Monetary Authority of Singapore says awaited PCC consultation is coming soon

The Monetary Authority of Singapore (MAS) has signalled that a long-awaited consultation on new laws to establish a Protected Cell Company (PCC) structure that could be used for collateralised reinsurance arrangements and efficient insurance-linked securities (ILS) issuance is coming soon.

Long-term readers of Artemis may recall that Singapore has been asked by the ILS market to establish a structure that will support collateralised reinsurance and private ILS deals for a number of years now, while its executives have signalled this was coming in the past as well.

Way back in 2018 we reported that plans were already underway to implement regulation for the introduction of a protected cell company (PCC) for collateralised reinsurance, seen at the time as a next, natural step following the establishment of the catastrophe bond focused special purpose reinsurance vehicle (SPRV).

Of course, regulatory moves can take time and now the Monetary Authority of Singapore (MAS) has encouragingly signalled again that the PCC structure remains a strategic goal, with a consultation process now set to be launched to gain feedback on the rules it might require and what the reinsurance and ILS industry actually need from it.

In a speech given at a dinner in Singapore yesterday, Gan Kim Yong, Deputy Prime Minister and Minister for Trade and Industry, and Chairman of the Monetary Authority of Singapore, highlighted the PCC plans as he discussed the need for capital markets participation in insurance and Singapore’s ambitions to capture more of that business.

“Asia remains significantly underinsured. Traditional insurance and reinsurance capacity will continue to be crucial, but traditional underwriting alone will not be enough,” Gan said.

Adding that, “The financial centres that can bring together underwriting expertise, reinsurance capacity, alternative capital and flexible risk-transfer structures will be best positioned for growth.”

Moving on to discuss Singapore’s plans to continue evolving its reinsurance and ILS regulatory regime, Gan turned to the plans for a PCC structure.

He said, “MAS will soon consult on introducing a new corporate structure, the Protected Cell Company, or PCC, to scale alternative risk-transfer solutions.”

Explaining that, “A PCC allows assets and liabilities to be ring-fenced within individual cells under a single core entity. This makes it possible to structure different risks separately, while using shared infrastructure.

“The result is greater flexibility, lower cost and more efficient risk transfer. PCCs can make captive insurance solutions more accessible for corporates, and make it faster and cheaper for sponsors of insurance-linked securities to transfer risks to capital markets.”

He added that, “By enabling more alternative risk transfer solutions, the PCC framework will complement the traditional reinsurance market, expand risk capacity, and deepen Singapore’s role as a hub for insurance and risk solution innovation.”

Gan further said that MAS would “share more details of the public consultation in the coming weeks,” signalling that this is now coming soon and further progress has been made.

Gan said that the development of a PCC in Singapore is part of its agenda to develop financial market frameworks that are fit for the industries needs.

“We are building trusted market infrastructure for Asia’s next phase of growth and development,” he stated.

This is encouraging to hear, as the flexibility to domicile a cell structure in Singapore that can be used for collateralized reinsurance, or private ILS deals, will be welcomed by those that operate there, in the Asian region, or any ILS managers that may like to locate part of their operations in the country.

The same caveats still apply as did in 2018 though. Attracting users may take time, as has been seen with catastrophe bonds in locations like Singapore and Hong Kong.

But as long as this is undertaken with a long-term vision and a goal to be truly useful to the domestic and regional Asian markets first, then Singapore stands every chance of attracting some of this private ILS style business to its financial market.