MAS responds to feedback on Changes to the Group Capital Framework for Designated Financial Holding Companies (Licensed Insurer)

© WongPartnership LLP

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

MAS Responds to Feedback on Changes to the Group

Capital Framework for Designated Financial Holding

Companies (Licensed Insurer)

On 4 September 2026, the Monetary Authority of Singapore (MAS) published its response to feedback

(Response) received on its 24 July 2025 consultation paper (Consultation Paper) on proposed enhancements to the Group Capital Notice (FHC-N133) applicable to Designated Financial Holding

Companies (Licensed Insurer) (DFHC (Licensed Insurer)). It also issued a circular dated 4 September 2026 drawing attention to the Response and to the timeline for the amendments.1

The proposals related to the incorporation of the risk charging approach for non-insurance entities of a

DFHC (Licensed Insurer), the enhancement of the capital treatment for joint ventures of a DFHC (Licensed

Insurer), and the introduction of a limit to the recognition of capital from non-controlling interests in group financial resources.

At a glance

MAS will, among other things:



Define a non-insurance entity (NIE) in FHC-N133 as an insurance group entity that is not a licensed insurer or a foreign insurance entity.



Clarify that the NIE risk charge need not be applied to NIEs meeting one or more specified criteria.



Apply the NIE risk charging approach to all other NIEs in calculating the Total Risk Requirement (TRR).



Retain the approach of limiting the amount of non-controlling interests (NCI) recognised in group financial resources (FR).



Apply the NCI limit to CET 1 capital and Tier 1 capital when deriving the respective quality of capital ratios.

We set out the highlights of the Response below.

Risk Charging Approach for NIEs

MAS consulted on an explicit risk charging approach for NIEs of a DFHC (Licensed Insurer) to promote transparency and comparability of risk requirements set up for NIEs, and clarify treatment of NIEs that are not subject to any sector-specific capital requirements. The proposed risk charging approach (NIE risk charging approach) is aligned to the Insurance Capital Standard (ICS) for NIEs.

1

The circular is addressed to the chief executives of all DFHCs (Licensed Insurer and all licensed insurers except for captive insurers, marine mutual insurers and special purpose reinsurance vehicles.

Insurance | Group Capital Framework

© WongPartnership LLP

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

Following feedback that holding companies and Special Purpose Vehicles (SPVs) should be excluded from an NIE’s risk charges, MAS will fine-tune the risk charging approach of certain NIEs under FHC-N133 as follows:

(a)

MAS will first define an NIE in FHC-N133 as an insurance group entity that is not a licensed insurer or a foreign insurance entity; and

(b)

MAS will clarify that the NIE risk charge need not be applied to the NIE if one or more of the following criteria are met:

(i)

The NIE does not undertake significant businesses other than holding subsidiaries or holding the group’s assets within the financial holding company (FHC) group. These entities’ cash flows consist primarily of upstreamed dividends, investment income of assets held and capital support for subsidiaries;

(ii)

The SPV is held solely for investment purposes; and/or

(iii)

The investment fund is held for investment purposes, including collective investment schemes.

While these NIEs would not be subjected to the NIE risk charging approach, their underlying risks will continue to be captured through the relevant risk charges under the existing risk-based capital framework for insurers (RBC 2), such as market-related risk charges on the assets held by these entities.

For other NIEs that are not caught under the criteria above, the NIE risk charging approach will apply in calculating the TRR. The other RBC 2 risk charges will not apply to such NIEs unless MAS determines that additional risk charges are necessary to more appropriately capture material risks posed by the NIE. For example, where an NIE has material market-related risks from the assets it holds, or counterparty default risks from the transactions it enters into, MAS may impose the relevant additional risk charges.

For the purpose of calculating the Group Total Risk Requirement, the NIE risk charges will not yield any diversification benefits with other RBC 2 risk charges, as they are similar in nature to the operational risk charge under RBC 2. Diversification benefits may apply only where other RBC 2 risk charges, such as market-related risk charges, are imposed on the NIE.

Limit to the Recognition of Capital from NCI

MAS consulted on imposing a limit on the recognition of NCI in Group FR to reflect the non-fungible nature of NCI at the group level. Any capital from NCI exceeding this limit will consequently not be recognised in

Group FR.

Recognition of NCI in Group FR

The Consultation Paper proposed capping the amount of capital from NCI that could be recognised in Group

FR. Where an entity in the FHC group is partly owned by outside investors (that is, minority shareholders), the capital contributed by those investors is NCI. Because NCI capital is effectively locked in at that entity

© WongPartnership LLP

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

and cannot be freely transferred to meet the obligations of other entities in the FHC group, MAS proposed that only a limited portion of it should count towards the Group FR.

Following feedback, MAS will simplify the formula used to determine how much capital from NCI may be recognised in Group FR under RBC 2. The Consultation Paper estimated an entity’s contribution to the

Group TRR by reference to its share of the group’s insurance liabilities. A respondent noted that this was unnecessarily indirect because the entity-level TRR was already being calculated elsewhere in the formula.

MAS agreed and will instead use the entity-level TRR directly, providing a simpler and more direct measure.

The original formula had two limbs, (a) and (b), and the lower of the two amounts would set the NCI limit.

In the revised formula, limb (b) uses the entity-level TRR to estimate the entity’s contribution to the Group

TRR. Because the Group TRR includes the benefit of diversification across the FHC group, this amount will always be equal to or lower than the amount under limb (a). Limb (a) is therefore redundant and has been removed.

