Notice 320 Management of Participating Life Insurance Business

1 Notice No. : MAS 320 Issue Date : 29 June 2007 Last revised on 16 November 2020 MANAGEMENT OF PARTICIPATING LIFE INSURANCE BUSINESS Introduction

1. This Notice is issued pursuant to section 64(2) of the Insurance Act (Cap. 142) (“the Act”).
2. This Notice applies to all direct insurers licensed under the Act to carry on life business. [MAS Notice 320 (Amendment) 2018]
3. The Notice (with the exception of paragraph 9) takes effect on 1 January 2008. Paragraph 9 takes effect on 1 March 2008. Definition
4. For the purposes of this Notice, unless the context otherwise requires – “holding company” has the same meaning as in section 5 of the Companies Act (Cap. 50); [MAS Notice 320 (Amendment) 2020] “member of the senior management”, in relation to an insurer, means – (a) a person for the time being holding the office of chief executive, and includes a person carrying out the duties of any such office if the office is vacant; (b) a person for the time being holding the office of deputy chief executive or an equivalent person of the entity, and includes a person carrying out the duties of any such office if the office is vacant; or (c) an executive officer that has been entrusted by the insurer with any of the responsibilities as set out under paragraph 8G; [MAS Notice 320 (Amendment) 2020]

Management of Participating Life Insurance Business 2 “policy illustration”, in relation to a life policy which is a participating policy, has the same meaning as in paragraph 2 of the Notice on Market Conduct Standards for Direct Life Insurer as a Product Provider [MAS Notice 318]; and [MAS Notice 320 (Amendment) 2018] “product summary”, in relation to a life policy which is a participating policy, has the same meaning as in paragraph 2 of MAS Notice 318. [MAS Notice 320 (Amendment) 2018] [MAS Notice 320 (Amendment) 2020] “related party”, in relation to an insurer, means any of its associates or subsidiaries, its holding company or any subsidiary of its holding company; [MAS Notice 320 (Amendment) 2020] “sub-fund” means a part of a participating fund for which the insurer adopts a different strategic asset allocation in accordance with the investment objective for a particular group or class of products; 5. The expressions used in this Notice shall, except where expressly defined in this Notice or where the context otherwise requires, have the same respective meanings as in the Act. 5A. For the purposes of this Notice — (a) the allocation of charges or expenses to a participating fund is “fair and reasonable”, if — (i) the allocation is not to the detriment of the participating policy owners’ interests; and (ii) the allocation is necessary for the ongoing management of the fund; (b) a person, A, is an associate of another person, B, if — (i) A is a body corporate that is, or a majority of the directors of which are, accustomed or under an obligation whether formal or informal to act in accordance with the directions, instructions or wishes of B; (ii) A is a person who is accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of B; (iii) A is a subsidiary of B;

Management of Participating Life Insurance Business 3 (iv) A is a body corporate in which B, alone or together with other associates of B as described in sub-paragraphs (i), (ii) and (iii), is in a position to control not less than 20% of the voting power in A; or

(v) A is a person with whom B has an agreement or arrangement, whether oral or in writing and whether express or implied, to act together with respect to the acquisition, holding or disposal of shares or other interests in, or with respect to the exercise of their voting power in relation to, a corporation; (c) a reference to voting power in a corporation is a reference to the total number of votes that might be cast in a general meeting of the corporation; and (d) a person holds a share if — (i) he is deemed to have an interest in that share under section 7(6) of the Companies Act (Cap. 50); or (ii) he otherwise has a legal or an equitable interest in that share, except for such interest as is to be disregarded under section 7(7), (8) and (9) of the Companies Act. [MAS Notice 320 (Amendment) 2020] Internal governance policy 6. An insurer which has established or will be establishing a participating fund must put in place an internal governance policy on the management of its participating life insurance business. 7. The insurer must include in the internal governance policy the items in Appendix A (Information to be contained in the internal governance policy). 8. The insurer must ensure that the participating fund is managed according to the rules and guiding principles set out in the internal governance policy. [MAS Notice 320 (Amendment) 2018] [MAS Notice 320 (Amendment) 2020]

Management of Participating Life Insurance Business 4 Roles and responsibilities [MAS Notice 320 (Amendment) 2020] Responsibilities of the board of directors 8A. An insurer must ensure that: (a) the internal governance policy is approved by its board of directors; (b) the internal governance policy is reviewed at least annually by its board of directors and that the board of directors is satisfied during each review that the internal governance policy remains appropriate; (c) its board of directors assesses, at least annually, that the proposed allocation of charges and expenses to the participating fund for each year, is fair and reasonable, based on the guidelines recommended by the appointed actuary in accordance with paragraph 8H(a). 8B. An insurer must ensure that its board of directors is informed of any past material deviations from the internal governance policy in the management of the participating fund when the board of directors conducts any review of the internal governance policy in accordance with paragraph 8A(b).

