The Monetary Authority of Singapore (MAS) has proposed new investment rules that may lessen restrictions for insurance companies investing in bonds and equities.
The proposed risk-based capital framework, which was being crafted for the past four years, is the insurance industry’s counterpart for the Basel III regime for banks. It aims to improve risk coverage and to assess capital adequacy better compared to the current rules that have been in effect since 2005.
"The biggest impact on insurers would be the widening of the eligibility criteria for matching adjustment," Sally Yim, Moody's senior vice president for the Asia financial institutions group told Reuters
. "This is favourable for insurers as the proposed relaxed criteria would make it easier for insurers to perform their asset-liability management."
Two years ago, the matching adjustment mechanism was introduced, but the market felt that the conditions were too restrictive. In response, the MAS relaxed the conditions, such as allowing using US dollar bonds to match Singapore dollar liabilities and callable bonds.
The paper, released by the MAS on July 15, looks at several alternatives in addressing the shortage of rated bond issues. One of the proposals is to include an insurer’s internal rating model when computing the credit spread risk calculations. The central bank has not yet committed to that approach, but it acknowledged that it is "useful to have a set of criteria for an admissible internal rating process".
Another matter the central bank needs to attend to is infrastructure financing, which it can satisfy life insurers' need for long-term assets. The MAS plans to measure insurers’ interest in this asset class. Thee feedback for this consultation paper is due on October 20.
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