At the 21 October 2013 Parliament sitting, I asked the Minister for Health about the reserves and Capital Adequacy Ratio (CAR) of MediShield, the government-run health insurance scheme. The MediShield Fund has $507 million in net assets (as at December 2012). The purpose of this question was to find out what proportion of this $507 million consisted of reserves and capital set aside to meet MAS regulations for insurers. I also wanted to find out what was the target CAR of MediShield.
This was a follow up to my parliamentary question on 21 November 2011, when the Minister told me that “(b)esides funding current claims, a portion of MediShield premiums is set aside as reserves in line with the Monetary Authority of Singapore (MAS)’s Risk-based Capital framework. Beyond the reserves, MediShield is also required to set aside a certain sum of capital, to meet MAS’s risk requirements and keep the Fund solvent in case of adverse risks.”
In his answer on Monday, the Minister said that MediShield’s CAR was 165% as at the end of 2012. This means that the scheme has enough capital set aside to fund up to 165% of its claims in 2012. While MAS requires a minimum threshold of 100-120%, MediShield is in fact aiming for a CAR 200%.
Mr Gerald Giam Yean Song asked the Minister for Health regarding the $507 million in net assets of the MediShield Fund at the end of 2012 (a) how much of this represents (i) reserves set aside to fund the expected scheme liabilities (ii) capital set aside to meet MAS’ risk-based capital framework requirements for insurers; (b) what is the quantum of (i) reserves and (ii) capital set aside for each of the years from 2005 to 2012; and (c) what is the minimum Capital Adequacy Ratio (CAR) that MediShield targets to maintain over and above the minimum CAR of 100% required by MAS.
Mr Gan Kim Yong (Minister for Health):
MediShield is a self-sustaining and not-for-profit insurance scheme. This requires setting aside sufficient reserves in the MediShield Fund to meet its liabilities, expected risks and target Capital Adequacy Ratio (CAR).
Between 2005 and 2012, on average, about 65% of the MediShield Fund comprised reserves to fund the expected scheme liabilities. Scheme liabilities include policyholders’ claims as well as premium rebates to help policyholders with old-age premium affordability.
The remaining portion of the Fund, which is what Mr Giam has referred to in his question as “net assets”, is capital from which the MAS-based risk requirements are financed. CAR is computed as the ratio of these “net assets” to the MAS-based risk requirements.
The member also asked about the CAR that the MediShield Fund targets to maintain. While the minimum CAR is 100%, MAS requires funds to meet a minimum threshold CAR of 120%, below which a “financial resources warning event” is triggered and the regulator may intervene. No prudent insurance fund operates by holding only the absolute minimum requirement, otherwise a small variation in claims would immediately cause a breach. Reserves and capital numbers change from year to year as claims payout changes and the Fund’s assets are marked-to-market. As at end 2012, the CAR of MediShield Fund is about 165%. The MediShield Fund has set a target CAR of 200% to ensure that the Fund is able to meet its liabilities to policyholders even in adverse scenarios. This target is in line with industry best practices.
MediShield liabilities and reserves are reviewed on an annual basis in line with actuarial principles.