Contributed By Rajah & Tann Singapore LLP
The main statute governing the regulatory aspect and conduct of (re)insurance business in Singapore is the Insurance Act (Chapter 142) (the “Insurance Act”). Provisions from the UK Life Assurance Act 1774 and the UK Fire Prevention Metropolis Act 1774, which deal with insurable interest and accidental fire, respectively, have been adopted (with some modifications) in the Insurance Act.
Apart from the Insurance Act, there are other pieces of legislation that govern specific types of insurance contracts or substantive points of insurance law. For example, Singapore has largely adopted the Third Parties (Rights against Insurers) Act 1930 via the Application of English Law Act (Chapter 7A), and has a Marine Insurance Act (Chapter 387) (“Marine Insurance Act”) that codifies principles of law applicable to marine insurance. Likewise, legislation such as the Motor Vehicles (Third Party Risks and Compensation) Act (Chapter 189) and Workmen’s Compensation Act (Chapter 354) govern substantive aspects of insurance law in those areas.
When it comes to disputes relating to contracts of insurance, as a common law jurisdiction, Singapore relies heavily on common law principles and case law authorities. Singapore’s highest court and court of final appeal is the Court of Appeal, whose decision is binding on the lower courts (for example, the High Court and the State Courts). In the absence of local case precedent, case authorities from Commonwealth jurisdictions (especially England and to a larger extent in recent years, Australia), though not binding on the Singapore courts, are likely to be of persuasive effect. Cases from the United States of America may have some persuasive authority (typically less so compared to Commonwealth cases) before the Singapore courts as well.
The insurance and reinsurance industry is regulated by the Monetary Authority of Singapore (MAS) and the Insurance Act contains provisions to regulate the conduct of insurance business in Singapore. The Insurance Act is supplemented by various subsidiary legislation that consist of regulations setting out in greater detail the statutory requirements that insurance companies and their intermediaries have to adhere to. These regulations have the same legislative effect as if their provisions were contained in the parent Act. The MAS may also issue various types of papers, which can be legally binding and have the force of law.
For the purposes of regulation under the Insurance Act, “insurance business” (which includes reinsurance of liabilities) is divided into two classes: (i) life business, which includes all insurance business concerned with life policies, long-term accident and health policies, or both, and (ii) general business, which is essentially any insurance business that is not life insurance business.
Generally speaking, entities that wish to underwrite insurance business in Singapore and/or solicit for insurance business from the public in Singapore must be licensed or authorised by the MAS. In a similar vein, the Insurance Act also strictly prohibits licensed insurers from co-branding with unlicensed carriers, so as to prevent any confusion to the public.
As of 2018, there were slightly under 200 licensed insurers and reinsurers in Singapore, with more than half holding direct general (otherwise known as non-life) insurance licenses. In comparison, the number of direct life insurers is significantly lower and represents less than 10% of licensed insurers in Singapore.
Singapore adopts a territorial basis of taxation. This means that only income accruing in or derived from Singapore or income received in Singapore from outside Singapore is subject to tax in Singapore. The corporate income tax rate generally applicable for the year of assessment 2018 is 17%. Apart from partial tax exemption and corporate income tax rebate. which are given to companies generally, insurers and reinsurers underwriting approved specialised insurance business may also enjoy concessionary tax rates of 5-10% under the insurance business development umbrella scheme.
Insurers and reinsurers have to be licensed or authorised by the MAS in order to underwrite insurance business in Singapore or solicit the same from the public in Singapore. Almost all licensed insurers and reinsurers must have a presence in Singapore. The exceptions are:
As mentioned above, to be licensed as a direct (re)insurer, the applicant must have a presence in Singapore. Typically, offshore insurers would choose to either incorporate a subsidiary company in Singapore or establish a branch office. There are two main regulatory requirements and procedures when setting up a new insurance company in Singapore.
First, applicants are expected to comply with the insurance regulatory requirement of obtaining the requisite licence to carry on the appropriate class of insurance business from the MAS. As the MAS has adopted a risk-focused approach in assessing the capital adequacy of insurance companies since 2004, insurers that underwrite different types of businesses will be subject to different licensing, capital adequacy and fund solvency requirements. For example, by virtue of the type of risks they underwrite, marine mutual insurers and captive insurers are typically subject to a “lighter” touch regulatory regime. Similarly, the regulatory and compliance requirements that a life insurer will have to satisfy are relatively more onerous than those of a general insurer.