8C. An insurer must inform its board of directors of all of the following matters when the board of directors conducts the assessment in accordance with paragraph 8A(c): (a) any proposed change to the categories of charges or expenses to be allocated to its participating fund, including a reclassification of charges or expenses, the inclusion of new categories of charges or expenses and the removal of existing categories of charges or expenses; (b) any one-off charges or expenses proposed to be allocated to the participating fund; (c) any charges or expenses that have been determined by the insurer’s appointed actuary to be exceptional and which are proposed to be allocated to the participating fund; (d) any proposed material change to the existing charging and expense allocation methodology, including the reclassification of expenses or charges, and changes to the drivers in allocating common expenses that affect the participating fund. 8D. The board of directors may delegate its responsibilities under paragraph 8A(c) to a board-level committee. The board-level committee must comprise at least 2 members of the board of directors.

Management of Participating Life Insurance Business 5 8E. An insurer must clearly document its board of directors’ deliberations in its review of the internal governance policy in accordance with paragraph 8A(b) and assessment of the proposed allocation of charges and expenses to the participating fund for each year in accordance with paragraph 8A(c) . Senior management’s responsibilities 8F. An insurer must: (a) set clear guidelines and policies on the allocation of charges and expenses to the participating fund, which must – (i) at the minimum— (A) set out the basis for the allocation of charges and expenses to the participating fund; (B) set out the type of charges and expenses which can be allocated to the participating fund; and (C) provide that whenever there is any ambiguity on whether a charge or expense can be allocated to the participating fund, the appointed actuary’s advice must be sought; (ii) be consistent with the basis for allocating charges and expenses to the participating fund as approved from time to time by the appointed actuary under paragraph 8H(e); and (iii) be consistent with the appointed actuary’s advice under paragraph 8H(f) on the type of charges and expenses which can be allocated to the participating fund; (b) implement the guidelines and policies referred to in paragraph (a); and (c) implement safeguards to satisfy the requirements set out in this Notice and ensure appropriate allocation of charges and expenses to the participating fund.

8G. All the members of the senior management of an insurer must be responsible for setting the guidelines and policies mentioned in paragraph 8F(a), implementing the guidelines and policies in accordance with paragraph 8F(b) and implementing the safeguards mentioned in paragraph 8F(c).

Management of Participating Life Insurance Business 6 Appointed actuary’s responsibilities 8H. An appointed actuary of an insurer must: (a) recommend a set of guidelines to the board of directors for allocating charges and expenses to the participating fund in a way that is fair and reasonable; (b) review the guidelines mentioned in sub-paragraph (a) at least annually or whenever there are material changes to the insurer’s circumstances, including when the insurer sets up new sub-funds, combines existing sub￾funds in its participating fund, or closes the participating fund to new business, and where necessary, recommend changes to the guidelines mentioned in sub-paragraph (a) to the board of directors; (c) highlight to all the members of the senior management and to the board of directors whenever material charges or expenses have been inappropriately charged to the participating fund; (d) highlight to all the members of the senior management and to the board of directors whenever any charges or expenses have been allocated to the participating fund and such charges or expenses are: (i) material; (ii) detrimental to participating policy owners’ short-term interests; and (iii) necessary for participating policy owners’ long-term interests, and provide an opinion in writing whether such an allocation is justifiable; (e) approve the basis for allocating charges and expenses to the participating fund and any changes to the basis; and (f) advise on the type of charges and expenses which can be allocated to the participating fund. 8I. An appointed actuary must document and bring to the attention of all the members of the senior management, and board of directors, as appropriate, whenever he has material reservations regarding the allocation of charges and expenses to the participating fund. Where such reservations cannot be satisfactorily addressed, the appointed actuary must alert the Authority of the concern, within 30 days from the time that the matter has been brought to the appointed actuary’s attention.

