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George Attard, chief executive officer Asia for Aon’s Reinsurance Solutions business
30 October 2018 Alternative Risk Transfer

Singapore will benefit from ILS

Singapore is looking to establish itself as an insurance-linked securities (ILS) hub in Asia to take advantage of rising market demand, George Attard, chief executive officer Asia for Aon’s Reinsurance Solutions business, told SIRC Today.

Fitch believes more reinsurers will issue ILS in Asia, especially in Singapore, where the regulator has fully funded the upfront costs incurred in issuing catastrophe bonds out of Singapore since January 2018.

The region has regulation in place for a special purpose reinsurance vehicle (SPRV), and there are plans to introduce regulation for the creation of a protected cell company (PCC) for collateralised reinsurance.

So far, risk models for the region have lacked granularity but this is changing, paving the way for the issuance of ILS, Attard said.

“ILS is usually deployed in areas that are well modelled so that the risk can be quantified, using the cat model output as the currency to exchange risk. ILS funds are active in the Asia-Pacific regional retrocession space, but due to pricing, lack of data and overcapacity issues, there has been little interest shown in domestic reinsurance programmes to date.

“However, we are seeing increasing investment from modelling companies, bridging the gaps in the modelling landscape” he said.

Risk modelling and data analytics firms have been increasing the coverage of perils and territories in the region. “As confidence builds around the models and the ability to quantify the risk we’ll see more ILS deployed into the region,” he explained.

Japan and Australia have already seen risks being transferred via ILS.

“We are starting to see increasing attention here in Asia to the extent that the Monetary Authority of Singapore is active in supporting the establishment of ILS into the Singapore market and building Singapore into another ILS hub supporting the region,” Attard said.

Globally, the catastrophe bond limit on-risk has reached $30 billion during the 12 months to June 30, 2018—an increase of $4.2 billion from the prior year period, and a new record for the sector, Aon noted in its report Alternative Capital Fortifies Its Position.

The amount of alternative capital in the re/insurance sector stood at a record $98 billion, the report noted. In the 12 months to June 30, $9.7 billion of catastrophe bonds were issued across 29 transactions, the second highest issuance figure for the period on record, according to Aon Securities.

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