Apart from satisfying capital adequacy and fund solvency requirements, the following factors of an applicant are taken into account by the MAS when considering a new (re)insurance company application:
Secondly, an applicant would have to comply with the corporate regulatory requirement of registering the business with the Accounting and Corporate Regulatory Authority as a branch of a foreign company, or incorporating a Singapore company under the Companies Act (Chapter 50).
Fronting, whilst permitted, is typically frowned upon by the MAS.
The merger and acquisition (M&A) of insurance companies and the transfer of insurance portfolios are regulated in Singapore. The regulator’s prior approval is required before one may obtain effective control or become a substantial shareholder of a licensed insurer incorporated in Singapore. Likewise, the regulator’s approval is required for the transfer of the whole or part of the insurance business of a Singapore licensed insurer. The transfer (which is akin to a statutory novation) must further be confirmed by the High Court of Singapore.
The Singapore insurance industry has witnessed a spike in cross-border M&A activities in recent years, a trend that seems likely to persist as foreign insurers with strong appetites for growth continue to explore new business lines and distribution channels in the emerging markets in Southeast Asia. The rapid development and growth of the Southeast Asian markets is likely to be accompanied by an increasingly robust demand for insurance and reinsurance. As the insurance and reinsurance hub of Asia, Singapore – with its relatively stable geopolitical and legal landscape – is primed to be the next frontier of further growth as foreign insurers look to gain a foothold in Asia.
In recent years, the Singapore insurance industry has seen a number of high-value cross-border M&A transactions, for example, in 2016, 90% of the shares in homegrown Singapore healthcare insurer, Shenton Insurance were sold to Hong Kong-based insurer, FWD Group.
As well as cross-border M&A deals, as the market becomes more saturated and the existing players explore ways to consolidate their presence and grow their market share in Singapore, we foresee an increase in domestic M&A activity.
Besides direct marketing and sales of insurance products by insurers (usually through insurers’ websites), the dominant distribution channel for most insurance products in Singapore is sales through intermediaries such as insurance agents and brokers. Bancassurance (which involves the collaboration between a bank and an insurance company for the insurer to sell its products to the bank’s client base) and more recently, web-based insurance product comparison aggregators, also provide other popular channels of distribution.
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The general rule on material non-disclosure is that, save for certain exceptions, an insured must disclose to the insurer all facts material to an insurer’s appraisal of the risk that are known or deemed to be known by the insured but neither known nor deemed to be known by the insurer. A fact is considered material if a prudent insurer would take into account the fact in fixing the premium or in determining whether he would accept the risk (at all or on certain terms). Breach of this duty of disclosure by the insured entitles the insurer to void the contract of insurance and to do so, the insurer must show that the non-disclosure induced the making of the contract on the relevant terms or at all.
In addition to the requirement for disclosure of all material facts prior to the conclusion of the insurance contract, it is also not uncommon for proposal forms to contain a declaration to the effect that the matters stated in the proposal are to form “the basis of the contract”. This phrase is typically repeated in the policy documents that are eventually issued. Such a “basis of the contract” clause can have the effect of making the statements or answers provided in the proposal forms warranties, the breach of which would release the insurer from liability from the date of such breach.
In practice, it is not uncommon for intermediaries (for example, agents who act on behalf of insurers and brokers who act on behalf of insureds) to be involved in the process of negotiating and placing the insurance policies. The law of agency would apply to insurance intermediaries, such that an agent acting within the parameters of his actual authority, whether express or implied, will bind the principal (whether it is the insurer or the insured).
The common law doctrine of privity of contract applies to contracts of insurance. However, legislation has intervened and this position is modified by the Contracts (Rights of Third Parties) Act (Chapter 53B). By virtue of the Contracts (Rights of Third Parties) Act, a third party to an insurance policy may be able to enforce the terms of the policy if it is found that: (i) the policy expressly provides that he may do so; or (ii) the terms of the policy purport to confer a benefit on him. It is therefore not surprising that most insurance policies contain express wording that excludes the applicability of the Contracts (Rights of Third Parties) Act.
