SINGAPORE: An Introduction to Insurance

Doing Insurance Business in Singapore 

The main statute governing the regulatory aspect and the conduct of (re)insurance business in Singapore is the Insurance Act (Chapter 142). Apart from the Insurance Act, 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 (Chapter 387), Motor Vehicles (Third Party Risks & Compensation) Act (Chapter 189) and Workmen’s Compensation Act (Chapter 354).

As a common law jurisdiction, Singapore relies heavily on common law principles and case law authorities. In the absence of local case precedent, case authorities from Commonwealth jurisdictions (especially England and to a larger extent in recent years, Australia), though not binding on the Singapore courts, are likely to be of persuasive effect. Cases from the United States of America may be of some persuasive authority (typically less so compared to Commonwealth cases) before the Singapore courts as well.

The insurance and reinsurance industry is regulated by the Monetary Authority of Singapore. 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 MAS.

As of 2020, there are approximately 120 licensed insurers and reinsurers in Singapore, with more than half of them holding direct general (otherwise known as non-life) insurance licences. In comparison, the number of direct life insurers is significantly lower and represents less than 10% of the population of licensed insurers in Singapore. Generally speaking, the regulatory requirements imposed on life insurers are more stringent or onerous, as compared to general insurers.

With regards to taxation, 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 2020 is 17%. 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% under the Insurance Business Development umbrella scheme.

Market Trend: Singapore as Global Capital for Asian Risk Transfer

Singapore has, for some time, been well-recognised as the leading insurance and reinsurance hub in Asia. Its numerous initiatives in the recent years (especially on the insurance-linked securities and disaster risk insurance front) has propelled it into the spotlight as a speciality insurance centre as well.

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 in the near future will be to expand the current spectrum of risk financing solutions:
(a) retention using captives;
(b) risk transfer to reinsurance and insurance markets
(c) risk pooling using commercial and sovereign risk pools; and
(d) risk transfer to capital markets using alternative risk capital mechanisms, such as insurance linked securitisation.

Singapore’s commitment to be the industry leader and trailblazer for the region is evident in its establishment of the Global-Asia Insurance Partnership (a tripartite partnership between the global insurance industry, regulators and academia). This platform 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 (an issue which has plagued the industry for some time). 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 transfer the way risks and capital are connected, building long-term risk resilience 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).

Market and Legal Developments 

In recent years, Singapore has taken progressive strides towards developing the insurance-linked securities (ILS) market in Singapore with various incentive schemes. This has led to several catastrophe bonds being issued or listed on the Singapore Exchange. For example, the first sovereign catastrophe bond in Asia issued under a World Bank programme covering the Philippines’ earthquake and tropical cyclone risks was listed on the Singapore Exchange in late 2019. In addition, eight catastrophe bonds were issued in Singapore from December 2018 to June 2020 with total issuance amount exceeding USD1 billion. In order to further enhance Singapore’s dominant position in Asia as a reinsurance hub, the regulators are exploring the introduction of new corporate structures like the Variable Capital Company (VCC) structure (introduced in 2018 for the fund management sector) to the insurance industry to provide more structuring options to ILS sponsors and captive insurers.

In May 2018, the ASEAN+3 Finance Ministers endorsed the Southeast Asia Disaster Risk Insurance Facility (SEADRIF). SEADRIF is supported by the World Bank in partnership with Japan and was established in 2019 in Singapore. As a first project in 2020, SEADRIF will start a flood risk insurance pool involving Laos, Myanmar, and potentially Cambodia, and provide ex-ante climate and disaster risk and insurance financing solutions for these three countries. The aim is for such disaster risk insurance to provide immediate liquidity financing so that countries affected by 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.

On 28 February 2020, the Insurance Law Reform Sub-committee formed by Singapore Academy of Law (Committee), which is chaired by our partner and the head of Rajah & Tann’s insurance & reinsurance practice, Mr Simon Goh, published its report on reforming insurance law in Singapore. The report reviewed areas of Singapore's insurance laws the Committee considered to be outdated and whether reform was needed. Key areas included the duty of utmost good faith, the duty of disclosure and misrepresentation, warranties, remedies for fraudulent claims, insurable interest, late payment of claims as well as select aspects of an intermediary’s role. Significant changes to the said areas of insurance contract law in Singapore can be expected.

On the insurance regulatory front, after extensive rounds of public and industry consultations, as well as a quantitative test run in 2019, the MAS have implemented changes to the previous risk-based capital (“RBC”) framework for assessing the financial and capital adequacy of insurers. In the light of evolving market practices and global regulatory developments, changes were introduced to the previous RBC framework to ensure that the RBC framework remains relevant to industry’s needs while enhancing protection for policyholders and maintaining prudent capital requirements that are commensurate with insurers' risk profiles and business activities and are in line with international standards and best practices. RBC 2 took effect on 31 March 2020 and the main changes relate to the introduction of two solvency intervention levels and the associated supervisory actions for not meeting these levels, in addition to the requirement to meet the fund solvency requirement at a broader adjusted fund level, instead of at the insurance fund level.

Simon GOH, Partner and Head of Insurance & Reinsurance Practice Group

Ying Shuang WANG, Partner, Insurance & Reinsurance Practice Group

Rajah & Tann Singapore LLP