The Insurance Act Is Substantially Amended

Transcription

1 The Act Is Substantially Amended Introduction...1 Intermediaries...2 Export Credit Insurers...2 Exemptions For Captive Insurers Foreign Schemes Acutarial Certification Assistance To Foreign Regulatory Authorities...4 Appeals To The Minister...4 Extraterritorial Jurisdiction Offences Conclusion The (Amendment) Act 2001 ('Amendment Act') was passed by Parliament on 5 October The Amendment Act, with the exception of section 20 which deals with the provisions on insurance intermediaries and the conduct of insurance broking business, came into operation on 8 January This Update seeks to summarise some of the more important changes which have been brought about by the Amendment Act. Introduction The (Amendment) Act 2001 ('Amendment Act') was passed by Parliament on 5 October The Amendment Act, with the exception of section 20 which deals with the provisions on insurance intermediaries and the conduct of insurance broking business, came into operation on 8 January This Update seeks to summarise some of the more important changes which have been brought about by the Amendment Act. The amendments are the result of the ongoing review of the insurance legislative framework by the Monetary Authority of Singapore ('MAS') to ensure that the prudential standards are kept current and to enhance the environment for growth and competition in the insurance industry in Singapore. The key changes that result from the Amendment Act are: the migration of some of the provisions of the Intermediaries Act, Chapter 142A ('IIA') into the Act, Chapter 142 (' Act') and the updating of the laws governing insurance intermediaries; registration under the Act; the provision of schemes to facilitate players like Lloyd's of London operating in Singapore; the requirement for actuarial certification of insurance liabilities for non-life business; the provision of assistance to foreign regulatory authorities; the alignment of provisions relating to the appeals process in the Act with the provisions of the Securities and Futures Act 2001 and the Financial Advisers Act 2001; the alignment of provisions relating to the extra- territorial application of the Act with the provisions of the Securities and Futures Act 2001; and the increase in the severity of the penalties and the introduction of composition of offences which carry only a fine as penalty. the removal of the exemption of export credit insurers from Page 1

2 Intermediaries Regulation Of Intermediaries intermediaries are currently regulated under the IIA. The Financial Advisers Act 2001 ( FAA ), which was passed on the same day as the Amendment Act, will repeal the IIA. When the IIA is repealed, the regulation of direct life insurance brokers will be transferred to the FAA while the regulation of insurance agents, direct general insurance agents, direct general insurance brokers and all reinsurance brokers will be transferred to the Act. The FAA and section 20 of the Amendment Act, which deals with the provisions on insurance intermediaries, have not been brought into force. Financial Institutions Acting As Agents And Brokers Financial institutions such as banks, merchant banks, licensed financial advisers and finance companies ('Financial Institutions') acting as insurance agents are currently exempted from having written agreements with their insurers as principals. This exemption will be removed when the FAA and section 20 of the Amendment Act come into force. The IIA also provides that Financial Institutions are exempted from being registered by the MAS under the IIA when they act in their capacity as insurance brokers and from keeping certain accounting records, preparing and submitting accounts and having their accounts audited. When section 20 of the Amendment Act comes into operation, Financial Institutions will still be exempted from registration as insurance brokers. However, Financial Institutions will have to comply with provisions dealing with the following matters which apply to all registered insurance brokers: the requirement of opening and maintaining insurance broking premium accounts; the prohibition against the negotiation and placement of risk with unregistered insurers except where specifically permitted by MAS; and the restriction against receipt of remuneration from an insurer, in respect of the arranging of contracts of insurance by the insurance broker with the insurer, where such remuneration has been fixed having regard solely to the number of contracts so arranged, the total amount of premiums payable under such contracts or the total amount of sums insured under such contracts, or all of these factors. Interest When insurance brokers receive moneys from insureds, section 22 of the IIA provides that they can retain the interest earned from these moneys. This has led to some insurance brokers delaying payment of the moneys to the insurer in order to earn more interest. When section 20 of the Amendment Act is brought into force, MAS will be permitted to prescribe regulations to deal with the interest generated from such moneys. Unsecured Loans Or Advances Currently, under section 27 of the IIA, insurance brokers are permitted to grant unsecured loans to the following persons: a director of the insurance broker, up to a sum of S$3,000; and an employee of the insurance broker, up to a sum not exceeding six months emolument of that employee. With the coming into force of section 20 of the Amendment Act, insurance brokers will no longer be permitted to grant unsecured loans to their directors. Further, a limit of S$3,000 will be imposed on the amount which may be loaned to employees via an unsecured loan. Register Of Undesirable Persons And Removed Personnel MAS is permitted, under section 31 of the IIA, to prohibit any person from carrying on business as an insurance intermediary or from participating in the management of any insurance intermediary, where it is satisfied, for instance, that the person has forged policyholders signatures or misappropriated policyholders premiums. This provision will be transferred to the Act when section 20 of the Amendment Act comes into force. A new provision that stipulates that MAS must maintain a register to record the particulars of such prohibited persons will also be introduced. The amendments to the Act will also enable MAS to direct the removal of the CEOs or directors of insurance brokers if these persons fail to perform their duties and functions. As with the category of prohibited persons discussed earlier, MAS must maintain a register of these key personnel who have been removed from office. Export Credit Insurers Insurers who are primarily engaged in the business of export Page 2

