Singapore may allow catastrophe bond vehicles

SINGAPORE—A regulatory framework is under development in Singapore to allow the creation of special-purpose reinsurance vehicles that will transfer risks to the capital market.

The Monetary Authority of Singapore earlier this month issued a consultation paper that outlines the proposed framework, saying it recognizes the usefulness of such securitization vehicles, particularly for managing risks related to pandemics and natural catastrophes.

Under the proposed regulations, the SPRVs would issue bonds in the capital market, investing the proceeds and the ceding company reinsurance premiums into a portfolio of highly rated securities. If no claims are filed, investors get back their principal, investment gains and reinsurance premiums less the operating expenses of the SPRV.

In the event of a claim, the principal and interest of the bonds may be at risk of default.

Because the risk of an SPRV being unable to fulfill its obligations is low, the MAS said, minimum capital requirements are set at $20,000 Singapore ($13,000).

The consultation paper is open to public comment until July 12. It is available from a link at www.mas.gov.sg.