Apart from the Contracts (Rights of Third Parties) Act, there are other statutory exceptions to the doctrine of privity of contract for insurance contracts:
Broadly speaking, there is no legal requirement for insurance contracts to be in a particular form, save for marine insurance (which additionally requires minimum particulars to be contained in it) and life insurance and motor insurance (where it is necessary to have the policies in writing for enforcement purposes). Generally, the same legal principles apply to consumer as well as commercial policies and reinsurance.
Like any other type of contract, an insurance contract is only formed when there is an agreement on the material terms and meeting of minds (consensus ad idem) between the insurer and the insured. The basic contract rule of “offer” and “acceptance” also applies to insurance agreements. As to what constitutes material terms would depend on the type of insurance contract, but typically material terms comprise of:
Apart from the above, an essential ingredient of insurance contracts is the requirement of “insurable interest”. Section 62(1) of the Insurance Act, which was imported from the UK Life Assurance Act 1774 and applies to all insurance contracts with the exception of insurance cover on ships or goods or contracts of indemnity against loss by fire or loss by other events, provides that:
“No insurance shall be made by any person on any event wherein the person for whose use or benefit or on whose account the policy is made has no interest, or by way of gaming or wagering; and every assurance made contrary to this subsection shall be void”.
Further, section 5(1) of the Civil Law Act (Chapter 43) dictates that all contracts or agreements by way of gaming or wagering shall be null and void. Whilst section 62 of the Insurance Act does not apply to marine insurance policies, the requirement for insurable interest in marine insurance contracts is already provided for under the Marine Insurance Act.
Another unique feature of insurance contracts is that it is a contract requiring utmost good faith. The principle of utmost good faith most frequently manifests itself in an insured’s duty to make full and frank disclosure of all material facts to the insurer.
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Whilst Singapore has had a regulatory framework for the issuance of catastrophe bonds since 2008, there have not been any catastrophe bonds issued in Singapore until recently on 21 December 2018 when the first Singapore catastrophe bond was issued with IAG Re as the sponsor. This was the result of the efforts of the Singapore government through the MAS, to develop such a market for alternative risk transfer mechanisms, namely insurance-linked securities (ILS) such as catastrophe bonds, in Singapore as it aims to be an ILS domicile for Asia or international issuers looking for an alternative jurisdiction. These efforts culminated with the announcement by the MAS on 26 February 2018 of an ILS grant scheme to develop the ILS market in Singapore by funding the upfront costs incurred in issuing ILS bonds in Singapore, including those for catastrophe risks, up to a limit of Singapore Dollar (SGD) two million per issuance. The scheme ends on 31 December 2020 for valid applications relating to issuances before 31 December 2020.
ILS is seen as an alternative reinsurance product to traditional reinsurance in the Singapore market. The MAS envisages that the ILS will be issued via a Special Purpose Reinsurance Vehicle (SPRV), to allow sponsors to readily securitise reinsurance risks in Singapore. A dedicated set of regulations apply to such SPRVs and under these regulations, the SPRV must be fully funded, protected from bankruptcy and legally separated from the sponsor and any party involved in its establishment.
To provide tax neutrality for ILS vehicles, Singapore has extended, until 31 December 2023, the tax incentive scheme for Approved Special Purpose Vehicles engaged in insurance securitisation.
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The general rules relating to the construction of contracts apply to insurance policies. The Singapore courts will generally adopt a “contextual approach” towards interpretation of (insurance) contracts. The courts place great emphasis on giving due weight and consideration to parties’ intentions as ascertained from objective evidence when interpreting contracts. Extrinsic material (before and after the making of the contract) is admissible if the extrinsic material:
Crucially, ambiguity is not a prerequisite for the admissibility of extrinsic evidence.
In addition to ascertaining parties’ intention and to supplement the contextual approach, the Singapore courts have found it appropriate to also examine the commercial purpose of an agreement to determine how certain clauses within the same ought to be interpreted, thereby adopting a holistic approach when construing contractual provisions.
Other canons of contractual interpretation – for example, the presumption against redundancy and superfluity and the contra proferentemrule (which is to adopt an interpretation in a manner that is least favourable to the person who drafted or prepared that wording or phrase) – would similarly apply to all insurance contracts.