3 credit insurance will no longer be exempted from the registration requirements which are applicable to all other insurers. These insurers will now have to comply with all prudential regulations, such as minimum paid-up capital and solvency margin requirements. This amendment will come into effect when the IIA is repealed. Exemptions For Captive Insurers MAS has also promulgated (Exemption for Captive Insurers) Regulations 2002 on 8 January 2002 to exempt captive insurers from certain provisions of the Act and Regulations. These include having to keep a minimum deposit with the MAS and the obtaining of acturial certification. Foreign Schemes A new part, Part IIA, has been inserted into the Act via the Amendment Act. New section 35B of the Act allows the MAS to establish a foreign insurer scheme to permit any specified class, society or association of foreign insurers, such as Lloyd's of London, to carry on insurance business in Singapore. Prior to this amendment, Lloyds was permitted to insure Singapore risks through licensed intermediaries under the then section 34 of the Act ( Old Scheme ). MAS is eager for Lloyds and other associations like them to establish a physical presence in Singapore. In this regard, MAS will be setting up the Lloyd s Asia Scheme ( New Scheme ) which seeks to replicate the Lloyd s insurance marketplace in Singapore. Under the New Scheme, MAS envisages that Lloyd s members will transact insurance business by setting up service companies in Singapore that will underwrite and issue Lloyd's policies in Singapore. In relation to the Old Scheme, section 34 has been repealed and the provisions recreated in the (Lloyd's Scheme) Regulations MAS intends to appoint administrators for each scheme that is set up under Part IIA of the Act. An administrator is to have responsibility for the operation of a scheme and carry out such tasks in relation to the foreign insurers under the scheme as may be directed by the MAS. A foreign insurer will not be permitted to carry on insurance business in Singapore unless such an administrator has been appointed for the scheme and the foreign insurer has authorised the administrator or an agent to accept service of notices and legal processes on its behalf. Such foreign insurers will not be subject to the provisions of the Business Registration Act, Chapter 32 and the Companies Act, Chapter 50. Acutarial Certification Prior to the coming into force of the Amendment Act, non-life insurers were not required to have acturial certification of their financial condition, unlike life insurers. The Amendment Act stipulates that non-life insurers and reinsurers must obtain actuarial certification of their insurance liabilities annually. The aim of this amendment is to ensure that the reserves maintained by non-life insurers and reinsurers are sufficient to meet all liabilities. As a result of the Amendment Act, the insurer is required, under section 37 of the Act, to lodge with the MAS an abstract of the report of the investigations ( Abstract ) and a certificate relating thereto ( Certificate ). Pursuant to this amendment, the MAS has, on 8 January 2002, made amendments to the (Accounts and Statements) Regulations via the (Accounts and Statements) (Amendment) Regulations These regulations provide that the Abstract of the actuary's report must be prepared in compliance with the new Fourth Schedule to the (Accounts and Statements) Regulations, while the Certificate must state the actuary's opinion on the amount of premium and claims liabilities in respect of insurance funds. It must also certify, according to the Fifth Schedule to the (Accounts and Statements) Regulations, that the valuation was done in accordance with the requirements stipulated in the Regulations. The (Actuaries) Regulations 2002, which were made on 8 January 2002, specify the persons who may be actuaries for the purposes of section 37 of the Act. The provisions in Part V of the Regulations which deal with the determination of liabilities of insurers have also been amended by the (Amendment) Regulations 2002 on 8 January 2002 to take into account the new requirements for actuarial certification. While the Futures Trading Act was amended in 1995 to deal with this issue, until now the Act was not. As bucket shops are now active in commodity trading, the purpose of the Amendment Act was to amend the Act to address the problem. Accordingly, the TDB had stated that the licensing requirements will be stringent and there will be strict enforcement and prosecution of all illegal commodity trading activities such as churning and bucketing. These reasons were reiterated by Mr Peter Chen in Parliament. Page 3

