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
Diversifying Chinese cedants to boost reinsurance growth
Chinese insurers are diversifying
their business and product offering,
which is set to lead to higher
cessions to reinsurers, Brian Secrett, chief
underwriting officer at Tokio Millennium Re
(TMR), told SIRC Today.
In some of the more mature markets
in Asia-Pacific such as China, cession rates
remain relatively low, but it is clear that
these rates will increase, as insurance growth
is often faster than underlying economic
growth, Secrett suggested.
In an increasingly competitive
environment, putting pressure on prices,
insurers will look to offer products that
differentiate themselves against their
“That’s an area where reinsurers can work
alongside their clients to identify areas for
One driver for business differentiation
may be the China Belt and Road Initiative.
Also known as One Belt One Road, it is
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 onrisk
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. l
a development strategy adopted by the
Chinese government involving infrastructure
development and investments in countries in
Europe, Asia and Africa, potentially costing
more than $1 trillion.
Such a government-sponsored economic
development will generate risk that will
require insurance and, subsequently,
reinsurance cover, Secrett said.
China is a key driver of global economic
growth but its insurance market is quite
concentrated, presenting opportunities
to new market participants and for the
development of differentiated products,
An increase in the volume of cessions is
likely to result from the growing diversity of
structures and product purchased in China
and other growing economies in Asia-Pacific,
The diversification of the portfolios
of Chinese insurers is partially driven by
international investment. As a result, insurers
are assuming risk that they will prudently
protect by taking out some of the expected
volatility in some of those businesses.
“That’s an important part of the expected
increased cession rate,” Secrett said. l
Wednesday October 31 2018 SIRC Today Day 2
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