(SINGAPORE) The Monetary Authority of Singapore (MAS) is seeking sweeping new powers to seize insurers in distress and to supervise their liquidation to protect policyholders.

It also wants to raise the limits on the compensation offered by the policy owners' protection fund (PPF) schemes for both life and general insurers, to better protect policy owners.

The PPF schemes were introduced in the Insurance Act in 1986 to compensate policy owners if an insurer defaults, but they have never been activated. In December 2005, MAS said it was reviewing the PPF schemes to ensure that they remained relevant, and issued its first set of proposed changes to the schemes.

This included a move from a post-funded approach (where insurers pay up only after a default occurs) to a pre-funded approach - where insurers make regular payments into the schemes.

In a consultation paper published yesterday, MAS said it was proposing changes to the Insurance Act that would give the regulator powers over insurers similar to those it already has over banks in Singapore.

That would include the right to take control of an insurer, sell or transfer its assets and liabilities if the firm is failing, or - if it has failed - to force a sale of the entire company to another insurer.

Under the proposed changes, MAS would also be able to apply to the High Court to block any attempt to sue or wind up an insurer if MAS has seized control of the firm.

The main priority 'is to secure continuity in insurance coverage, particularly for life insurance policies', if an insurer is in distress, MAS said.

Any voluntary schemes of transfer of life insurance portfolios would also require MAS approval before being submitted to the High Court for confirmation.

For insurers that have gone into liquidation, MAS wants the power to approve the appointment of a liquidator and to impose its own conditions on the liquidator.

Liquidators would be required to sell or transfer a failed insurer's portfolios to other insurers and continue with the business of the insurer until the transfer is completed.

The proposed changes would also give MAS the right to appoint an independent actuary to assess the value of the liabilities to be transferred, to protect the failed insurer's remaining policyholders and other creditors.

Finally, if a distressed insurer enters into a scheme of arrangement with its creditors - in an attempt to restructure its debts to avoid bankruptcy - MAS must also be party to the scheme, under the proposed changes.

The proposals would give MAS the right to force a restructuring or outright sale of an insurer as long as it considers it in the public interest to do so. That includes situations where MAS believes that an insurer is likely to become insolvent.

'I think this is something that has been brewing for the past few years,' said the head of one insurance firm here, who spoke on condition of anonymity. 'A few years back, there were some insurers that were technically insolvent. From that experience, MAS realised that they needed clearer regulation for them to act fast and decisively.'

In September 2002, MAS ordered general insurer Cosmic Insurance Corp to stop accepting new business, to protect its 26,000 policyholders after the insurer failed to maintain a large enough buffer of assets in excess of its liabilities.

In a separate consultation paper, also published yesterday, MAS proposed to provide for 100 per cent coverage of protected liabilities of all life, and accident and health (A&H) policies under the PPF life insurance scheme, up from the 90 per cent coverage limit proposed earlier. The protected liabilities of a life insurer under the scheme are the guaranteed portions of the sums assured and surrender values of its policies at the end of each year.

Similarly, MAS is now proposing to cover 100 per cent of liabilities of all general insurance lines protected under the PPF general insurance scheme.

'The life insurance industry endorses the stated objective of providing policy owners with certainty of coverage and better protection, and hence supports the change proposed by MAS, to raise the compensation coverage from 90 per cent to 100 per cent of protected liabilities of all life and A&H policies, subject to aggregate caps where applicable,' said Darren Thomson, president of the Life Insurance Association.

'However, all the proposals, including the new ones on giving MAS more specific powers to deal comprehensively with an insurer failure, will be closely studied by LIA members for industry feedback to be communicated back to MAS.'

Both papers published yesterday can be found on the MAS website, and comments should be submitted by Jan 29.