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MAS Invites Comments on Proposed Regulatory Framework for Insurance Securitisation 
Posted on Wednesday, June 13, 2007 - 03:00 PM

The Monetary Authority of Singapore (MAS) issued a consultation paper today setting out the proposed regulatory framework for insurance securitisation. Through securitisation, insurers can transfer insurance risk directly to the capital market. Recognising the merits of such risk mitigation techniques, especially for managing risks arising from pandemics and natural catastrophes, and the potential demand for insurance linked securities (ILS) in Asia, MAS is developing a regulatory framework for insurance securitisation.

2. The consultation paper sets out proposals in the following areas:

a) MAS proposes to register special purpose vehicles established specifically for the purpose of transferring insurance risks from insurers to the capital markets, commonly known as Special Purpose Reinsurance Vehicles (SPRVs), as “reinsurers” under Section 8 of the Insurance Act. Given the limited scope of activities and the bankruptcy remote structure of such vehicles, MAS proposes to subject SPRVs to customised regulatory requirements that are proportionate to the risks posed by these vehicles.

b) MAS proposes to grant regulatory credit for reinsurance ceded to SPRVs on a case-by-case basis. MAS will require a registered insurer which intends to cede its insurance risks to a SPRV and with the intention of obtaining regulatory credit for the reinsurance ceded to the SPRV, to seek prior approval on the amount of regulatory credit applicable.

c) MAS proposes to allow registered insurers to participate in insurance securitisation as investors of ILS, and to report to MAS information like their aggregate exposure to ILS.

3. Interested parties should forward their comments on the proposals in the consultation paper to MAS by 12 July 2007. The consultation paper is available on the MAS website.