Singapore to reduce investment reporting & disclosure rules for ILS issuers

In aiming to make its insurance-linked securities (ILS) regulatory environment as appealing as possible, the government of Singapore is listening to market participants and enhancing rules surrounding ILS and catastrophe bond issuance structures, to reduce friction for sponsors and other parties involved in transactions.

Ever since the start of Singapore’s journey into insurance-linked securities (ILS), the country’s Monetary Authority has promised to listen to the industry and work to update its offering for ILS issuance, to meet sponsor and investor needs.

In a recent move, the Monetary Authority of Singapore (MAS) has proposed to reduce friction around the reporting and disclosure requirements of special purpose reinsurance vehicles (SPRV’s), as it looks to reduce operational friction involved with domiciling a catastrophe bond or other ILS and collateralised reinsurance arrangement in the country.

The Monetary Authority of Singapore (MAS) has been running a consultation process seeking feedback on proposals to update two areas of the ILS regulatory regime.

The first change is that MAS proposes to exclude special purpose reinsurance vehicles (SPRV’s), so the catastrophe bond or ILS issuance vehicle, from requirements related to certain investment related requirements for insurance and reinsurance companies registered in Singapore.

In particular this relates to the need for investment policies to have board or senior management oversight, for investment reports to be made to the board, and around the duties of an investment committee.

MAS explained that it is appropriate to exclude special purpose reinsurance vehicles from these rules, “Given the static nature of an SPRV’s business model and that it typically invests in liquid financial instruments.”

The second area of proposed change is related to the public disclosure requirements of an insurance or reinsurance business domiciled in Singapore.

Already certain types of re/insurers are excluded from these public disclosure requirements, such as captive insurers, marine mutual insurers and run-off insurers, but now MAS proposes adding SPRV’s to this list of entities that do not have to make such full public disclosures.

MAS explained that, “As policyholders of SPRVs are the sponsors of the insurance-linked securities transactions, these policyholders will have access to relevant information to understand the risks to which the SPRV is exposed, and the manner in which the risks are managed.”

Meaning there is no benefit in the SPRV’s having to publicly disclose that information as well.

By updating these existing insurance regulatory requirements to exclude SPRV’s from needing to make additional reporting, MAS is bringing Singapore’s ILS regulatory regime more in-line with other domiciles where catastrophe bond or insurance-linked security (ILS) issuers do not have to report in as great a detail as a market-facing underwriting entity.

Singapore has gained good traction as a location for sponsoring catastrophe bonds and will need to continue honing its regulatory offering to ensure it remains attractive and aligned with the ease of issuance sponsors experience elsewhere.

So far in 2021, Singapore has played host to four catastrophe bond transactions, from three US and one Japanese sponsors.

Singapore was the domicile of choice for six catastrophe bond sponsors in 2020 and three in 2019.