A framework has been developed by the Monetary Authority of Singapore (MAS) to identify domestic systemically important insurers (D-SIIs) in Singapore and mitigate the risks they provide.
The proposed D-SII framework's main objective is to pinpoint insurers whose individual financial hardship or disorderly failure would seriously disrupt Singapore's financial system and economic activities. As a result, MAS suggests evaluating each licensed insurer using the D-SII methodology.
The D-SII framework that has been proposed and is described in a consultation document complements the work already being done by MAS to address the negative externalities related to systemically important financial institutions (FIs).
Along with a list of potential policy measures for D-SIIs, the proposed framework includes a description of the methodology to be used to determine the systemic relevance of Singapore's insurers.
assessment techniques
using indicators as a guide
To determine the systemic significance of insurers, MAS proposes to use an indicator-based method. Four criteria will serve as the foundation for the suggested indicators: size, interconnectedness, substitutability, and complexity.
Assessment strategy
MAS suggests using a two-stage evaluation procedure to determine an insurer's systemic importance:
Stage One: Preliminary Selection—MAS will choose insurers in the Size, Interconnectedness, and Substitutability categories that exceed any effect indicator criteria. A complex insurer is less likely to be systemically important unless it is also big, well-connected, or a provider of insurance that is difficult to replace, so MAS will only choose an insurer with a high complexity score if it is also close to the threshold of an indicator in any of the other three categories.
Stage 2: Detailed Consideration—MAS will conduct a second-stage examination of the insurers chosen in Stage 1. To reduce the drawbacks of a mechanistic indicator-based approach, detailed consideration under the second stage is required. Along with taking other supervisory material into account, MAS will use supervisory judgment. All four systemic important considerations will be taken into account as MAS conducts an overall evaluation. The senior management of MAS will approve the overall assessment's findings.
The systemic significance of insurers would be evaluated annually, according to MAS. As a result of evolving risk profiles or business models, this takes into account changes in their systemic importance over time. The designation of a D-SII or the revocation of D-SII status will be based on two years of data. For instance, a non-D-SII in year T that is determined to be systemically significant in year T+1 based on the two-stage assessment process won't be instantly recognized as a D-SII. The insurer will be designated as a D-SII in Year T+2 and be subject to policy measures if it is still considered to be systemically significant in Year T+2
policy actions
A D-SII will be subject to the following recommended policy actions in addition to more intense supervision:
Timeline for implementation
By the first quarter of 2024, MAS plans to publish the inaugural list of D-SIIs and deploy the D-SII framework. This list of D-SIIs will be compiled using data from the end of 2021 and the end of 2022. In 4Q2023, the insurers who have been designated as D-SIIs will be notified.
Every year, following each D-SII evaluation exercise, MAS will publish the updated list of D-SIIs.
On November 30, 2022, at 11.59 p.m., the framework's consultation period will have ended.
0 Comments