MAS Notice 126 - Lapses in Own Risk and Solvency Assessment (ORSA) Report Submissions

Circular No: ID 01/26
2 January 2026
To Chief Executives
All Licensed Insurers except Captive Insurers, Marine Mutual Insurers and SPRVs Dear Sir/Madam MAS NOTICE 126 – LAPSES IN OWN RISK AND SOLVENCY ASSESSMENT (ORSA) REPORT SUBMISSIONS The amendments to MAS Notice 126 (“Notice 126”) on Enterprise Risk Management (“ERM”) for insurers were introduced on 30 September 2022 and took effect on 1 January
2023. As part of the amendments, insurers are required to perform macroeconomic, material
counterparty, liquidity and reverse stress tests (collectively, the “mandatory stress tests”) as
part of their ORSA. During the review of the latest ORSA report submissions, the Monetary
Authority of Singapore (MAS) observed several lapses in the ORSA reports, as many insurers did not perform one or more of the mandatory stress tests. Annex A sets out non-exhaustive examples of the identified lapses along with MAS’ expectations. 2 MAS also observed that several insurers had fully relied on the group’s ORSA report to meet the ORSA requirements in Notice 126. MAS would like to remind all insurers that while an insurer which belongs to a wider insurance group may make use of its group’s ORSA report, the insurer must still ensure that its own ORSA report documentsthe required analysis specific to the insurer, especially in relation to the mandatory stress tests.

3 MAS takes a serious view of failures to comply with regulatory requirements. MAS expects all insurers in Singapore to put in place proper systems and controls to ensure compliance with the applicable laws and regulatory requirements at all times. Where applicable, insurers should review their processes against the relevant resources1 and perform the necessary remediation actions. 4 Please contact your company’s liaison officer in MAS should you have any queries. Yours faithfully [sent via MAS-TX] DANIEL WANG EXECUTIVE DIRECTOR INSURANCE DEPARTMENT 1 These include (i) MAS Notice 126, (ii) MAS’ Consultation Paper on Proposed Revisions to Enterprise Risk Management, Investment and Public Disclosure Requirements for Insurers (published on 19 Feb 2021), and (iii) MAS’ Response to Feedback Received on Proposed Revisions to Enterprise Risk Management, Investment and Public Disclosure Requirements for Insurers (published on 30 Sep 2022).

Annex A: Examples of lapses in ORSA submissions

1. Several insurers did not perform one or more of the mandatory stress test scenarios,
   as they were of the view that the risks relating to the stress scenarios were immaterial. Examples MAS’ Expectations Example 1: Insurer A did not perform a liquidity stress test, as it was of the view that its liquidity risk was immaterial since it maintains a conservative investment portfolio (i.e. most investable assets held in bank deposits and highly rated government bonds) With reference to paragraph 2.8 of MAS’ Response to Feedback Received on Proposed Revisions to Enterprise Risk Management, Investment and Public Disclosure Requirements for Insurers published on 30 Sep 2022, we would like to re-emphasise that all insurers are required to perform material counterparty, macroeconomic and liquidity stress tests as part of the ORSA. Nonetheless, as we recognise that insurers have varying risk profiles, insurers should determine how to perform these mandatory stress tests in a risk proportionate manner, commensurate with the nature, scale and complexity of their business. For liquidity stress test, we recognise that insurers have varying risk profiles, hence insurers should determine how to perform the liquidity stress test in a risk proportionate manner, commensurate with the nature, scale and complexity of their business. An insurer which maintains a conservative investment portfolio may refer to Annex B for an illustrative example of how a liquidity stress test may be performed. For material counterparty testing, insurers do not necessarily need to consider a full default of its material counterparties. Other relevant scenarios can include a reduction in the amount of reinsurance recoveries or other balances owed. For macroeconomic stress testing, even if investment￾related stress factors are assessed to be less material due to a conservative investment profile, insurers Example 2: Insurer B did not perform a material counterparty stress test as it was of the view that it would be too extreme to consider a default of its material counterparties, since these entities have been traditionally stable and financially strong. Example 3: Insurer C did not perform a macroeconomic stress test, as it had assessed that macroeconomic stress factors were immaterial, given its liquid and conservative investment portfolio.

