Insurance (Financial Guarantee Insurance) Regulations 1997

No. S 40

Insurance Act

(Chapter 142)

Insurance (Financial Guarantee Insurance) Regulations 1997

In exercise of the powers conferred by sections 7 (2), 53 and 66 of the Insurance Act, the Monetary Authority of Singapore hereby makes the following Regulations:

Citation and commencement

1. These Regulations may be cited as the Insurance (Financial Guarantee Insurance) Regulations 1997 and shall come into operation on 6th February 1997.

Definitions

2. In these Regulations —

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

where A

is the amount of insured 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 whose registration under the Act is restricted to the carrying on of the business of issuing financial guarantee insurance policies;

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

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

“qualified capital” shall include only shareholders’ equity (paid-up share capital, share premium reserves and retained earnings), capital on call and the Reserve Fund referred to in regulation 6.

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 underwrite any obligation except 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.

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 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.

(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; and

(b)

transfer to the Reserve Fund out of the net profits each year, after due provision has been made for taxation, where the amount of the Reserve Fund is —

(i)	less than 50% of the paid-up capital — a sum not less than 50% of the net profits;
(ii)	more than 50% of the paid-up capital but less than 100% of the paid-up capital — a sum not less than 25% of the net profits; and
(iii)	100% or more of the paid-up capital — a sum not less than 5% of the net profits.

(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 maintaining the necessary amount for the Reserve Fund so long as the excess amount is not paid out to the shareholders.

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.

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
(c)	a statement on qualified capital, which shall be in Form 8A in the Schedule.

Made this 29th day of January 1997.

LEE EK TIENG

Managing Director,
Monetary Authority of Singapore.

[IC 05.1 Vol. 10; AG/LEG/SL/142/96/1]

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