4 Quentin Loh Executive Committee Contact Details Direct: (65) Facsimile: (65) Assistance To Foreign Regulatory Authorities New Part IIIA of the Act has been inserted by the Amendment Act to provide for mutual exchange of assistance between regulators of different countries. MAS believes that the amendments will provide a framework for such agreements to be given due effect, while ensuring that persons affected are given the due process of law. New section 49B of the Act provides that MAS may provide assistance to a regulatory authority of a foreign country only if certain conditions are fulfilled. These conditions include the fact that the assistance must be intended to enable the regulatory authority to carry out supervision, investigation or enforcement and that regulatory authority must have given a written undertaking that any material obtained pursuant to its request must not be used for any purpose other than a purpose that has been specified in the request and approved by MAS. In considering whether to grant the assistance requested, MAS may also have regard to the following: whether the act that is alleged to have been committed would have been an offence under the Act if it had occurred in Singapore; and whether the regulatory authority has given an undertaking to MAS to comply with a future request by MAS for similar assistance and to contribute towards the cost of assistance. Appeals To The Minister A new Part IIIB has been inserted into the Act by the Amendment Act to streamline the procedures in relation to appeals to the Minister for Finance in relation to the exercise of power by the MAS in the following instances: the cancellation of registration under the Act; the removal of key personnel of an insurance broker; and the prohibition of persons from carrying on business as insurance intermediaries or taking part in the management of insurance intermediaries. Where the MAS has made a decision in relation to these matters, the aggrieved party will be given the opportunity to show cause why MAS should not act in the manner it proposes. If the aggrieved party fails to show cause within the allocated time or fails to show sufficient cause and MAS decides to go ahead with its earlier decision, the aggrieved party will be given the opportunity to appeal to the Minister for Finance. To hear such an appeal, the Minister for Finance may constitute an Appeal Advisory Committee which will hear the appeal and make a recommendation to the Minister. The Minister may consider but is not bound by the recommendations. After considering the recommendations, the Minister may confirm, vary or reverse the decision of the MAS. Prior to these amendments to the Act, a right of hearing was available in some instances while an appeals process was available in others. The amendments have thus been made with the aim of streamlining these provisions. Page 4

5 Extraterritorial Jurisdiction The Act expressly provides that it applies to an act committed outside Singapore if the act is capable of having effect in Singapore and which, if carried out in Singapore, would constitute any of the following: the carrying on of insurance business without being registered by the MAS under the Act; the soliciting of insurance business by an insurer who is not entitled to carry on business in Singapore, or the establishing of a place of business to solicit reinsurance business or a representative office for an insurer who is not entitled to carry on insurance business in Singapore; the acting as insurance agent for an insurer in respect of insurance business which the insurer is not entitled to carry on in Singapore; and the carrying on of business as an insurance broker in respect of any class of insurance business by a person who is neither registered by MAS to carry on such class of business nor exempt from such registration requirements. According to the Minister, this is to target the increased use of the internet for the sale and distribution of financial products, including insurance, which is done by persons outside Singapore but directed at consumers in Singapore. Offences MAS will be permitted, under the amendments, to compound offences which carry a fine only. The power to compound will be limited to situations where the offender has admitted the offence and has agreed in writing to have the fine compounded. This amendment is aimed at reducing the administrative cost of enforcing the Act in such circumstances. MAS is also increasing the penalties under the Act to achieve a more appropriate level of deterrence. For instance, the fine for carrying on insurance business without being registered by the MAS under the Ins urance Act has been increased from S$30,000 to S$75,000. In addition, new section 55A provides that where a company or body corporate is convicted of an offence, the penalty that a court may impose is a fine not exceeding two times the maximum amount that the court could, but for this section, impose. This section does not apply, however, where the offence in question is one consisting of a breach of duty imposed only on companies and bodies corporate. Conclusion These amendments, together with the other initiatives of the MAS such as the introduction of the Securities and Futures Act 2001 and the FAA will all play a vital role in consolidating Singapore's position as an international financial centre. Effort has been made, in particular, to streamline the provisions of these Acts to provide for a coherent legislative framework. In addition, the measures introduced by the amendments which are aimed at prudential industry development, will certainly provide for a more competitive and resilient industry. Rajah & Tann is one of the largest law firms in Singapore. It is a full service firm and given its alliances, including US premier firm Weil, Gotshal & Manges, is able to tap into resources in a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this Update is correct to the best of our knowledge and belief at the time of writing. The contents of the above are intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as the information above may not necessary suit your specific business and operational requirements. It is to your advantage to seek specific legal advice for your specific situation. In this regard, you may call the lawyer you normally deal with in Rajah & Tann or the Knowledge & Risk Management Group at eoasis@rajahtann.com Page 5