Following the completion of the Universal Law Revision Exercise on 31 December 2021 by the Law Revision Commissioners, a part of the Editorial and Revision Group of the Attorney-General’s Chambers, the Insurance Act (Chapter 142), which is the statute providing an integrated regulatory framework for persons engaging in insurance business and acting as insurance intermediaries in Singapore, was renamed the “Insurance Act 1966”. Apart from the Insurance Act 1966, there are other pieces of legislation which govern specific types of insurance contracts or substantive points of insurance law. For example, the Third Parties (Rights against Insurers) Act 1930, Marine Insurance Act 1906, Motor Vehicles (Third Party Risks & Compensation) Act 1960 and Work Injury Compensation Act 2019.
Under the Insurance Act 1966, “insurance business” (which includes reinsurance of liabilities) is divided into two classes: (1) life business, which includes all insurance business concerned with life policies, long term accident and health policies, or both; and (2) general business, which is essentially any insurance business which is non-life insurance business. Entities which wish to underwrite insurance business in Singapore and/or solicit for insurance business from the public in Singapore must be licensed or authorised by the Monetary Authority of Singapore (MAS). As of February 2023, there are 127 licensed insurers and reinsurers in Singapore. If the 83 captive insurers are included, the grand total of insurers licensed by the MAS is 210.
Singapore adopts a territorial basis of taxation. This means that only income accruing in or derived from Singapore or income received in Singapore from outside Singapore will be subject to tax in Singapore. The corporate income tax rate generally applicable for the year of assessment 2023 is 17 per cent. Apart from partial tax exemption and corporate income tax rebate which are given to companies generally, insurers and reinsurers underwriting approved specialised insurance business may also enjoy a concessionary tax rate of 10 per cent under the Insurance Business Development umbrella scheme, which was extended to 2025 by the Singapore Government in Budget 2020. In Budget 2023, the Singapore Government announced the extension of the Insurance Business Development – Insurance Broking Business Scheme to 31 December 2028, which grants approved insurance and reinsurance brokers a concessionary tax rate of 10 per cent on commission and fee incoming derived from insurance broking and advisory services.
Current Trends & Developments
In September 2022, the MAS announced its latest Financial Services Transformation Roadmap, or ITM 2025. Part of the ITM 2025 is to grow Singapore’s capabilities in Asian insurance and risk transfer and catalyse insurance risk advisory and risk transfer solutions for Asia, building upon Singapore’s widely held view as the leading specialty insurance and reinsurance hub in Asia, through three key strategies.
The first strategy is to grow Singapore as a risk financing centre for systemic and structural risks in Asia and address the lack of established risk assessment and modelling data to support risk quantification, pricing and development of solutions. Singapore’s commitment to address the same and to be the industry leader and trailblazer for the region is evident in its establishment of the Global-Asia Insurance Partnership (GAIP) in 2021, a tripartite partnership between the global insurance industry, regulators and academia. The GAIP, as a centre of excellence, was launched to address systemic structural protection gaps and new emerging risks in insurance, with an initial focus on risks brought on by the COVID-19 pandemic and climate change. The platform aims to produce actionable research insight, develop policy recommendations and co-create innovative solutions for the region. It is hoped that InsurTech start-ups, academia and international organisations can maximise Singapore’s modern and digital marketplace and the way risks and capital are connected; and build long-term risk resilience and close the protection gap in Asia to large-scale systemic risks (for example, pandemic and disaster risks and health and longevity risks) and new and emerging risks (for example, cyber risks).
The second strategy in the ITM 2025 is to grow Singapore into a mature and diverse centre for alternative risk financing, which includes capabilities in risk pooling arrangements and in Insurance-Linked Securities (ILS) to complement Singapore’s capabilities in reinsurance and fund management.
With the increasing frequency and severity of natural catastrophes in Southeast Asia, the need to strengthen resilience of vulnerable communities in the region has become more urgent. In May 2018, the ASEAN+3 Finance Ministers endorsed the Southeast Asia Disaster Risk Insurance Facility (SEADRIF) in what was conceived as a risk pooling arrangement. SEADRIF is supported by the World Bank in partnership with Japan and was established in 2019 in Singapore. As a first project, SEADRIF issued a flood risk insurance programme involving Laos and Myanmar in January 2021 which provides ex-ante climate and disaster risk and insurance financing solutions for these two countries. The aim is for such disaster risk insurance to provide immediate liquidity financing so that countries affected by a natural disaster can receive help promptly with less reliance on humanitarian assistance which can take time or is uncertain; and also reduce disruptions to national budgets.
