FIRST SCHEDULE
Regulation 2(1)
Financial Resources and Qualifying Tier 2 Instrument
Financial resources
1.—(1)  “Financial resources” means —
(a)in relation to an insurance fund established and maintained by a registered insurer under the Act —
(i)in the case of a participating fund, the sum of —
(A)the balance in the surplus account; and
(B)the allowance for provision for non-guaranteed benefits calculated in accordance with sub-paragraph (8); or
(ii)in the case of any other insurance fund, the surplus of the assets of the fund over its liabilities, less any reinsurance adjustment calculated in accordance with sub-paragraph (10) and any financial resource adjustment; and
(b)in relation to a registered insurer, the sum of the following items:
(i)Tier 1 resource calculated in accordance with sub-paragraph (2);
(ii)where it is a registered insurer incorporated in Singapore, Tier 2 resource calculated in accordance with sub-paragraph (4); and
(iii)where the insurer is a direct insurer registered to carry on life business and has established and maintained any participating fund, the aggregate of the allowances for provision for non-guaranteed benefits calculated in accordance with sub-paragraph (9) for each participating fund.
(2)  Subject to sub-paragraph (5), “Tier 1 resource” of a registered insurer means the sum of the following items:
(a)the aggregate of the surpluses of the assets over the liabilities of all insurance funds (other than a participating fund) established and maintained under the Act by the insurer;
(b)the balance in the surplus account of each participating fund; and
(c)where it is a registered insurer incorporated in Singapore, the sum of —
(i)its paid-up ordinary share capital;
(ii)any unappropriated profit or loss that is not already accounted for less the items in sub-paragraphs (a) and (b);
(iii)its irredeemable and non-cumulative preference shares; and
(iv)any other capital instrument approved by the Authority as a Tier 1 resource in respect of the insurer, less the aggregate of the reinsurance adjustments of all insurance funds established and maintained under the Act by the insurer and any financial resource adjustment.
(3)  In approving a capital instrument for the purposes of sub-paragraph (2)(c)(iv), the Authority shall have regard to whether the following requirements are satisfied:
(a)the instrument is issued and fully paid-up in cash, whereby only the net proceeds received from the issuance of instruments shall be included as financial resources of the insurer;
(b)the instrument does not have a maturity date;
(c)the instrument, if redeemable (whether through a call option, share buy-back or otherwise), may only be redeemed at the option of the insurer with the prior approval of the Authority;
(d)the agreement governing the issuance of the instrument does not have any call option within the first 5 years from the issue date, other than a call option which may be exercised by the insurer where —
(i)the instrument was issued for the purpose of a merger with, or acquisition by, the insurer and the merger or acquisition is aborted; or
(ii)there is a change in tax status of the instrument due to changes in the applicable tax laws of the country or territory in which the instrument was issued;
(e)the agreement governing the issuance of the instrument does not contain any provision that mandates or creates an incentive for the insurer to repay the outstanding principal of the instrument early, other than a call option —
(i)no earlier than 10 years after the issuance of the instrument, accompanied by a provision whereby the dividend or coupon rate payable under the instrument increases by no more than 100 basis points over the initial rate, less the swap spread between the initial index basis and the stepped-up index basis if the insurer chooses not to exercise its option, such increase in dividend or coupon rate being the only one during the validity period of the instrument; or
(ii)in the two situations set out in sub-paragraph (d);
(f)any dividend or coupon to be paid under the instrument is only paid to the extent that the insurer has profits distributable under any written law, determined from the latest statements of account lodged with the Authority in accordance with section 36 of the Act or such other subsequent audited statements of account provided to the Authority;
(g)the insurer has full discretion over the amount and timing of dividends or coupons under the instrument where the insurer —
(i)has not paid or declared a dividend on its ordinary shares in the preceding financial year; or
(ii)determines that no dividend is to be paid on such shares in the current financial year;
(h)the dividends or coupons on the instrument are non-cumulative;
(i)the agreement governing the issuance of the instrument does not contain any provision that mandates the insurer to make any dividend or coupon payments in the form of shares of the insurer;
(j)the dividend or coupon rate, or the formula for calculating dividend or coupon payments, is fixed at the time of issuance of the instrument and is not linked to the credit standing of the insurer;