Management of Participating Life Insurance Business 7 Requirements relating to the allocation of charges and expenses to the participating fund [MAS Notice 320 (Amendment) 2020] 8J. An insurer must ensure that any charge or expense allocated to the participating fund is fair and reasonable. 8K. An insurer must not allocate any charge or expense that comprises, directly or indirectly, any charge or expense specified in Appendix D. 8L. Without prejudice to the generality of paragraph 8J, where an insurer allocates to the participating fund any charge or expense incurred by reason of any payment to any related party, the insurer must ensure that such charge or expense is commensurate with the goods or services provided by the related party. 8M. An insurer must not do any of the following: (a) subject to paragraph 8P, allocate any charge or expense to the participating fund that is incurred by reason of any payment made to any insurance agent operating under a written agreement entered into pursuant to section 35M of the Act where such a payment— (i) is not made to all other insurance agents from the same distribution channel and of the same tier, rank and scheme; or (ii) is more than what the insurer pays to any other insurance agent from the same distribution channel and of the same tier, rank and scheme; (b) allocate any charge or expense to the participating fund that is incurred by reason of any payment made to any representative of any licensed financial adviser or exempt financial adviser that is not the insurer, where such a payment— (i) is not paid to all other representatives from the same licensed financial adviser or exempt financial adviser; or (ii) is more than what the insurer pays to any other representative from the same licensed financial adviser or exempt financial adviser. (c) allocate any charge or expense to the participating fund that is incurred by reason of any payment made to any insurance agent operating under a written agreement entered into pursuant to section 35M of the Act where: (i) the insurance agent belongs to a distribution channel, where there exists more than one scheme on 1 January 2021; and

Management of Participating Life Insurance Business 8 (ii) the insurance agent is a participant of a second or subsequent scheme. (d) allocate any charge or expense to the participating fund that is incurred by reason of any payment made to any insurance agent operating under a written agreement entered into pursuant to section 35M of the Act where: (i) the insurance agent belongs to a distribution channel, where there exists only one scheme on 1 January 2021; (ii) the insurer adds an additional scheme under that distribution channel on or after 2 January 2021; and (iii) the insurance agent is a participant of the additional scheme referred to in paragraph (ii). 8N. For the purposes of paragraph 8M — “first scheme”, in relation to a distribution channel, refers to— (i) a scheme that exists as at 1 January 2021; and (ii) of all the schemes that exist as at 1 January 2021, is a scheme that was established first in time; “second or subsequent scheme”, in relation to a distribution channel, means a scheme that exists as at 1 January 2021 that is not a first scheme; “scheme” means an arrangement between an insurer and one or more insurance agents, under which the contractual terms of the written agreement entered into for the purposes of section 35M of the Act, between the insurer and every insurance agent— (a) with the same tier and rank; and (b) that is a participant of the arrangement, is in the same form. 8O. To avoid doubt, an insurer must comply with paragraphs 8M(c) and 8M(d) in addition to paragraph 8P(a). 8P. Subject to an insurer satisfying the conditions in paragraph 8Q, an insurer may allocate a charge or expense described in paragraph 8M(a) to the participating fund where such charge or expense is incurred by reason of any payment made to an insurance agent operating under a written agreement entered into pursuant to section 35M of the Act, and who, prior to entering into the written agreement with the insurer: (a) was not a representative of any licensed financial adviser or exempt financial adviser for the period of 2 years prior to the insurance agent

Management of Participating Life Insurance Business 9 entering into the written agreement; or (b) had less than two years of experience, in aggregate, as a representative in the insurance industry. 8Q. The conditions mentioned in paragraph 8P are: (a) a payment must only be made during the period of 2 years from the time the insurance agent enters into the written agreement with the insurer; (b) the charges or expenses must be fair and reasonable; and (c) the insurer must document the basis and justification for the payment. 8R. An insurer must not allocate any marketing-related charges or expenses to the participating fund, where such charges or expenses are not directly related to the sales of the insurer’s participating products. 8S. Where an insurer allocates any marketing-related charges or expenses to the participating fund, the insurer must clearly document the basis and justification for such allocation, including how the marketing-related charges or expenses have been shared between the insurer and the licensed financial adviser or exempt financial adviser which the insurer had appointed to distribute its products, and the rationale and methodology applied in apportioning the marketing-related charges or expenses between the relevant funds. 8T. To avoid doubt, an insurer may allocate the cost of campaigns which relate to the overall branding of the insurer’s corporate image to the participating fund, so long as this is done in a fair and reasonable manner. 8U. An insurer may allocate an operating expense related to the distribution of a participating policy, to the participating fund, if either of the conditions in paragraph 8V is satisfied, but must not allocate an operating expense related to the distribution of a participating policy to the participating fund if— (a) neither one of the conditions in paragraph 8V is satisfied; or (b) notwithstanding a condition in paragraph 8V is satisfied, the operating expense related to the distribution of a participating policy is an expense the insurer must not allocate to the participating fund under paragraphs 8K, 8M or 8R. 8V. The conditions mentioned in paragraph 8U are as follows: (a) the operating expense related to the distribution of a participating policy is incurred by the insurer’s agency force comprising insurance agents each

