IAG Singapore cat bond signals further ILS growth in Asia: Clyde & Co

With Insurance Australia Group (IAG) issuing the first catastrophe bond to be domiciled in Singapore under its new insurance-linked securities (ILS) regime, and Hong Kong working towards creating an ILS market, insurance-focused law firm Clyde & Co expects alternative capital to be a significant growth area across Asia.

“The emergence of an Asian ILS market is something we have been tracking for a while,” said Ian Stewart, partner at Clyde & Co. “The rise of alternative capital is a trend that shows no sign of reversing – the global catastrophe bond and related ILS market ended 2018 at a new record size – and Asian financial centres are keen for a piece of the action.

In February 2018, the Monetary Authority of Singapore (MAS) introduced an ILS grant scheme, which offers to fund 100 percent of an issuer’s set-up costs.

“Singapore has for a long time stated its long term objective of becoming both Asia's leading insurance hub and a global insurance marketplace and last year the regulator announced the introduction of grants to fund 100 percent of the upfront costs incurred in issuing catastrophe bonds out of the city-state,” explained Stewart.

The Hong Kong Government is also seeking to introduce amendments that would help facilitate ILS business in the 2019-2020 legislative session.

Bermuda still boasts having the lion’s share in the global ILS markets. Bermuda Monetary Authority statistics for the first quarter of 2018 showed that around 75 percent of total outstanding ILS capacity was issued in Bermuda.

IAG’s sponsored the cat bond in Singapore as part of its 2019 catastrophe aggregate reinsurance cover, and provides IAG with A$75 million ($53.8 million) of annual aggregate catastrophe protection for three years and is part of its aggregate sideways cover, which in total provides protection of A$475 million excess of A$375 million.

GC Securities acted as sole structuring and sole placement agent for the cat bond issued by Orchard ILS Pte.

Guy Carpenter vice chairman David Priebe suggested the work of IAG, MAS and GC Securities should provide a “springboard” for greater use of ILS to clsoe the protection gap in Asia.

Stewart continued: “Given the exposure of Asia Pacific to natural catastrophes – it was one of the hardest-hit regions by nat cats in 2018, with economic losses of over US$89 billion – we expect this will be just the start. Further cat bonds will be issued out of Singapore and, in time, other ILS covering a wide range of risks.”