(k)the instrument is available to absorb the losses of the insurer without it being obliged to cease carrying on insurance business;
(l)the holder of the instrument has a priority of claim, in respect of the principal and interest of the instrument in the event of a winding up of the insurer, which is lower than that of policy owners, other creditors of the insurer and holders of qualifying Tier 2 instruments, except where such persons rank equally with, or behind the holder of the instrument;
(m)the instrument is not secured or covered under any arrangement that legally or economically enhances the priority of the claim of any holder of the instrument as against the persons set out in sub-paragraph (l);
(n)for any instrument issued as debt by the insurer, the holder of the instrument waives his right to set off any amount he owes the insurer against any subordinated amount owed to him under the instrument and further agrees to return any amount which is set-off to the liquidator;
(o)the subordination provisions of the instrument are governed by the laws of Singapore, or if the instrument is subject to the laws of a jurisdiction other than Singapore, the insurer satisfies itself and the Authority that all the relevant conditions specified in sub-paragraphs (a) to (s) are met under the laws of that jurisdiction;
(p)the main features of the instrument, in particular sub-paragraphs (f) to (n), are disclosed accurately and in a manner that is easily understood by an investor;
(q)the agreement governing the issuance of the instrument cannot be amended or varied without the prior approval of the Authority;
(r)an appropriate memorandum relating to the instrument has been submitted to the Authority stating how the proposed issuance complies with the requirements set out in sub-paragraphs (a) to (q) and identifying the relevant portions of the agreement governing the issuance of the instrument which addresses these requirements;
(s)confirmation from the insurer to the Authority that it has received written external legal and accounting opinions stating that the insurer has met with the requirement set out in sub-paragraphs (a) to (q).
(4)  Subject to sub-paragraphs (5), (6) and (7), “Tier 2 resource” of a registered insurer incorporated in Singapore means the sum of the following items:
(a)its irredeemable and cumulative preference shares; and
(b)any qualifying Tier 2 instrument approved by the Authority as a Tier 2 resource in respect of the insurer.
(5)  A registered insurer incorporated in Singapore may include as its Tier 1 resource —
(a)irredeemable and non-cumulative preference shares under sub-paragraph (2)(c)(iii) and any other capital instrument approved by the Authority under sub-paragraph (2)(c)(iv) up to a combined amount not exceeding 30% of the total Tier 1 resource; and
(b)capital instruments approved by the Authority under sub-paragraph (2)(c)(iv) up to an amount not exceeding 15% of the total Tier 1 resource, and any excess shall be treated as part of its Tier 2 resource.
(6)  Where the Tier 2 resource of a registered insurer exceeds its Tier 1 resource, the excess Tier 2 resource shall not be recognised as financial resources of the insurer.
(7)  Where the aggregate amount of qualifying Tier 2 instruments under the Tier 2 resource of a registered insurer exceeds 50% of its Tier 1 resource, the excess qualifying Tier 2 instruments shall not be recognised as financial resources of the insurer.
(8)  For the purpose of the sub-paragraph (1)(a)(i)(B), the allowance for provision for non-guaranteed benefits of a participating fund shall be calculated as —
(a)the difference between —
(i)the liability in respect of the policies of the participating fund determined in accordance with regulation 20(6); and
(ii)the minimum condition liability of the participating fund, or
(b)50% of the aggregate of the values of expected payments arising from non-guaranteed benefits of each participating policy and any provision for adverse deviation from the expected experience for each participating policy of the participating fund, determined in accordance with regulation 20(3)(b), whichever is the lower.
(9)  For the purpose of sub-paragraph (1)(b)(iii), the allowance for provision for non-guaranteed benefits shall be —
(a)where the direct insurer is incorporated outside Singapore and has not established and maintained any insurance fund other than participating funds, the same as that calculated in accordance with sub-paragraph (8);
(b)in any other case, the amount calculated in accordance with sub-paragraph (8) with the necessary adjustments to ensure that the unadjusted capital ratio of the insurer is not greater than its adjusted capital ratio.
(10)  The reinsurance adjustment of an insurance fund established and maintained by a registered insurer under the Act shall be the aggregate of the reinsurance adjustments for each reinsurance counterparty calculated in accordance with sub-paragraphs (11), (12) and (13) , to whom the insurer cedes its liabilities in respect of the policies of the fund.
