Insurance (Financial Guarantee Insurance) Regulations

Insurance Act

(Chapter 142, Sections 7(2), 53 and 66)

Rg 6

G.N. No. S 40/1997

REVISED EDITION 1998

(15th June 1998)

[6th February 1997]

Citation

1. These Regulations may be cited as the Insurance (Financial Guarantee Insurance) Regulations.

Definitions

2. In these Regulations —

“average annual debt service” means the amount determined in accordance with the formula

(A x B)

——— ,

where

is the amount of guaranteed unpaid principal and interest on an obligation;

is the number of such insured obligations (assuming each obligation represents US$1,000 par value); and

is the amount equal to “B” multiplied by the number of years of the term of such insured obligations;

“capital on call” means capital commitments backed by proper agreements to effect the call on capital on demand;

“eligible collateral” means —

(a)	cash, letters of credit issued by eligible banks, guarantees issued by eligible companies, recourse to eligible banks or eligible companies, reinsurance agreements with eligible insurance companies;
(b)	the scheduled cash flow from obligations issued by government units; and
(c)	the market value (as determined by reference to market rates or by an independent third party) of marketable securities of investment grade or its equivalent,

which must be available to make payment on the guaranteed obligation at the time payment on the guaranteed obligation is due or to reimburse the financial guarantee insurer for any payment made under the related financial guarantee insurance policy;

“eligible company”, “eligible bank” or “eligible insurance company” means —

(a)	a company, bank or insurance company (providing the eligible collateral) which is in one of the top 4 generic lettered rating classifications or its equivalent awarded by an internationally recognised credit rating agency; or
(b)	such other company, bank or insurance company as the Authority may determine;

“financial guarantee insurance policy” means a policy that guarantees to the beneficiary of the policy the performance of a financial obligation in accordance with the terms of the obligation, including the right to receive scheduled payments in a trust certificate or other equity security but excludes letters of credit issued by licensed banks, performance bonds, fidelity bonds and such other similar contracts of guarantee as the Authority may determine;

“financial guarantee insurer” means an insurer who is registered under the Act and who is permitted by his registration to carry on the business of issuing financial guarantee insurance policies;

[S 360/99 wef 01/09/1999]

“government unit” means a local, regional, national or supranational government entity or any agency thereof;

“guaranteed unpaid principal”, in relation to a financial guarantee insurance policy, means the outstanding amount of the principal the payment of which is guaranteed by the policy;

[S 360/99 wef 01/09/1999]

“net exposure” under a financial guarantee insurance policy means the guaranteed unpaid principal, net of any eligible collateral;

[S 360/99 wef 01/09/1999]

“qualified capital” means —

(a)

in the case of a company incorporated in Singapore, the shareholders’ equity (paid-up share capital, share premium reserves and retained earnings) and capital on call of the company, and theReserve Fund maintained by the company under regulation 6; or

[S 802/2004 wef 01/01/2005]

(b)

in the case of a company incorporated outside Singapore, the Reserve Fund maintained by the company under regulation 6 and —

(i)	the shareholders’ equity (paid-up share capital, share premium reserves and retained earnings) and capital on call of the company; and
(ii)	such other securities and interests of the company as the Authority may consider to be qualified capital,

reported by the company in its most recent financial statement filed with the authority regulating insurance business in the country or territory in which it is incorporated.

Registration by Authority

3.—(1) No person shall carry on business in Singapore as a financial guarantee insurer unless registered by the Authority to do so.

(2) A financial guarantee insurer shall not issue in Singapore a financial guarantee insurance policy in respect of any obligation other than the following:

(a)	asset-backed obligations — obligations of an entity which owns a diversified pool of assets or to which a diversified pool of assets including residential real estate and other consumer and corporate assets have been pledged, the proceeds of which, whether through collection or sale, are available to make any payments due on the obligations;
(b)	infrastructure obligations — obligations issued to finance construction, maintenance, improvement or expansion of physical infrastructure including power production and distribution, telecommunications, roads, bridges, tunnels, waste disposal and resource recovery facilities, pollution control facilities, airports, schools and hospitals;
(c)	government obligations — obligations that are payable or guaranteed by a government unit or that are payable from tax revenue, rates charges or appropriation imposed or collected by such government unit;
(d)	real estate obligations — obligations that are backed by cash flows or market values associated with income-producing real property excluding residential real estate;
(e)	corporate obligations — obligations related to corporate bonds or promissory notes issued by a corporation; and
(f)	such other financial obligations as the Authority may approve in writing. [S 360/99 wef 01/09/1999]

Minimum capital and rating requirements

4. The Authority shall not register a person to carry on the business of a financial guarantee insurer in Singapore unless the insurer has —

(a)	a paid-up share capital of not less than US $75 million or its equivalent in value; and
(b)	a claims-paying ability rating in the top 3 generic lettered classifications or its equivalent awarded by an internationally recognised credit rating agency.