Management of Participating Life Insurance Business 10 operating under a written agreement entered into pursuant to section 35M of the Act; (b) the operating expense related to the distribution of a participating policy is incurred by the insurer for the participating fund and for a distribution channel that is:

(i) entirely owned by the insurer; or

(ii) not entirely owned by the insurer, but which has been established pursuant to a distribution agreement between the insurer and any licensed financial adviser or exempt financial adviser. 8W. To avoid doubt, paragraph 8V(b) excludes — (a) any reimbursements to other parties; and (b) any operating expense related to the distribution of a participating policy that is incurred by the insurer for a participating fund and for a distribution channel that is entirely owned by a licensed financial adviser or exempt financial adviser, other than the insurer. 8X. Subject to paragraph 8Y, an insurer must not allocate any upfront charges and expenses related to the setting up or acquisition of a distribution channel, or tie￾up with any licensed financial adviser or exempt financial adviser, to the participating fund. To avoid doubt, amortisation of such costs is prohibited. 8Y. An insurer may allocate to the participating fund, the upfront charges and expenses related to the – (a) setting up or acquisition of a distribution channel that was set up or acquired before 1 January 2021; or (b) tie-up with any licensed financial adviser or exempt financial adviser that was entered into at anytime before 1 January 2021, where it has notified the Authority of the proposed allocation of such charges and expenses and the Authority gives approval in writing of the allocation of the charges and expenses.

Management of Participating Life Insurance Business 11 Requirements relating to the analysis of charges and expenses of the participating fund [MAS Notice 320 (Amendment) 2020] 8Z. Subject to paragraph 8AA, an insurer must ensure that it conducts an expense study on the participating fund, at least annually, and that all of the following requirements are satisfied: (a) the analysis of charges and expenses under its expense study is current and objective; (b) the methodology for conducting the expense study is in accordance with actuarial practices issued by the Singapore Actuarial Society, the Institute and Faculty of Actuaries (UK) or the Society of Actuaries (USA). Where an insurer uses a methodology that is issued by any other actuarial body, the insurer must notify the Authority of the methodology that the insurer proposes to use prior to using the methodology and the insurer may only proceed to use the methodology if the Authority does not issue any written objection within 30 days of receiving the insurer’s notification; (c) the methodology for conducting the expense study, and any changes to the methodology, are clearly documented; (d) back-testing is performed prior to effecting any changes to the methodology for conducting the expense study; (e) in the conduct of the expense study, there is reasonable classification of charges and expenses in accordance with their nature, type and purpose; and (f) the basis and justification of the expense study are properly documented. 8AA. Notwithstanding paragraph 8Z(d), an insurer does not need to perform back￾testing prior to effecting a change to the methodology for conducting the expense study where – (a) the insurer assesses that the change to the methodology for conducting the expense study is not material; and (b) the insurer clearly documents the reason for the assessment in sub￾paragraph (a). 8AB. For the purposes of paragraph 8AA(a), an insurer must assess whether a change to the methodology for conducting the expense study is “material” or otherwise by assessing whether the resulting change in the allocation of charges or expenses to the participating fund and product classes is material.

Management of Participating Life Insurance Business 12 8AC. An insurer must engage an independent party to audit the methodology for conducting the expense study at least once every 3 years, or whenever there is a material change in the basis of the expense study. 8AD. An insurer must ensure that the allocation of charges or expenses to the participating fund, for the purpose of any expense study, including any changes to such allocation, is fair and reasonable. 8AE. Where charges or expenses are materially different across different groups or classes of products within the participating fund, or across the different sub-funds, the insurer must— (a) consider tracking the asset shares separately for each group or class of products or sub-fund; and (b) where the insurer decides not to track the asset shares separately for each group or class of products or sub-fund, document the reasons for the decision and the controls in place to mitigate cross-subsidisation across different groups or classes of products, or across different sub-funds. Requirements relating to the loading of expenses for pricing of participating products [MAS Notice 320 (Amendment) 2020] 8AF. An insurer must ensure that the loading of expenses for pricing of a participating product (“expense loading”) is consistent with the assumptions derived from its latest expense study (“expense study assumptions”), and all relevant expenses have been accounted for. In particular, the insurer must: (a) clearly document and justify any deviation between the expense study assumptions and expense loading; (b) implement proper monitoring to confirm the consistency between the expense loading and actual charges and expenses allocated to the relevant participating product; and (c) subject to paragraph 8AH, take prompt actions, to the satisfaction of the Authority, to mitigate situations where actual charges or expenses: (i) materially deviate from the expense loading and are not likely to be one-off; or (ii) exceed what was expected based on the expense loading, due to insufficient business volume.

