The Monetary Authority of Singapore has set two capital requirements: the prescribed capital requirement (PCR) and the minimum capital requirement (MCR). Market observers indicate that the regulator would like life insurance companies to have a (PCR) CAR of more than 200%.
For financial institutions, capital and capital ratios are important metrics. While Common Equity Tier 1 for banks is based on the ratio of their common equity divided by their risk-weighted assets, life insurers have different ways of calculating risk-based capital (RBC).
Great Eastern Holdings adopted RBC 2 in 2020. Here, its capital adequacy ratio (CAR) is calculated as a ratio of total available capital (TAC) divided by total risk requirement (TRR). TAC includes Tier 2 capital. TRR comprises risk charges across all risk categories such as insurance risk, market risk, credit risk and operational risk. For instance, if TAC is $200 million, and TRR is $100 million, CAR is 200%.