Single and aggregate risk limits

5.—(1) A financial guarantee insurer shall limit its net exposure under any single financial guarantee insurance policy issued by the insurer in Singapore as follows:

(a)

for asset-backed obligations — the net exposure to each of the supporting assets shall not exceed 10% of the financial guarantee insurer’s qualified capital;

(b)

for infrastructure obligations that are issued in respect of projects or facilities built, owned or operated (whether at the time of construction or afterwards) by or on behalf of a government unit and for government obligations — the net exposure to the average annual debt service on the obligation shall not exceed 15% of the financial guarantee insurer’s qualified capital, and the net exposure to the principal amount of the obligations shall not exceed 100% of the financial guarantee insurer’s qualified capital;

(c)

for infrastructure obligations that are issued in respect of projects or facilities built, not owned or operated by a government unit — the net exposure to the average annual debt service on the obligations shall not exceed 10% of the financial guarantee insurer’s qualified capital, and the net exposure to the principal amount of the obligations shall not exceed 75% of the financial guarantee insurer’s qualified capital;

(d)

for real estate obligations that do not otherwise constitute asset-backed obligations — the net exposure to the principal amount of the obligations less 50% of the appraised value of the underlying real estate shall not exceed 10% of the financial guarantee insurer’s qualified capital; and

(e)

for corporate and other obligations — the net exposure to the principal amount shall not exceed —

(i)	25% of the financial guarantee insurer’s qualified capital for secured obligations; and
(ii)	15% of the financial guarantee insurer’s qualified capital for unsecured obligations.

[S 360/99 wef 01/09/1999]

(2) A financial guarantee insurer shall maintain at all times qualified capital which in the aggregate shall be not less than the sum of —

(a)	1% or 1/100th of the aggregate net exposure to asset-backed obligations;
(b)	1.3333% or 1/75th of the aggregate net exposure to infrastructure obligations, government obligations, and real estate obligations that do not otherwise constitute asset-backed obligations;
(c)	2% or 1/50th of the aggregate net exposure to other obligations which are secured; and
(d)	4% or 1/25th of the aggregate net exposure to other obligations which are unsecured.

Contingency reserves

6.—(1) In addition to maintaining loss reserves and unearned premium reserves as required under regulation 20 of the Insurance Regulations (Rg 1), a financial guarantee insurer shall —

(a)

maintain a Reserve Fund;

[S 360/99 wef 01/09/1999]

(b)

after the close of each accounting period, transfer to the Reserve Fund, out of the net profits earned by the insurer during the accounting period —

(i)	an amount of not less than 50% of the net profits, where that part of the Reserve Fund that relates to all old policies in force during that accounting period is less than or equal to 50% of the total paid-up capital of the insurer;
(ii)	an amount of not less than 25% of the net profits, where that part of the Reserve Fund that relates to all old policies in force during that accounting period is more than 50% of, but less than, the total paid-up capital of the insurer; or
(iii)	an amount of not less than 5% of the net profits, where that part of the Reserve Fund that relates to all old policies in force during that accounting period is equal to or more than the total paid-up capital of the insurer; and

[S 360/99 wef 01/09/1999]

(c)

at the end of each accounting period, transfer to the Reserve Fund in respect of every new policy issued by the insurer which is in force during the accounting period —

(i)	a sum equivalent to 3.33% of net premiums written in respect of that policy; or
(ii)	a sum equivalent to the relevant percentage of the guaranteed unpaid principal under that policy, net of reinsurance,

whichever is the higher.

[S 360/99 wef 01/09/1999]

(2) Where the shareholders’ equity of the financial guarantee insurer exceeds the minimum paid-up capital requirement under regulation 4, the excess amount of the shareholders’ equity shall be treated as a credit towards such amount in the Reserve Fund as is required to be maintained by virtue of paragraph (1)(b) so long as the excess amount is not paid out to the shareholders.

