Singapore - MAS consults on proposed requirements on insurers' charging of expenses to the participating fund
Earlier this month, the MAS issued a consultation paper clarifying their expectations and setting out additional requirements on insurers' charging of expenses to Participating funds ("Par Fund"), with the aim of better safeguarding policy owners' interests.
Background
Participating insurance policies represent a significant proportion of the life insurance business in Singapore, and are widely used to meet policy owners' investment and protection needs. They offer a combination of guaranteed and non-guaranteed benefits payable upon death, surrender or maturity.
Non-guaranteed benefits are made out to policy owners of Par Funds through distribution from the fund in the form of bonus payouts. Such distribution is dependent on the actual performance of the Par Fund in respect of its investment, mortality, morbidity, lapse and expense experience. This means that if expenses are inappropriately allocated to the Par Fund, the distributable bonuses for policy owners may be reduced.
MAS' proposals
The MAS have observed instances of inappropriate charging of expenses to the Par Fund in its past inspections of insurers. In light of this, they have proposed to amend their Notice 320 (Management of Par Life Insurance Business) ("Notice 320") in the following key areas:
- Board and senior management will be held ultimately responsible for proper governance of their insurer's Par Fund. This includes ensuring that expenses are appropriately allocated;
- New requirements will be introduced on the allocation of charges and expenses to the Par Fund (e.g. insurers must not allocate any marketing-related charges and expenses to the Par Fund where they are not directly related to the sales of the insurer's Par products); and
- The inclusion of a (non-exhaustive) list of charges and expenses which must not be charged to the Par Fund. This list will be updated as and when the MAS deems it necessary to do so.
The MAS also highlighted that it expects insurers to meet policy owners' Reasonable Expectation (i.e. what policy owners can minimally and reasonably expect of the insurer's conduct and practices) in a fair and reasonable manner. In particular, this means that where charges and expenses are allocated to the Par Fund, such allocation (i) is not to the detriment of Par policy owners' interests; and (ii) is necessary for the ongoing management of the Par Fund.
MAS has proposed that these changes to Notice 320 take effect from 1 April 2020. The above consultation closes on 9 March 2020.