8AG. Subject to paragraph 8AH, the insurer must not allocate the differences between the expense loading and actual charges and expenses incurred, due to any deliberate under-provision of expense loading in the pricing of its participating product, to the participating fund.

Management of Participating Life Insurance Business 13 8AH. Paragraphs 8AF(c) and 8AG do not apply to an insurer in relation to any newly set up participating fund, for the first 3 years following the launch of its first participating product. Disclosure Point-of-sale disclosure 9. The insurer must include in the product summary for each of its participating policies, the information specified in Appendix B (Information to be disclosed in the Product Summary). [MAS Notice 320 (Amendment) 2018] Post-sales disclosure 10. An insurer must prepare an Annual Bonus Update in relation to the period ending 31 December 2007 and any subsequent period, containing the information required in Appendix C (Information to be contained in Annual Bonus Update). 11. The insurer must send to every policy owner of a participating policy annually, the Annual Bonus Update by a date in each policy year as specified by the insurer in the policy or any other document. [MAS Notice 320 (Amendment) 2018] 12. The insurer may send to the policy owner of a participating policy, the Annual Bonus Update in parts provided that — (a) the insurer has informed the policy owner of the scheduled period in which the parts of the Annual Bonus Update will be sent; and (b) all the parts of the Annual Bonus Update are sent to the policy owner by the date in each policy year as specified by the insurer in the policy or any other document. 13. An insurer may send a policy owner the Annual Bonus Update in electronic form. Where an insurer sends a policy owner the Annual Bonus Update in electronic form, the insurer must give the policy owner an option to make a request for a hard copy of the Annual Bonus Update, within one month from the date that the Annual Bonus Update is provided to the policy owner. [MAS Notice 320 (Amendment) 2020] 14. Where a policy owner makes the request referred to in paragraph 13, the insurer must make available, or cause to be made available, a hard copy of the Annual Bonus Update to that policy owner within two weeks of receiving the request. [MAS Notice 320 (Amendment) 2020]

Management of Participating Life Insurance Business 14 15. An insurer must allow a policy owner to request, at any time, for all Annual Bonus Updates that are sent at any time after the date of the request, to be sent to him in hard copies, and the insurer must comply with the policy owner’s request at no cost to the policy owner. [MAS Notice 320 (Amendment) 2020]

*Notes on History of Amendments

1. MAS Notice 320 (Amendment) 2009 with effect from 20 February 2009.
2. MAS Notice 320 (Amendment) 2018 with effect from 2 July 2018.
3. MAS Notice 320 (Amendment) 2020 with effect from 1 January 2021.

Management of Participating Life Insurance Business 15 Appendix A Information to be contained in the internal governance policy Section 1 – Introduction 1.1 State the purpose of the internal governance policy. 1.2 Briefly describe the participating fund and types of business that can be written in it. 1.3 Where there is delegation of any responsibilities by the board of directors (for example, to any member of the senior management and appointed actuary), to state the nature and type of each responsibility and to identify the person(s) responsible for that delegated responsibility. [MAS Notice 320 (Amendment) 2018] [MAS Notice 320 (Amendment) 2020] Section 2 – Bonus determination 2.1 Describe the insurer’s objective(s) in managing the participating fund (for example, whether it is to provide stable medium to long term returns to participating policy owners). 2.2 Describe the existing bonus series, including the underlying participating product classes, for in-force participating policies. 2.3 Describe the considerations that the insurer takes into account when exercising its discretion in bonus determination, for example: (a) ensure fairness and equity to participating policy owners; (b) maintain the solvency of the participating fund; and (c) ensure consistency with the objectives set out in paragraph 2.1, particularly smoothing of bonuses. 2.4 State the controls and processes in place, such as risk sharing mechanism, bonus allocation process and reserving for future bonuses, to help the insurer ensure that the considerations stated in paragraph 2.3 are met when the insurer exercises its discretion in bonus determination. 2.5 Describe the risk sharing rules, including how the following key risks are shared for each product class: (a) investment risks;