[S 360/99 wef 01/09/1999]

(3) A financial guarantee insurer shall not be required to make the transfer to the Reserve Fund under paragraph (1)(c) at the end of an accounting period if that part of the Reserve Fund that relates to new policies is equal to or more than 4 times the highest of —

(a)	the amount of the total net premiums written in respect of all new policies in force during that accounting period;
(b)	the amount of the total net premiums written in respect of all new policies in force in the preceding accounting period; and
(c)	the amount of the total net premiums written in respect of all new policies in force in the accounting period which precedes the accounting period referred to in sub-paragraph (b).

[S 360/99 wef 01/09/1999]

(4) Where the total net claims paid by a financial guarantee insurer during an accounting period in respect of new policies issued by the insurer exceed 80% of the total net premiums written in respect of all new policies issued by the insurer which are in force during that accounting period, the insurer may withdraw from that part of the Reserve Fund maintained by the insurer that relates to new policies an amount which is no greater than the difference between the total net claims paid and the total net premiums written.

[S 360/99 wef 01/09/1999]

(5) In this regulation —

“net claims paid”, in relation to a new policy, means the amount of the claims paid pursuant to the policy after deducting all amounts received or which are receivable pursuant to a reinsurance policy;

“net premiums written”, in relation to a new policy, means the amount of premiums received pursuant to that policy after deducting all returned premiums and all payments payable pursuant to a reinsurance policy;

“new policy” means a financial guarantee insurance policy issued on or after 1st September 1999 in Singapore;

“old policy” means a financial guarantee insurance policy issued before 1st September 1999 in Singapore;

“relevant percentage”, in relation to the guaranteed unpaid principal under a new policy, means —

(a)	0.037% of the guaranteed unpaid principal where the policy is issued in respect of a government obligation which is of investment grade;
(b)	0.057% of the guaranteed unpaid principal where the policy is issued in respect of a government obligation which is not of investment grade;
(c)	0.067% of the guaranteed unpaid principal where the policy is issued in respect of an infrastructure obligation which is of investment grade;
(d)	0.167% of the guaranteed unpaid principal where the policy is issued in respect of an infrastructure obligation which is not of investment grade;
(e)	0.100% of the guaranteed unpaid principal where the policy is issued in respect of any financial obligation, other than a government or infrastructure obligation, which is of investment grade; or
(f)	0.167% of the guaranteed unpaid principal where the policy is issued in respect of any financial obligation, other than a government or infrastructure obligation, which is not of investment grade.

[S 360/99 wef 01/09/1999]

(6) For the purposes of the definition of “relevant percentage” in paragraph (5), an obligation is of investment grade if, as at the end of the accounting period in question, it is in one of the top 4 generic lettered rating classifications (or their equivalent) awarded by an internationally recognised credit rating agency.

[S 360/99 wef 01/09/1999]

Currency adjustment

7. Where a financial guarantee insurance policy is issued in non-Singapore dollars —

(a)	for the purposes of determining the net exposure limits under regulation 5(1), the foreign exchange rates prevailing at the time the policy is issued shall apply; and
(b)	for the purposes of determining aggregate net exposure limits under regulation 5(2), the foreign exchange rates prevailing at the time of such determination shall apply.

Exemption from contributing to Policy Owners’ Protection Fund

8. A financial guarantee insurer shall be exempted from contributing to the Policy Owners’ Protection Fund under section 48 of the Act in respect of financial guarantee insurance policies issued by him.

[S 360/99 wef 01/09/1999]

[S 802/2004 wef 01/01/2005]

Additional returns

9. In addition to the returns to be lodged under section 38 of the Act and prescribed in the Insurance (Accounts and Statements) Regulations (Rg 2), every financial guarantee insurer is required to submit the following statements, for the accounting period which ended on 31st December 1996 and every subsequent accounting period, in the appropriate form set out in the Schedule —

(a)	a statement, which shall be in Form 7A in the Schedule, giving in regard to policies belonging to that type of financial guarantee obligation as to premiums, claims, underwriting results and operating results for that accounting period;
(b)	a statement on total net exposure of the financial guarantee insurer, which shall be in Form 7B in the Schedule; and [S 802/2004 wef 01/01/2005]
(c)	a statement on qualified capital, which shall be in Form 8A in the Schedule.

Search within Legislation