(11)  An insurer shall calculate the reinsurance adjustment for a reinsurance counterparty as follows:
D = A X B X C,
where A is the reinsurance reduction, which is —
(a)in the case of the life business of the insurer, the reduction in the value of the liabilities of the insurer in respect of its participating policies, non-participating policies and investment-linked policies due to reinsurance ceded to that reinsurance counterparty, excluding any special risk ceded by way of reinsurance; or
(b)in the case of the general business of the insurer, the reduction in unearned premium reserves of the insurer in respect of its general business due to reinsurance ceded to that reinsurance counterparty, excluding any special risk ceded by way of reinsurance;
B is the reinsurance counterparty factor, which is —
(a)in a case where the reinsurance counterparty is a registered insurer or a foreign insurer carrying on insurance business under a foreign insurer scheme established under section 35B of the Act, 0%;
(b)in a case where the reinsurance counterparty is an authorised reinsurer, a related corporation of the insurer (where the reinsurance arrangement between the related corporation and the insurer is one which is exempted from the application of section 56A of the Act under regulation 12 (b) of the Insurance (Authorised Reinsurers) Regulations 2003 (G.N. No. S 680/2003)) or, where the insurer is incorporated outside Singapore, its head office or a branch of its head office, 50%; or
(c)in any other case, 100%;
C is the appropriate counterparty risk factor set out in Table 11.
(12)  For the purposes of sub-paragraph (11) —
(a)item A may be reduced, where there is a deposit from the reinsurance counterparty that satisfies the requirements set out in sub-paragraph (13), by the amount of the deposit but the reduction shall not cause item A to be less than zero; and
(b)where item D calculated in accordance with sub-paragraph (11) exceeds item A, the reinsurance adjustment shall be taken to be item A.
(13)  For the purposes of sub-paragraph (12), the requirements that the deposit shall satisfy are as follows:
(a)the deposit shall be held by the insurer as security for the whole of the liabilities of the reinsurance counterparty under the contracts of reinsurance to which the deposit relates;
(b)the reinsurance counterparty may not withdraw the deposit so long as any such liability is secured thereon but may reduce the deposit in the event of, and in proportion to, a reduction in such liability;
(c)in the case of an insurer registered to carry on life business, the deposit shall only relate to that business and the deduction shall relate to liabilities secured thereon; and
(d)in the case of an insurer registered to carry on general business, the deposit shall only relate to that business and the deduction shall relate to unearned premium reserves secured thereon.
(14)  In this paragraph —
“adjusted capital ratio”, in relation to an insurer, means the ratio of the financial resources of the insurer (excluding the financial resources of any participating fund) to the total risk requirement of the insurer (excluding such requirement arising from any participating fund);
“charged asset” means any asset which is subjected to a charge under which a third party has a right of retention or sale of the asset upon default of the insurer and the deposit made by the insurer under section 14 of the Act;
“credit facility” means —
(a)the granting by a financial institution of advances, loans and other facilities whereby a registered insurer has access to funds or financial guarantees; or
(b)the incurring by a financial institution of other liabilities on behalf of a registered insurer;
“financial resource adjustment” means the sum of the following items:
(a)any loan to or guarantee granted for a related corporation, or any other unsecured amount owed by a related corporation or reflected in the books of the insurer to be due and owing from the head office of the insurer to the insurer, except where such loan, guarantee or other unsecured amount arises from a contract of insurance;
(b)any charged asset, except where —
(i)the insurer has not drawn down on the credit facility, if the charge is created to secure a credit facility;
(ii)a liability is incurred by the insurer in respect of the charged asset for use in the conduct of the insurance business of the insurer; or
(iii)the asset is provided as a collateral for a transaction for which the insurer is required to calculate a derivative counterparty risk requirement in accordance with paragraph 8 of the Fourth Schedule;
(c)any deferred tax asset;
(d)any intangible asset (including goodwill); and
(e)any other assets that the Authority may specify to an insurer for the purpose of this sub-paragraph;
“unadjusted capital ratio”, in relation to an insurer, means the ratio of the financial resources of the insurer (including the financial resources of any participating fund) to the total risk requirement of the insurer (including such requirement arising from any participating fund).