Certain contractual terms have, acquired different meaning in the context of insurance law. For example, the terms “warranty” and “conditions” have different meaning / effect in insurance law, as compared to under general contract law. A warranty in the context of insurance law is a written term of the insurance contract whereby the insured warrants (through express wording or by operation of law) that certain statements of fact are and/or will be accurate. In the case of express warranties, the scope and extent of warranty provided depends on the wording used. The mere labelling of a statement as a warranty may not, without more, necessarily confer upon the statement the status of a “warranty”. In order to give a statement or promise the force of a warranty, it must be shown that it was the intention of the parties that this should be so.
The result of a breach of the warranty is to release the insurer from liability from the date of breach. This is the case even if the contents of the warranty may not have been material to the risk and/or that the breach of warranty may not have caused or be connected to a loss in respect of which a claim is brought.
On the other hand, a “condition” is a term, the breach of which entitles the insurer to claim for damages but not to deny coverage under a policy. This is the case unless the condition is made a “condition precedent” to the insurer’s liability under the policy. In the event of a breach of a condition precedent, the insurer is entitled to repudiate liability under the policy even if he does not suffer or is unable to prove that he has suffered prejudice as a result of the breach.
See 8.2 Warranties, above.
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Civil claims are typically first heard in the High Court or the State Court (depending on the quantum of the claim and the nature of the relief sought as the High Court only hear claims that exceed SGD250,000). Appeals from the State Courts are heard in the High Court and appeals from the High Court are heard in the Court of Appeal (which is the final appellate court in Singapore).
The litigation process commences with the claimant, known as the plaintiff, filing a writ of summons and a statement of claim, which is served on the defendant, who then files a defence, which may or may not engender a reply from the claimant. In most cases, parties then move to the disclosure of documents stage, or what is also known as discovery, before witness statements in the form of affidavits of evidence-in-chief are prepared and exchanged before the trial where witnesses are called to testify. Singapore does not have jury trials and all trials are before a judge (or in the lower courts, a magistrate).
In 2015, the Singapore International Commercial Court (SICC) was established as a dedicated division of the Singapore High Court to cater to the litigation needs of international parties. Generally, the SICC has jurisdiction to hear claims, regardless of the law governing the dispute, as long as the claims are of an international and commercial nature and parties agree to submit to the jurisdiction of the SICC.
As parties who refer their disputes to SICC will be able to adopt a more flexible procedure (as compared to the traditional process in the Singapore courts) which is in line with international best practice for commercial disputes while still retaining the advantage of obtaining a Singapore court judgment at the end of the day, the SICC is fast becoming a popular alternative to litigation and arbitration in the realm of commercial dispute. The fact that disputes before the SICC are heard by judges drawn from a diverse panel of distinguished local and international jurists can be an appealing factor if the dispute (for example, coverage disputes under insurance contracts) is heard by an adjudicator with specialised knowledge of the industry.
However, given the requirements that the nature of the disputes referred to SICC be of an international nature and that parties have to agree to submit to the jurisdiction of SICC, the SICC has not been a popular forum for insurance coverage disputes, which are still predominantly referred to arbitration.
Singapore court judgments are widely enforceable around the world. Typically, a judgment obtained from the superior courts in Singapore may be registered with relative ease in the following commonwealth jurisdictions by virtue of the Reciprocal Enforcement of Commonwealth Judgments Act:
Additionally, the Reciprocal Enforcement of Foreign Judgment Act allows for the enforcement of judgments in foreign and non-Commonwealth countries that give reciprocal treatment to judgments given in Singapore. As of 2018, the Reciprocal Enforcement of Foreign Judgment Act only extends to Hong Kong Special Administrative Region of the People’s Republic of China.
Apart from the relative ease of registering a judgment obtained from the Singapore Courts as mentioned above, Singapore (together with 29 other countries as of 2018, including most of the EU countries) is also a party to the 2005 Hague Convention on Choice of Court Agreement. This means that judgments from Singapore may be recognised and enforced in the courts of other contracting States.
Arbitration clauses in commercial insurance and reinsurance contracts are enforceable under Singapore law.
Singapore has been a world-renowned and well-established international arbitration hub for many years. The two leading arbitral institutions based in Singapore are the Singapore International Arbitration Centre and the Singapore Chamber of Maritime Arbitration. Singapore’s arbitral legislation adopts the UNCITRAL Model Law provisions. As a party to the 1958 New York Convention, arbitral awards obtained from Singapore can be enforced with relative ease in more than 150 convention countries.
