is the highest; and (b) in the case of a reinsurer or captive insurer - Assets not less than the amount of the liabilities of the fund. Life Business 4       The Singapore Insurance Fund margin of solvency is prescribed as follows: (a) in the case of a direct insurer i) An amount not less than the sum of the following items: 1) 3% of the non-participating policy reserves and 2% of the participating policy reserves, as at the end of the preceding accounting period; 2) 0.1% of the sum insured at risk for policies whose original term is two years or less and 0.2% of the sum insured at risk for policies whose original term is more than two years, as at the end of the preceding accounting period (where the sum insured at risk may be reduced for any reinsurance ceded up to a maximum of 25%); and 3) 50% of the net premium income from accident and health policies of the fund in the preceding accounting period. ii) For its investment-linked insurance funds, item a(i)(1) will not apply. iii) For an insurer with more than one fund, the assets of each fund shall be not less than the amount of the liabilities of that fund. iv) For long-term disability policies, item (a)(i)(1) will apply. All other disability products will fall under item (a)(i)(3). v) The aggregate fund solvency margin maintained in respect of Singapore policies shall not be less than $5 million. b) in the case of a reinsurer or captive insurer - Assets not less than the amount of the liabilities of the fund. 5       Regulation 3(4) of the Insurance Regulations 1992 allows a direct life insurer to designate part of the free surplus in its shareholders' fund to meet the margin of solvency for its Singapore Insurance Fund, provided certain conditions are met. This provision should not be used to evade the investment controls for the life fund. Insurers must ensure that any assets in their shareholders' fund used to meet the fund solvency margin must be of such quality and limits that they would have been admissible if they were part of the life fund 6       In the case of an Offshore Insurance Fund established by an insurer, whether a direct insurer, reinsurer or captive insurer, there shall be maintained in the fund assets not less than the amount of the liabilities of the fund. Margin of Solvency 7       In addition to maintaining a margin of solvency for each insurance fund, an insurer shall maintain a margin of solvency in respect of the company as a whole. The margin of solvency shall be: a) in the case of a direct insurer or reinsurer registered for one class of insurance business, $5 million; b) in the case of a direct insurer or reinsurer registered for both classes of insurance business, $10 million; and c) in the case of a captive insurer, $400,000. 8       The assets representing the required fund margins of solvency shall not be taken into account in calculating the insurer's margin of solvency. Part III of the Insurance Regulations 1992 on the valuation of assets shall not apply for the purposes of determining the insurer's margin of solvency. Implementation of Requirements on Margins of Solvency 9       Under Regulation 3 of the Insurance Regulations 1992, an insurer shall maintain the required margins of solvency at all times during any accounting period. General Business 10      The enhanced fund margins of solvency required to be maintained by a general insurer as at 31 Dec 92, shall be computed based on its audited returns for the accounting period ended 1991. Any deficiency in the fund margins of solvency as shown in the 31 Dec 92 audited returns shall be made good before the date of submission of the 1992 audited returns. Thereafter, the fund margins of solvency required to be maintained shall be recomputed based on the 1992 audited returns. The new margins shall be maintained until the finalisation of the next audited annual returns. This procedure would apply in subsequent years. 11      An illustration on the computation of margins of solvency applicable to a general insurer is shown in MAS 102 Appendix A (PDF, 6.55KB). Life Business 12      In view of the difficulties in retrieving data for accounting period ended 1991, the fund margin of solvency required to be maintained by a life insurer as at 31 Dec 92 may be an amount estimated by the life insurer. The fund margin of solvency as shown on Form 15 as at 31 Dec 92 may be computed based on the valuation as at 31 Dec 92. Any deficiency in the fund margin of solvency as shown in Form 15 must be made good as soon as the accounts are finalised. The life insurer must submit its certification on the date and manner in which the deficiency has been made good, together with its first quarter returns for 1993. 13      The margin determined based on the 1992 valuation shall be maintained until the finalisation of the 1993 audited returns. The margin as shown on Form 15 as at 31 Dec 93 shall be computed based on the valuation as at 31 Dec 92. Upon finalisation of the 1993 audited returns, the margin shall be recomputed based on the valuation for 1993. Any deficiency in the fund margin of solvency must be made good as soon as the accounts are finalised. The life insurer must submit its certification on the date and manner in which the deficiency has been made good, together with its first quarter returns for 1994. This procedure would apply in subsequent years. Appendix A: Illustration on Computation of Margins of Solvency for General Insurers (6.55KB)