With aspirations to transform Singapore’s reinsurance industry from a mainstream traditional reinsurance hub to a sophisticated, full-fledged global capital for Asian risk transfer, the focus by the MAS in recent years is to expand the current spectrum of reinsurance and risk financing solutions to alternative risk transfer mechanisms such as ILS. Since 2018, Singapore has taken progressive strides towards developing the ILS market in Singapore with various incentive schemes. On 26 February 2018, the MAS announced an ILS grant scheme to develop the ILS market in Singapore by funding the upfront costs incurred in issuing ILS bonds in Singapore, including those for catastrophe risks, up to a limit of S$2 million per issuance. This ILS grant scheme ended on 31 December 2022 but it is anticipated that a revised ILS grant scheme will be formally announced by the MAS in 2023 with updated parameters such as a lower grant amount and a focus on Asian risks.
ILS is seen as an alternative reinsurance product to traditional reinsurance in the Singapore market. Under the current regulatory framework, the ILS will be issued via a Special Purpose Reinsurance Vehicle (SPRV), to allow sponsors to readily securitise reinsurance risks in Singapore. A dedicated set of regulations apply to such SPRVs and under these regulations, the SPRV must be fully funded and MAS expects the same to be bankruptcy remote and legally separated from the sponsor and any party involved in its establishment.
To provide tax neutrality for ILS vehicles and for the notes issued, Singapore has extended in Budget 2023, until 31 December 2028, the tax incentive schemes for Approved Special Purpose Vehicles engaged in insurance securitisation as well as for Qualified Debt Securities.
The ILS grant and tax incentive scheme has led to 23 catastrophe bonds being issued in Singapore from December 2018 to December 2022, with a total issuance amount exceeding US$3.8 billion. In addition to these 23 catastrophe bonds, the first sovereign catastrophe bond in Asia issued under a World Bank programme covering Philippines’ earthquake and tropical cyclone risks was listed on the Singapore Exchange in late 2019. To further enhance Singapore’s dominant position in Asia as an ILS hub, the regulators are exploring the introduction of new corporate structures like the Variable Capital Company (VCC) structure (introduced in 2018 only for the fund management sector) to the insurance industry to provide more structuring options to ILS sponsors and captive insurers as well to broaden the spectrum to include other structures such as sidecars and collateralised reinsurance. Market surveys were conducted in 2022 by the MAS to gather feedback from sponsors, service providers and investors on how their Singapore ILS experience has been in order to refine the regulatory framework and improve processes further.
The third and final strategy in the ITM 2025 is to help insurers transform into digital and technology champions. MAS is committed to helping insurers in their digitisation, data analytics and innovation efforts with the COVID-19 pandemic acting as a catalyst to drive change not only in consumer facing aspects such as sales, customer service and claims, but also all mid and back-office operations through cloud computing and the deployment of artificial intelligence. Insurers are encouraged to tap on Singapore’s FinTech ecosystem, which has one of the region’s largest concentrations of around 80 InsurTech firms, to support their digital transformation.
There are also initiatives to further develop a skilled workforce, consisting of global talent in addition to local talent, which also applies to the insurance industry. On 4 March 2022, the Singapore government announced a new framework for foreign candidates seeking a Singapore employment pass under a points-based Complementarity Assessment Framework (COMPASS) which takes effect from 1 September 2023. The aim of COMPASS is to enable employers to select high-quality foreign professionals to work in Singapore and improve diversity in the workforce while strengthening the core of local employees. Under COMPASS, employment pass applications will be assessed on four foundational criteria, namely, salary, qualifications, diversity and support for local employment. In addition to these four criteria are two bonus criteria of bringing in skills that are not readily available in Singapore and support of strategic economic priorities which can create jobs for Singaporeans.
In addition, the MAS in partnership with organisations in Singapore, such as the Institute of Banking & Finance and the Singapore College of Insurance, launched the Talent and Leaders in Finance Program (TLF). From 2021 to 2025, the MAS Financial Sector Development Fund will provide S$400 million in funding to the TLF programme to help industry professionals to take up good jobs and advance their careers at various stages.
Mr Simon Goh is Partner and Head of the Insurance & Reinsurance Practice at Rajah & Tann Singapore. His publications include the Insurance Chapter in Law Relating to Specific Contracts in Singapore, 2nd Ed, Sweet & Maxwell; International Insurance Law and Regulation, Singapore Chapter (Oxford University Press, Inc.); the Insurance Chapter of the Singapore Academy of Law’s SingaporeLaw.sg (www.singaporelaw.sg); “The impact of the UK Insurance Act 2015 on Singapore Insurance Law and Practice”, Singapore Law Gazette, October 2016 issue; and Chambers Global Practice Guide – Insurance & Reinsurance 2019, Singapore Chapter.