MAS proposes lower capital charges for insurers’ infrastructure and securitisation investments

Singapore is making it cheaper, in capital terms, for insurers to invest in infrastructure and is paying them to build the expertise to do it.

The Monetary Authority of Singapore (MAS) announced the measures on November 2 at the Singapore International Reinsurance Conference. Chee Hong Tat, minister for national development and deputy chairman of MAS, made the announcement. MAS said infrastructure and other long-term assets can complement insurers’ long-dated liabilities, and that it is taking a more differentiated approach that better reflects their underlying risks while maintaining prudential standards and protecting policyholders.

The centrepiece is a consultation on a more risk-sensitive capital framework, with three proposals:

• Rated infrastructure debt: investments that meet specified credit quality and other qualifying requirements would attract lower capital charges.
• Risk-mitigated infrastructure: qualifying equity and debt investments with features such as revenues backed by long-term contracts, limited exposure to demand risk, and support from counterparties with strong credit quality would also qualify for lower charges.
• Senior securitisation tranches: investment-grade tranches that meet criteria on simplicity, transparency and comparability, or conditions such as portfolio diversification and liquidity safeguards, would attract lower charges.

The consultation closes on December 18.

MAS has also set aside S$30 million under its Financial Sector Development Fund for an Infrastructure Capability Development Grant for Insurers, which took effect on announcement.

The grant will help cover the cost of building dedicated investment teams, training existing staff and hiring professional services to set up or expand infrastructure investment activities in Singapore.

To widen the pool of qualifying investments, MAS will recognise more external credit assessment institutions with expertise in infrastructure and securitisation. It is also working with the industry on standardised disclosure templates, clearer assessment guidance and fund-manager declarations, to make it easier for insurers to show that investments meet the criteria for lower charges.

The proposals build on earlier changes. MAS revised Notice 133, its valuation and capital framework for insurers, to introduce a new capital treatment for qualifying infrastructure investments from March 31 this year. It also launched Project Verdi to encourage insurers to build expertise in sustainable infrastructure investments, including those that do not meet all the qualifying criteria. The latest measures form part of the work of the Growth Capital Workgroup, which MAS and what is now the Ministry of Energy, Trade and Industry convened in February.

For the wider market, the measures reinforce Singapore’s push to anchor long-term insurance capital in the city, and could free up balance sheet capacity at Singapore-based carriers. Insurers and reinsurers have until December 18 to respond to the consultation.