Japan dominates Asia-Pac ILS issuance
“I do think that we are going to continue to see more issuance out of Japan – the country will lead Asia in terms of issuance and we’d certainly expect to see a good level of that issuance take place over the next twelve months,” Schultz told Intelligent ILS.
According to Schultz the major catastrophe bond – related perils that the Japanese market is most concerned about are earthquakes and typhoons, both of which have impacted Japan in recent years. The Tōhoku earthquake and subsequent tsunami of 2011 caused billions of pounds of damage over the North-East region of Japan region, and led to the Fukushima nuclear emergency, which is still impacting the area.
“We’re really not seeing another major set of perils that are going to come from Asia of that nature, just because in the overall quantum of total reinsurance purchases it’s just not that great compared to other peak perils around the world. So there isn’t as much demand for capacity, or there’s not as much benefit in terms of price and diversification as you would get on some of the larger perils.
“Looking at Japan, out of the Asia-Pacific region as a whole, we do think that some of the other Pacific risks will also come to the market over the next twelve months. but on a relative basis issuance of ILS products will still be relatively small.
“Japan perils currently represent around six to eight percent of the outstanding cat bonds – it’s going to be difficult to grow that to more than ten percent due to the fact that diversifying perils trade at such a discount compared to peak perils and so on.
“The market’s always going to value diversification, but diversifying perils as a percentage of total risk outstanding is still relatively small.”
Asked by Intelligent ILS is there was any real demand for ILS-related products in China, Schultz replied: “We certainly see China as a contributing part of this market, it’s just a question of when. Right now I think that the demand, according to the marketplace, for the amount of risks ceded into the market is not at a level where you get that benefit of diversifying out of one market and into another.
“I think that at some point we’ll cross that inflexion point and it will be pretty obvious.”