Management of Participating Life Insurance Business 16 (b) expense risks; (c) mortality risks; (d) dread disease risks; (e) other morbidity risks; (f) lapse and surrender risks; and (g) business risks, e.g. riders and non-participating policies written in the participating fund. 2.6 Describe the methodology used to derive the value of assets backing participating product classes, including: (a) formula used to reflect all relevant cash flow items, i.e. income and outgo, for each product class; (b) treatment of items that are product class specific, e.g. premium income, commissions and maturity benefits; (c) treatment of items for which the risks are shared, e.g. investment returns and management expenses. 2.7 Describe the bonus allocation process, in particular: (a) state that the bonus allocation must be approved by the board of directors after taking into account the written recommendation of the appointed actuary; (b) describe the approach adopted for smoothing of annual (e.g. reversionary) bonuses; (c) describe the approach adopted for smoothing of terminal bonuses; (d) describe the treatment of interim bonuses and vesting of bonuses; (e) explain the use of market value reduction (“MVR”), if applicable. [MAS Notice 320 (Amendment) 2018] 2.8 Describe the reserving process for future bonuses, in particular: (a) state that the policy liabilities of participating policies include appropriate reserves for future bonuses; (b) describe the approach adopted for smoothing of future bonuses, if applicable. Section 3 – Investment of participating fund assets 3.1 State the investment objectives of the participating fund. 3.2 State the strategic asset allocations of the participating fund, and where applicable, the sub-funds.

Management of Participating Life Insurance Business 17 3.3 State whether the insurer fully manages, partly manages or does not manage at all, the assets of the participating fund itself. Where the insurer does not manage or partly manages the assets of the participating fund, state the identity of all the external fund managers appointed by the insurer to do so. 3.4 State the roles of the board of directors and the investment committee in the investment of the participating fund assets. [MAS Notice 320 (Amendment) 2018] 3.5 State the frequency of the review of the investment strategy. 3.6 Describe how the strategic asset allocation of the participating fund and where applicable, the sub-fund, is determined. 3.7 Describe the insurer’s policy on the use of derivatives. 3.8 Describe the insurer’s policy on making a loan to, or investment in, any other related corporations. 3.9 Describe the insurer’s policy on investment in new asset classes. Section 4 – Risk management 4.1 State the business risks to which the participating fund is subject to. 4.2 Briefly describe how the insurer manages and controls such risks. 4.3 State the frequency of the review of such risks. Section 5 – Charges and expenses 5.1 Describe the expenses that are incurred, and charges that can be allocated to the participating fund. 5.2 Describe the method used for allocation of common expenses between participating fund, other insurance funds and the shareholders’ fund. 5.3 State the frequency of the review to ensure the fairness of the ongoing allocation of common expenses. 5.4 State any significant outsourcing arrangements and the structure of charges for such arrangements.

Management of Participating Life Insurance Business 18 Section 6 – Circumstances under which to cease taking new business 6.1 State the circumstances under which the participating fund may be closed to new business. 6.2 Describe what may happen upon the closure of the participating fund to new business. Section 7 – Shareholders’ profits and responsibilities 7.1 State the insurer’s policy on allocation of profits to shareholders. In cases where the insurer’s policy is to distribute to its shareholders an amount of less than one-ninth of the value of bonuses allocated to participating policy owners, highlight this point explicitly. 7.2 State that the shareholders are responsible for meeting any shortfall in the solvency requirements of the participating fund. Section 8 – Disclosure requirements 8.1 Describe the processes that the insurer has put in place to ensure compliance with the disclosure requirements to policy owners as set out in the regulations and industry guidelines. 8.2 State the mandatory items that need to be disclosed.

Management of Participating Life Insurance Business 19 Appendix B Information to be disclosed in the product summary Provider of the plan

1. State the name and address of the insurer. Nature and objective of the plan
2. State that the plan is a participating life insurance policy and that it allows the policy owner to participate in the performance of the participating fund in the form of bonuses that are not guaranteed.
3. Describe the objective of the participating plan. Benefits under the plan
4. Describe the benefits provided under the participating policy, such as death benefits, disability benefits, critical illness benefits, surrender value and maturity benefit, as well as the distinction between guaranteed and non- guaranteed benefits.
5. Describe the different types of bonuses that may be paid, and the frequency in which the bonuses are determined and allocated to the participating policy owner.
6. Highlight that all guaranteed benefits, including bonuses which have already been allocated to the participating policy owners will be provided for regardless of the performance of participating fund.
7. Highlight that future bonuses of this plan which have yet to be allocated to the participating policy owner, are not guaranteed and the insurer will decide the level of bonus to be declared each year as approved by the board of directors, taking into account the written recommendation by the appointed actuary. Investment of assets
8. State the investment objective of the combined assets backing the plan.
9. Describe the investment strategy including the broad investment mix for the participating fund, or where applicable, the sub-funds.
10. State whether the insurer fully manages, partly manages or does not manage at all, the assets of the participating fund itself. Where the insurer does not manage or partly manages the assets of the participating fund, disclose the names and addresses of all the external fund managers appointed by the insurer to do so.

