On 24 August 2012, the Monetary Authority of Singapore (the “MAS”) issued its response (the “MAS Response”) to feedback received pursuant to the MAS Consultation Paper on “Corporate Governance for Insurers” which was released in February 2012 (the “Consultation Paper”).
In the Consultation Paper, the MAS proposed to extend the application of the Insurance (Corporate Governance) Regulations (the “CG Regulations”) and the MAS Guidelines on Corporate Governance for Banks, Financial Holding Companies and Direct Insurers (the “Guidelines”) to all direct insurers and reinsurers incorporated in Singapore.
Currently, the CG Regulations only apply to “significant insurers” while the Guidelines only apply to direct insurers incorporated in Singapore. A “significant insurer” is defined in the CG Regulations as any direct life insurer incorporated in Singapore and has total assets of at least S$5 billion or its equivalent in any foreign currency in its Singapore Insurance Fund and Offshore Insurance Fund. Please click here to view an article in the March 2012 issue of the Allen & Gledhill Financial Services Bulletin for a summary of the proposals in the Consultation Paper.
The issues clarified in the MAS Response include:
- Tiering of insurers: The respondents to the Consultation Paper agree with the MAS proposal to tier all Singapore incorporated insurers into Tier 1 and Tier 2 insurers according to the size of their total assets or annual gross premiums.
The MAS Response clarifies the application of the definition criteria for a composite insurer.
- CG Regulations for Tier 1 and 2 insurers: It is proposed that Tier 1 insurers will be subject to the current requirements set out in the CG Regulations. For Tier 2 insurers, some of the requirements under the CG Regulations have been calibrated as per proposals in the Consultation Paper, given the smaller scale of their operations.
The MAS Response elaborates on the MAS position with regard to the application of the Board Committees requirements in CG Regulations to a Tier 1 insurer which is a whollyowned subsidiary of a bank or insurance company (licensed in Singapore or otherwise).
- Board composition: A handful of respondents to the Consultation Paper disagreed with the proposal to require a Tier 2 insurer to have a board of directors (the “Board”) comprising at least one third of directors who are independent directors, especially since its parent entity already has a board of directors comprising independent directors.
The MAS Response provides that the MAS is of the view having at least one third independent directors will help to ensure that the Board of a Tier 2 subsidiary insurer has a strong and independent element. The MAS indicated that it will give insurers a sufficient time period of about three years, i.e. up to their annual general meetings held on or after 1 January 2015 to find suitable directors in order to meet the one third independent director requirement on the Board.
- Application of the Guidelines: The MAS Response states that to raise the governance standards of the entire insurance industry, the Guidelines will be applicable to Singapore incorporated direct insurers and reinsurers, including the captive insurers.
- Disqualification rules: In general, the respondents to the Consultation Paper expressed concern about the scope of application of the proposal to introduce a disqualification rule for the directors, executive officers and employees of an insurer and the requirement for the insurer to obtain the MAS’ written consent to employ persons disqualified under the rule.
The MAS Response provides that taking into account the feedback from the respondents, the MAS has decided that insurers will only be required to obtain MAS’ approval for directors or executive officers disqualified under the rule and not for disqualified employees.
It has also been clarified that in the case of branches, the rule will apply to executive officers of the registered insurer in Singapore. It will not apply, for example, to the overseas head office of a registered insurance branch in Singapore.
Please click here to read the MAS Response which is available on the MAS website