should still consider other relevant stress factors such as a reduction in new business volumes and adverse claims experience (e.g. increase in fraudulent claims) due to the adverse macroeconomic environment. Example 4: Insurer D did not perform a reverse stress test, as it was of the view that the combination of stress factors required to cause its business failure was too remote. For reverse stress testing, the key objective is for insurers to identify scenarios that would be the likely cause of business failure and identify the management actions necessary to manage such risks (even if the identified scenarios are assessed to be remote).
2) Several insurers did not perform one or more of the mandatory stress tests due to a
misinterpretation of Notice 126 requirements Examples MAS’ Expectations Example 1: Insurer E assumed that it had performed the liquidity stress test by incorporating certain liquidity stresses (e.g. asset value haircuts) as part of its macroeconomic stress test. However, Insurer E only assessed the impact to its capital position, and did not assess the impact to its liquidity position under this scenario. When performing the liquidity stress test, insurers should assess the impact of the stressed conditions to its liquidity position. For example, this may involve an assessment of the impact to the insurer’s cash flow position or other liquidity risk indicators over an appropriate time horizon. Example 2: Insurer F had assumed that it had performed the material counterparty stress test by applying an overall increase to its incurred claims as part of one of its stress scenarios. However, Insurer F did not identify the specific counterparties which contributed to the increase in incurred claims in the scenario. When performing the material counterparty stress test, insurers should identify its material counterparties and assess the impact of relevant stress events on these identified material counterparty exposures.

Annex B: Example of a liquidity stress test
For an insurer with a conservative investment portfolio, it may consider referring to the steps and the illustrative liquidity stress test template outlined below. Insurers should also refer to
Appendix C of Notice 126 for more detailed guidelines on liquidity stress testing.
Step 1: Development of the liquidity stress scenario

• Identify key risk events which could materially affect the insurer’s liquidity position
  (e.g. large claims, mass lapse of policies with surrender values, etc.).
• Develop appropriate stress factors and shocks to be applied to the insurer’s cash flow
  positions over an appropriate time horizon (for e.g., 7 days, 30 days, 90 days, one year) which is consistent with its business profile and liquidity risk appetite. o Insurers with a conservative investment portfolio may consider stressing its cash flow position over a longer period (e.g. > 30 days) if deemed appropriate. Step 2: Analysis of impact of liquidity stresses to liquidity position
• Assess the impact of the liquidity shocks to:
  o current portfolio of unencumbered liquid assets, including the amount of haircuts to be applied on the liquid assets to reflect the credit quality of the asset, the severity of the stress scenario and the timing of the liquidation; o cash inflows such as new business and renewal premiums, investment income, and reinsurance recoveries; and o cash outflows such as insurance-related payments (claims, surrenders, etc.), increase in collateral requirements arising from margin calls to mark-to-market the collaterals and operating expenses.
• Project and analyse the adequacy of the liquidity position over an appropriate time
  horizon.
  Step 3: Development of Management Actions
• Where the liquidity position is found to have fallen close to or below the insurer’s
  liquidity risk appetite, the insurer should develop and outline timely and appropriate management actions to restore its liquidity position.

Illustrative template for insurers with conservative investment portfolio in assessing its liquidity position under stress Projection of liquidity position over applicable time horizon Base liquidity position Liquidity position after applied stress Initial total unencumbered liquid assets [A]

• Cash and cash equivalents
• Government Bonds
  Large loss stress (if applicable) [B]
  Financial market stress (if applicable) [C]
  Reinsurance shock (if applicable) [D]
  Net cashflows from operations [E]
  Net liquidity position [A+B+C+D+E]
  XX
  (XX)
  (XX)
  (XX)
  XX
  XX