Insurers should keep an eye on liquidity risks: MAS 

The financial watchdog warns that insurers should be wary of the effects of economic instability.

The Monetary Authority of Singapore reminded insurers to watch out for liquidity risks as volatility can quickly propagate in unexpected ways.

In a keynote speech said at the LIA Annual Luncheon on 21 March, Marcus Lim, assistant managing Director of the Monetary Authority of Singapore (MAS) reminded insurers of their vital role despite economic instability.

“A life insurer’s financial strength to continue operating over the longer term is fundamental to why people are willing to pay money upfront for benefits that they are likely to only receive far into the future,” Lim said.

Lim also warns life insurers to be wary of the effects of geopolitical tensions, rising inflation rates, and economic slowdown toward risk management.

“The recent collapse of Silicon Valley Bank (SVB) is a grim reminder of what can happen when asset and liability management is not done well,” Lim said.

However attractive higher interest rates may seem for life insurers with longer duration liabilities, Lim noted to keep an eye out for yield inversion risks.

“The disruptions magnified by the Liability-Driven Investment (LDI) funds in the UK are an example of how volatility, which we are seeing more of today, can quickly propagate in unexpected ways,” Lim said.

Another factor that should be considered by insurers is liquidity issues which has been previously addressed through the Notice on Enterprise Risk Management which took effect last 1 January.

“Being an insurer that customers can trust goes beyond the technical elements of risk management, and extends to how you treat your customers from the point of sale to the time when claims are filed. It is an enormous responsibility and I know it is one that you all do not take lightly. Increasingly, doing the right thing is also about how you choose to deploy your capital for broader benefit, and this is most clear today in the sustainability space,” Lim said.