Singapore’s commitment to alternative dispute resolution (ADR) can be seen from its numerous initiatives to develop the necessary infrastructure to facilitate the ADR process and to educate the public on this avenue as an alternative to litigation in court.
Apart from arbitration, other kinds of formal ADR such as mediation and neutral evaluation are becoming increasingly viable, especially for smaller claims. The successful implementation of various ADR initiatives in the State courts resulted in the introduction of a “presumption of ADR” for the majority of civil claims heard there. Whilst ADR is not mandatory for claims commenced in the High Court, as mediation is a well-recognised and accepted form of dispute resolution, the judiciary usually strongly encourages parties to consider mediation (either administered under the auspice of the Singapore Mediation Centre or the Singapore International Mediation Centre). To further incentivise parties to consider mediation, there may be costs consequences at the conclusion of the trial if ADR options are not fully explored by parties.
In 2005, the Financial Dispute Resolution Centre Ltd (FIDReC) was launched to provide a platform for the adjudication of disputes between financial institutions and consumers, including disputes relating to insurance contracts. Presently, FIDReC is available to all consumers who are individuals or sole-proprietors and can hear claims up to SGD100,000. FIDReC provides an affordable ADR avenue for consumers who do not have the resources to go to court or do not wish to pay hefty legal fees (legal representation is not permitted). Whilst the decision of the adjudicator or panel hearing a FIDReC dispute is final and binding on the insurer, it is not on the insured, who is free to pursue his/her complaints through other avenues, including litigation.
Late and improper delay in payment of claims by insurers does not attract any punitive damages or penalties under Singapore’s common law system, but an aggrieved policyholder or insured may file a complaint with the MAS.
Compared to North America and Europe, the financial technology (fintech) and insurance technology (InsurTech) ecosystem in Asia is relatively small, but such activity in the region is predominantly centred on Singapore, which is the region’s largest insurtech hub.
On the InsurTech front, Singapore has witnessed a number of new distribution platforms that utilise technology to provide more options to consumers. These disruptors to the insurance industry include GoBear (an insurance plans and financial products comparison platform or aggregator), PolicyPal (an insurance mobile app) and Bandboo (a peer-to-peer online platform for people to form communities to co-insure one another).
There is also an increase in the number of traditional players exploring non-traditional methods of carrying out business. For example, Singapore Life is a digital insurer specialising in life and health products for high net worth individuals. CXA, a Singapore-based start-up insurance broker has disrupted the corporate / employee’s benefit insurance space by leveraging on technology, so as to allow employees greater flexibility and autonomy over their health insurance plans.
Riding on the wave of technology advancement, industry players are now looking to incorporate Artificial Intelligence (AI) in more aspects of the insurance space. For instance, more industry players are utilising AI in claims processing and even advisory areas and the MAS is looking at amendments to the Singapore regulatory framework to facilitate the provision of digital advisory services.
Against the backdrop of a rapidly evolving fintech landscape, the MAS has sought to provide a nurturing environment to help cultivate and encourage fintech experimentation. This is so that promising innovations can be tested in the market and have a chance for wider adoption, in Singapore and abroad. A regulatory sandbox has been set up by the MAS to enable financial institutions as well as fintech players to experiment with innovative financial products or services in the production environment but within a well-defined space and duration. It also includes appropriate safeguards to contain the consequences of failure and maintain the overall safety and soundness of the financial system. As of 2018, the active participants of the sandbox experiment from the insurance industry include a general direct insurer and an insurance broker.
Additionally, in August 2015, MAS formed a Financial Technology & Innovation Group (FTIG) within MAS to drive its Smart Financial Centre initiatives. The FTIG is responsible for formulating regulatory policies and developing strategies to facilitate the use of technology and innovation to better manage risks, enhance efficiency and strengthen competitiveness in the financial sector. The FTIG is engaging the fintech community to work on various projects, overcome hurdles and participate in innovative projects.
