Singapore’s MAS launches consultation for PCC and collateralised reinsurance structure

An awaited consultation process on the regulatory framework for a Protected Cell Company (PCC) structure that can be used for collateralised reinsurance arrangements, including sidecars, and efficient insurance-linked securities (ILS) issuance has now been launched by the Monetary Authority of Singapore (MAS).

The Monetary Authority of Singapore (MAS) published the consultation documents today, asking market participants for their input and feedback to the proposed regulatory design for the Protected Cell Company (PCC) structure.

As we’ve explained before, this consultation process is long-awaited, as Singapore has been discussing a regulatory framework and vehicle to support collateralised reinsurance and efficient ILS arrangements for a number of years now.

We first reported on plans to introduce a protected cell company (PCC) for collateralised reinsurance in Singapore way back in 2018.

At the time, this was seen as a natural step following the establishment of the catastrophe bond focused special purpose reinsurance vehicle (SPRV) in the country.

Last month, the Monetary Authority of Singapore (MAS) signalled that a PCC consultation process was coming soon, highlighting it as an important strategic goal.

Now, the reinsurance and insurance-linked securities industry, as well as investors, have a chance to provide input and feedback on the design of a PCC structure in Singapore, to help ensure the regulations are fit for purpose.

The goal is to have a single PCC structure that is suited to use as a captive vehicle for those seeking insurance, as well as a reinsurance related structure that can be utilised for risk pooling (such as in the sovereign context), for collateralised reinsurance arrangements and to issue what we’d commonly know as private ILS deals (so smaller arrangements that typically come via multi-issuance vehicles).

In addition, sidecars are also in focus for this structure, which is being designed to support those kinds of structured arrangements as well.

On releasing the consultation paper this morning, the Monetary Authority of Singapore (MAS) said that the “proposed framework aims to support the growth of alternative risk transfer solutions and deepen Singapore’s role as a risk management hub.”

With the economic losses of natural disasters and climate events rising around the world and in Asia, MAS explained, “This is increasing the need for alternative risk transfer solutions, including captive insurance, insurance-linked securities, and risk pooling. Companies globally are seeking to retain greater control and flexibility in risk financing and retention or procure risk coverage to complement traditional insurance capacity.”

Corporate structures in Singapore currently require the owner to establish individual legal entities such as special purpose vehicles to ringfence capital, assets and liabilities related to risk transfer arrangements.

MAS notes that the effort and costs of this can deter broader adoption of solutions designed to help sponsors manage risks and protect themselves.

As a result, the proposed PCC structure will operate as a single entity with a central Core and one or more separate and distinct Cells, with each cell segregated from each other and the core, meaning that multiple insurance solutions can be managed within a single PCC structure while the Core provides centralised oversight and governance.

MAS believes this is a more “cost-effective and operationally efficient structure,” something that has been demonstrated in other insurance domiciles where protected and segregated cell structures are regularly used for collateralised reinsurance and private ILS arrangements.

The regulator said, “We envisage that a PCC structure will provide market participants with a more cost-efficient, streamlined, and flexible structuring option, as compared to using traditional standalone entities which require separate incorporation and duplicated operational overheads. The PCC structure can help expand the supply of risk capacity by lowering barriers to entry for participation in the alternative risk transfer market, and strengthen Singapore’s position as a leading centre for insurance and risk financing innovation.”

While the PCC is designed to support captive solutions, as well as sovereign risk pools, the insurance-linked securities (ILS) use-case is the most relevant for our readership.

MAS explained, “Insurers can tap on the capital markets to secure additional risk-bearing capacity by issuing ILS through separate cells within a PCC structure, without the need to establish a new special purpose vehicle for each transaction. This enables faster execution, lowers issuance costs, and makes smaller or more bespoke transactions (such as sidecars and collateralised reinsurance) more viable.”

It’s good to see the Monetary Authority of Singapore (MAS) looking to bring a multi-use PCC structure to the market, which would enable greater flexibility in the types of collateralised reinsurance arrangements that can be transacted there, as well as greater efficiency for those seeking to establish structures that can support multiple ILS type transactions.

We understand MAS is targeting implementation of a PCC Act and any necessary amendments to its insurance acts to support it in 2028, after a process of consultation and refining the new legislation surrounding the PCC corporate structure.

MAS encourages interested parties to read the consultation document and submit their feedback, to help in ensuring the new PCC regulatory framework in Singapore is fit-for-purpose and as effectively designed as possible.

You can find consultation documents and details of how to respond to them on the MAS website.