Management of Participating Life Insurance Business 20 11. State the current investment mix of the participating fund or sub-funds where applicable. [MAS Notice 320 (Amendment) 2018] 12. State the following information as may be applicable to the participating policy: (a) in respect of the sub-fund to which the policy belongs or, in the absence of a sub-fund, the participating fund: (i) the annual net investment returns for the past 3 years; and (ii) the average annual net investment returns over the past 3 years, 5 years and 10 years, where the net investment return is computed in accordance with the industry standards issued by the Life Association of Singapore (“LIA”); and (b) in respect of the participating fund or the sub-fund to which the policy belongs: (i) the annual total expense ratios for the past 3 years; and (ii) the average annual total expense ratios over the past 3 years, 5 years and 10 years, where the total expense ratio is the ratio of the total expenses incurred by the participating fund or the sub-fund (as the case may be), including investment, management, distribution, taxation and other expenses, to the assets of the participating fund or the sub-fund (as the case may be), as computed in accordance with the industry standards issued by the LIA. Highlight that past performance is not necessarily indicative of future performance. [MAS Notice 320 (Amendment) 2018] Type of risks affecting the level of bonuses 13. State the key factors affecting the performance of the participating fund. 14. Highlight that the insurer would determine the level of bonuses taking into account the current performance as well as future outlook for the participating fund. Sharing of risks 15. Describe how key risks (for example, investment, mortality, and morbidity), and expenses of this plan are shared with other plans.

Management of Participating Life Insurance Business 21 16. Describe how the insurer determines the assets available to support the group or class of products that the participating policy belongs to. Smoothing of bonuses 17. Describe how the smoothing of annual (e.g. reversionary) and terminal bonuses will be carried out over the duration of the policy. 18. State the annual (e.g. reversionary) and terminal bonus rates for this plan for the past 3 years. If it is a new bonus series, indicate explicitly that there is no past experience available. Highlight that past performance is not necessarily indicative of future performance. Fees and charges 19. Describe, by giving examples, the types of expenses that can be incurred and the charges that can be allocated to the participating fund to cover the expenses. 20. Highlight that the fees and charges have been included in the calculation of the premium and will not be separately charged to the policy owner. Adjustments in premium rates 21. Where the premium rate is guaranteed, the insurer must explicitly state so. If not, highlight that the premium rate is not guaranteed and may be adjusted based on future experience. Impact of early surrender 22. Describe the penalty, if any, on early surrender of the plan. 23. Highlight that buying a life insurance policy is a long-term commitment. An early termination of the policy usually involves high costs and the surrender value may be less than the total premiums paid. 24. Make reference to the policy illustration to highlight the loss or low returns on surrendering the plan early. [MAS Notice 320 (Amendment) 2018] Update on performance 25. Describe the documents that the policy owners can expect to receive from the insurer to provide information about the performance of their policies. [MAS Notice 320 (Amendment) 2009] 26. State when the policy owners can expect to receive these documents.

Management of Participating Life Insurance Business 22 Conflict of interests 27. Describe any conflict of interests that may exist or may arise in relation to the participating fund and its management. Where there are conflicts of interest to state the manner in which they will be mitigated or resolved. Related party transactions 28. Describe transactions between the insurer and its related parties, if any, the significance of such transactions and how the insurer ensures that the transactions are done at arms’ length. Free look period 29. Explain the free look provision.

Management of Participating Life Insurance Business 23 Appendix C Information to be contained in Annual Bonus Update

1. Where there is a sub-fund for different groups or classes of participating products in the participating fund, the information in this Appendix must be in respect of the relevant sub-fund. Purpose of the Annual Bonus Update
2. State the purpose of the Annual Bonus Update as: (a) informing the participating policy owners of the performance of the participating fund over the previous accounting period and of the bonuses allocated to them for the year; and (b) setting out the future outlook based on the latest actuarial investigation of policy liabilities carried out under section 37(1) of the Insurance Act and updating the participating policy owners on any changes in future non￾guaranteed bonuses. Past performance and future outlook
3. Describe the participating fund performance over the previous accounting period, with specific comments on key factors affecting bonuses to be allocated in this accounting period such as investment, mortality, morbidity, expenses and surrender experiences.
4. Describe the future outlook for the participating fund, in particular, any changes in outlook on the key factors affecting future non-guaranteed bonuses.
5. Explain how the past experience (including accumulated experience from previous years) and future outlook will impact the bonus allocation and reserves for future bonuses.
6. Provide an explanation where the information provided in paragraphs 3 to 5 is inconsistent with the latest actuarial investigation of policy liabilities of the participating fund carried out under section 37(1) of the Insurance Act. Bonus allocation
7. Highlight that the bonuses allocated to the participating policy owner for the previous accounting period were as approved by the board of directors, taking into account the written recommendation by the appointed actuary.