The limit on NCI from a legal entity will be the consolidated Group TRR supported by the entity’s NCI, as determined using the following formula:

NCI Proportion x Estimated Contribution of entity to Group TRR, where:

•

NCI Proportion = (Equity elements issued to third parties of the entity) / (FR of the entity)

•

Estimated Contribution of entity to Group TRR =

◦

TRR of the solo entity / simple sum of the TRR of the Group’s legal entities;

multiplied by

◦

The Group TRR

The total NCI deducted from Group FR consists of the sum of NCIs (that exceed the NCI limit) from all entities within the FHC group. All TRRs are determined based on RBC 2. An example illustrating how the revised formula works is set out in Annex A to the Response.

Application to CET 1 and Tier 1 capital

A respondent asked whether the NCI limit would also apply when calculating the CET 1 capital ratio and the

Tier 1 capital ratio. These are quality-of-capital ratios: they assess whether the FHC group holds enough of its highest-quality forms of capital, as distinct from the overall Group CAR.

MAS confirmed that the NCI limit should apply to CET 1 capital and Tier 1 capital as well. For the CET 1 and

Tier 1 capital ratios, the formula must be applied on an ex-par basis. Those ratios are calculated by reference to the FHC group’s businesses excluding participating (or “with-profits”) businesses; these are referred to as ex-participating or ex-par businesses. This is because participating business assets and liabilities are ring-fenced, and the capital supporting them is not freely available to absorb losses elsewhere in the FHC group.

© WongPartnership LLP

DISCLAIMER: This update is intended for your general information only. It is not intended to be, nor should it be, regarded as or relied upon as legal advice. Court decisions referred to herein may be subject to further appeal at the time of publication, and subsequent developments in the law, including new legislation, amendments, court decisions or practice directions, may affect the accuracy or relevance of the matters discussed. We are under no duty to update this publication to reflect any such changes in the law. You should consult a qualified legal professional before taking any action or omitting to take action in relation to matters discussed herein.

WongPartnership LLP (UEN: T08LL0003B) is a limited liability law partnership registered in Singapore under the Limited Liability Partnerships

Act 2005.

The formula below reflects this treatment by using ex-par figures for the entity-level and group-level TRR, as well as for the relevant equity elements and FR.

NCI Proportion x Estimated Contribution of entity to Group TRR (for ex-par businesses), where:

•

NCI Proportion = (Equity elements (for ex-par businesses) issued to third parties of the entity) / (FR (for ex-par businesses) of the entity)

•

Estimated Contribution of entity to Group TRR (for ex-par businesses) =

◦

TRR (for ex-par businesses) of the solo entity / simple sum of the TRR (for ex-par businesses) of the Group’s legal entities; multiplied by

◦

The Group TRR (for ex-par businesses)

The total NCI deducted from Group CET 1 and Tier 1 capital consist of the sum of NCIs (that exceed the

NCI limit) from all entities within the FHC group. All TRRs are determined based on RBC 2.

Implementation

In its circular of 4 September 2026, MAS states that it aims to issue the amendments to FHC-N133 by 31

December 2026, with the amendments taking effect on 1 January 2027.

If you would like information and/or assistance on the above or any other area of law, you may wish to contact the Partner at WongPartnership whom you normally work with or any of the following Partners:

HUI Choon Yuen

Head – Financial Services Group

Head – Insurance and Debt Capital Markets

Alvin CHUA

Partner – Insurance and Debt Capital Markets

WPG MEMBERS AND OFFICES

- contactus@wongpartnership.com

SINGAPORE

-

WongPartnership LLP

12 Marina Boulevard Level 28

Marina Bay Financial Centre Tower 3

Singapore 018982

t +65 6416 8000

f +65 6532 5711/5722

CHINA

-

WongPartnership LLP

Shanghai Representative Office

Unit 1015 Link Square 1 222 Hubin Road

Shanghai 200021, PRC t +86 21 6340 3131

f +86 21 6340 3315

INDONESIA

-

Makes & Partners Law Firm

Menara Batavia, 7th Floor

Jl. KH. Mas Mansyur Kav.

Jakarta 10220, Indonesia t +62 21 574 7181

f +62 21 574 7180

w makeslaw.com

MALAYSIA

-

Cheang & Ariff

Advocates & Solicitors

Loke Mansion 273A, Jalan Medan Tuanku 50300 Kuala Lumpur t +60 3 2691 0803

f +60 3 2693 4475

w cheangariff.com

-

Foong & Partners

Advocates & Solicitors 13-1, Menara 1MK, Kompleks 1 Mont' Kiara

No 1 Jalan Kiara, Mont' Kiara 50480 Kuala Lumpur, Malaysia t +60 3 6419 0822

f +60 3 6419 0823

w foongpartners.com

MIDDLE EAST

-

Al Aidarous Advocates and Legal Consultants

Abdullah Al Mulla Building, Mezzanine Suite 02 39 Hameem Street (side street of Al Murroor Street)

Al Nahyan Camp Area

P.O. Box No. 71284

Abu Dhabi, UAE t +971 2 6439 222

f +971 2 6349 229

w aidarous.com

-

Al Aidarous Advocates and Legal Consultants

Oberoi Centre, 13th Floor, Marasi Drive, Business Bay

P.O. Box No. 33299

Dubai, UAE t +971 4 2828 000

f +971 4 2828 011

PHILIPPINES

-

Gruba Law 27/F 88 Corporate Center 141 Valero St., Salcedo Village

Makati City 1227, Philippines t +63 2 889 6060

f +63 2 889 6066

w grubalaw.com wongpartnership.com