Qualifying Tier 2 Instrument
2.—(1)  “Qualifying Tier 2 instrument” means an instrument, of an amount specified under sub-paragraph (3), that satisfies the following criteria:
(a)the instrument is issued and fully paid-up in cash, and only the net proceeds received from the issuance of instruments shall be included as financial resources of the insurer;
(b)the instrument has a minimum original maturity of 10 years, and in the case where the agreement governing the issuance of the instrument provides for the instrument to be drawn down in a series of tranches, the minimum original maturity of each tranche shall be 10 years;
(c)the instrument, if redeemable (whether through a call option, share buy-back or otherwise), may only be redeemed at the option of the insurer with the prior approval of the Authority;
(d)the instrument does not have any call option within the first 5 years from the issue date, other than a call option which may be exercised by the insurer where —
(i)the instrument is issued for the purpose of a merger with or acquisition by the insurer, and the merger or acquisition is aborted; or
(ii)there is a change in the tax status of the instrument due to changes in the applicable tax laws of the country or territory in which the instrument was issued;
(e)the agreement governing the issuance of the instrument does not contain any provision that mandates or creates an incentive for the insurer to repay the outstanding principal of the instrument early, other than a call option —
(i)no earlier than 10 years after the issuance of the instrument, accompanied by a provision whereby the dividend or coupon rate payable under the instrument increases by no more than 100 basis points over the initial rate, less the swap spread between the initial index basis and the stepped-up index basis if the insurer chooses not to exercise its option, such increase in dividend or coupon rate being the only one during the validity period of the instrument; or
(ii)in the 2 situations set out in sub-paragraph (d);
(f)the agreement governing the issuance of the instrument provides the insurer with an option to defer any dividend or interest payment on the instrument, subject that the interest rate payable on deferred dividends or interest shall not exceed market rates, where the insurer —
(i)has not paid or declared a dividend on its ordinary and other classes of preference shares in the preceding financial year; or
(ii)determines that no dividend is to be paid on such shares in the current financial year;
(g)the dividend or coupon rate, or the formula for calculating dividend or coupon payments, is fixed at the time of issuance of the instrument and is not linked to the credit standing of the insurer;
(h)the instrument is available to absorb the losses of the insurer without the insurer being obliged to cease carrying on business;
(i)the holder of the instrument has a priority of claim in respect of the principal and interest of the instrument, in the event of a winding up of the insurer, which is lower than that of policy owners and other creditors of the insurer, except where such persons rank equally with, or behind, the holder of the instrument;
(j)the instrument is not secured or covered under any arrangement that legally or economically enhances the priority of the claim of any holder of the instrument as against the persons set out in sub-paragraph (i);
(k)for any instrument issued as debt by the insurer, the holder of the instrument waives his right to set off any amounts he owes the insurer against any subordinated amount owed to him due to the instrument and agrees to return any amount set-off to the liquidator;
(l)the subordination provisions of the instrument are governed by the laws of Singapore, or if the instrument is to be subject to the laws of a jurisdiction other than Singapore, the insurer satisfies itself and the Authority that all the relevant conditions specified within sub-paragraphs (a) to (r) are met under the laws of that jurisdiction;
(m)the main features of the instruments, in particular sub-paragraphs (f) to (k), are disclosed accurately and in a manner that is easily understood by an investor;
(n)the agreement governing the issuance of the instrument cannot be amended or varied without the prior approval of the Authority;
(o)any instrument issued in its final 5 years to maturity shall have the amount eligible as a Tier 2 resource amortised on a straight-line basis by 20% per annum, and in a case where the loans are repayable in separate tranches, each tranche is to be amortised individually, as if it were a separate loan;
(p)where an insurer issues an instrument in a foreign currency, the instrument is to be revalued periodically (at least monthly) in terms of Singapore dollars at the prevailing exchange rates;
(q)an appropriate memorandum of compliance has been submitted to the Authority stating how the proposed issuance complies with the requirements set out in sub-paragraphs (a) to (p) and identifying the relevant portions of the agreement governing the issuance of the instrument which addresses those requirements; and
(r)confirmation from the insurer to the Authority that it has received written external legal and accounting opinions stating that the insurer has met with the requirement set out in sub-paragraphs (a) to (p).
(2)  For the purposes of sub-paragraph (1)(p), where the insurer intends to use a swap to hedge the foreign exchange exposure arising from the foreign currency instrument, it shall obtain the prior approval of the Authority on the capital treatment applicable to the hedge.
(3)  The amount of a qualifying Tier 2 instrument shall be —
(a)in the case of an instrument which has no maturity or has a remaining maturity of more than 5 years, the amount paid for principal of the instrument; or
(b)in the case of an instrument which has a remaining maturity of 5 years or less, the principal of the instrument reduced, at least on a yearly basis, on a straight-line basis over 5 years.