Management of Participating Life Insurance Business 24 8. Provide a clear explanation where the bonuses approved by the board of directors differ from the recommendation made by the appointed actuary. 9. State when the bonus allocated will vest in the participating policy of the policy owner. 10. State the bonus rates allocated for the participating policy owner for the three years immediately preceding the accounting period under review. Where such information is not available, the insurer must explicitly state the reason(s) for the unavailability. 11. State clearly that a full policy illustration is available to participating policy owners upon request. [MAS Notice 320 (Amendment) 2018] 12. The full policy illustration must be based on the insurer’s best estimate of the investment rate of return as shown to be supportable by the latest actuarial investigation of policy liabilities carried out under section 37(1) of the Insurance Act, but must not exceed the industry’s best estimate, at that time, of the long￾term investment rate of return. [MAS Notice 320 (Amendment) 2018]

13. Where a full policy illustration is provided to the participating policy owner, state clearly that the actual bonuses declared in the future may turn out to be higher or lower than those illustrated. [MAS Notice 320 (Amendment) 2018]

Update on changes in future non-guaranteed bonuses 14. Whenever there is, or will be a change in bonus rates, state the following figures to the policy owner of the participating policy: (a) in relation to endowment plans — (i) an illustration of the revised total maturity benefit (maturity value); and (ii) the impact of the bonus rate revision on the maturity value; (b) in relation to whole of life plans — (i) an illustration of the revised total surrender value; and (ii) the impact of the bonus rate revision on the total surrender value, shown at a particular age or duration as specified in paragraph 15.

[MAS Notice 320 (Amendment) 2009] [MAS Notice 320 (Amendment) 2018]

Management of Participating Life Insurance Business 25 15. Where a policy owner whose current age is less than 45 years, show the values required in paragraph (b) above at age 65. Where a policy owner whose current age is between 45 and 79 years inclusive, show the same values in 20 years’ time. Where a policy owner whose current age is between 80 and 99 years inclusive, show the same values at age 99. 16. The illustration of benefits for the purpose of paragraph 14 above must be based on the insurer’s best estimate investment rate of return as shown to be supportable by the latest actuarial investigation of policy liabilities carried out under section 37(1) of the Insurance Act, but must not exceed the industry’s best estimate, at that time, of the long-term investment rate of return. [MAS Notice 320 (Amendment) 2018] 17. State clearly that the actual bonuses that may be declared in the future may turn out to be higher or lower than shown in the illustration of benefits for the purpose of paragraph 14. [MAS Notice 320 (Amendment) 2018]

Management of Participating Life Insurance Business 26 Appendix D [MAS Notice 320 (Amendment) 2020] Charges and expenses that must not be allocated to the participating fund

1. Fines or penalties meted out by the Authority or any other regulatory authority, whether in Singapore or elsewhere.
2. Charges or expenses, incurred, paid or payable in relation to activities in breach of any written law or any direction issued by the Authority.
3. Charges or expenses related to overriding benefits, in relation to a representative, payable by the insurer to an individual who is not a manager or supervisor of the representative. For the purposes of this paragraph, “manager” or “supervisor” refers to the “manager” or “supervisor” as described in paragraph 7 of MAS Notice 306 (Market Conduct Standards for Life Insurers Providing Financial Advisory Services as defined under the Financial Advisers Act). To avoid doubt, such “manager” or “supervisor” may be an individual who is not a representative.
4. Allowance given to a representative of a licensed financial adviser or exempt financial adviser, other than the insurer, to subsidise the representative’s cost of doing business, including transport costs, phone bills or meals.
5. Charges or expenses related to prizes or incentives offered by an insurer to a representative of a licensed financial adviser or exempt financial adviser, where such prizes or incentives have an element of probability.
6. Operating expenses incurred by any related party of the insurer which distributes the insurer’s products.
7. Costs incurred for corporate restructuring including mergers and acquisitions, demerger, changes involving shareholding structure and management buyout, but excluding internal reorganisation of the insurer’s processes or workforce.
8. Costs incurred for marketing non-participating or investment-linked products.
9. Tax on shareholders’ entitlement in relation to participating bonus distribution.