As Singapore develops its digital economy, AI is viewed by many as the next key frontier for product innovation and legal development. We are essentially in uncharted legal territory, where many jurisdictions (like Singapore) grapple with the myriad of legal liability and ethical issues arising from the use of AI, which may not be adequately addressed by the conventional legal liability framework. There is therefore a lot of uncertainty surrounding the legal issues relating to AI and this uncertainly is likely to cascade down and create issues in risk assessment when underwriting liability insurance. In addition, the prevailing sentiment is to shift the risks relating to the use of AI to insurers (who are perceived to be better equipped to absorb such risks) and this may lead to the introduction of certain compulsory insurance schemes and drive insurance product innovation.
In May 2018, the Singapore government announced a new national long-term care insurance health plan, known as CareShield Life, as it prepares for an aging population. This new national insurance programme will provide financial aid to those with severe disabilities and will be run by the government from 2020. CareShield Life will replace the optional ElderShield programme introduced by the government in 2007 but it will be run by three private insurers, offering wider coverage of at least SGD600 per month for as long as care is needed. It will be compulsory for all Singapore citizens between the ages of 30 and 40, and registration will be automatic.
Singapore launched the world’s first commercial cyber risk insurance pool on 30 October 2018 as part of efforts to develop Asia’s capacity to deal with losses from cyber-attacks. This new pool will commit USD1 billion to capacity and bring together traditional insurance and ILS markets to provide bespoke cyber coverage.
An insurance law reform sub-committee (the “Committee”) was formed by the Singapore Academy of Law’s Law Reform Committee in March 2017 to review the key areas of Singapore insurance contract law that is in likely need of reform. The main focus of the Committee’s work and review is on the areas of the duty of utmost good faith, the duty of disclosure and misrepresentation, warranties, remedies for fraudulent claims, insurable interest, late payment of claims as well as select aspects of an intermediary’s role. When the Committee finalises its report and makes its recommendations, significant changes to these areas of insurance contract law in Singapore can be expected.
On 29 October 2018, the MAS issued the Monetary Authority of Singapore (Resolution of Financial Institutions) Regulations 2018, which adopted the recommendations of the Financial Stability Board such as the Key Attributes of Effective Resolution Regimes for Financial Institutions. It introduced a resolution regime that includes compulsory transfer of business, suspension of contractual termination rights and a compensation framework that adopts the “no creditor worse off than in liquidation” safeguard.
On the insurance regulatory front, in line with the regulator’s determination to make Singapore an ILS domicile for Asia and in a bid to level the playing field between the Singapore ILS regulatory landscape and that of other ILS domiciles, the regulators are exploring the introduction of a bespoke corporate structure for the ILS market, to complement the suite of legislative and financial initiatives that have already been put in place to facilitate the issuance of ILS. The regulators are considering extending corporate structures – such as the newly introduced Variable Capital Company (VCC), which currently applies only to the fund management industry – to the insurance industry to provide more structuring options to potential ILS issuers. It is hoped that the VCC structure would facilitate multiple issuances in one vehicle with its ability to segregate assets and liabilities.
The regulators are also reviewing the current risk-based capital (RBC) framework for assessing the financial and capital adequacy of insurers. In the light of evolving market practices and global regulatory developments, the regulators are considering changes to be introduced to the current RBC framework to ensure it remains relevant to industry’s needs while enhancing protection for policyholders and maintaining prudent capital requirements that are commensurate with insurers' risk profiles and business activities, as well as being in line with international standards and best practices. As of 2018, despite carrying out three rounds of consultations on the proposed changes to the RBC (the latest consultation closed in October 2016) and indicating that changes are in the pipeline, changes to the RBC framework have not been formally introduced.
Finally, in May 2018, the ASEAN+3 finance ministers endorsed the Southeast Asia Disaster Risk Insurance Facility (SEADRIF). SEADRIF is supported by the World Bank in partnership with Japan and is targeted to be established by mid-2019. As a first project, SEADRIF will start a flood risk pool involving Laos, Myanmar and potentially Cambodia, and provide ex-ante climate and disaster risk and insurance financing solutions for these three countries. The aim is for such disaster risk insurance to provide immediate liquidity financing so that countries affected by disaster can receive help promptly with less reliance on humanitarian assistance, which can take time or is uncertain, and also reduce disruption to national budgets. Singapore will host SEADRIF and the Singapore government will support SEADRIF in various ways, including providing technical capacity-building, reinsurance capacity, structuring and modelling support, as well as financial support.