SINGAPORE: An Introduction to Insurance

Doing Insurance Business in Singapore 

The main statute governing 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 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 (MAS). 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 2021, 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. 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 2021 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 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).

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. From January to October 2021, nine catastrophe bonds were issued in Singapore, surpassing the eight issuances in the whole of 2020. With total issuance amount since December 2018 to October 2021 exceeding USD 2 billion, Singapore is undoubtedly the prime destination in Asia for ILS and has become a key player in the ILS market. 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 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, SEADRIF started a flood risk insurance pool involving Laos and Myanmar in 2021 to provide 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 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.

Given that environmental risk is increasingly recognised as a key risk globally, the MAS launched the Green Finance Action Plan in 2019 to support a sustainable Singapore and facilitate Asia’s transition to a sustainable future. A key thrust of this Action Plan is to strengthen the financial sector’s resilience to environmental risk. In December 2020, the MAS issued three sets of Guidelines on Environmental Risk Management, which apply to insurers and reinsurers licensed in Singapore. These Guidelines set out MAS' supervisory expectations with regard to assessing, monitoring, mitigating and disclosing environmental risk, and cover a broad spectrum of various aspects of an insurer’s operations, including underwriting and claims process. In 2021, the Green Finance Industry Taskforce issued a handbook and an implementation guide to provide insurers and reinsurers with practical implementation guidance and good practices on environmental risk management. In view of the keen focus on sustainability and environmental risks, we can expect the regulator to continue to roll out relevant regulations and guidelines on this front.

In March 2021, the Singapore Academy of Law published the “Actuarial Tables With Explanatory Notes For Use In Personal Injury And Death Claims” (Actuarial Tables). They are similar to the Ogden Tables in the UK. In all proceedings for the assessment of damages in personal injury and death claims that are heard on or after 1 April 2021, the Singapore courts will refer to the Actuarial Tables in quantifying damages for future losses (for example, future loss of earnings and future expenses), unless the facts of the case and ends of justice dictate otherwise. Prior to the publication of the Actuarial Tables, the general approach was to refer to comparable precedent cases in determining the appropriate multiplier when assessing future losses. The Actuarial Tables were developed by a multi-disciplinary committee comprising members of amongst others, MAS, the General Insurance Association, the Singapore Actuarial Society and the Law Society, with a view of introducing greater certainty and precision in the quantification of future losses. It is, however, likely that the quantum of damages arrived at using the Actuarial Tables will increase due to the general increase in multiplier values recommended in the Actuarial Tables, as compared to past cases. The Singapore insurance industry ought to be prepared for an increase in the quantum of all personal injury claims and it would be reasonable to expect insurers to make adjustments in its underwriting and to premiums to cater for this increase.

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

Ying Shuang WANG, Partner, Insurance & Reinsurance Practice Group

Rajah & Tann Singapore LLP