Shinji Yamamoto launches KEYSTONE ILS Capital after departing Aon Securities

Senior, long-standing Japan-based Aon Securities executive Shinji Yamamoto has departed the company to launch his own venture, in the form of KEYSTONE ILS Capital, a boutique consultancy focused on catalysing more active use of insurance-linked securities (ILS) in Japan.

Shinji Yamamoto had worked at Aon Securities for almost 14 years, leading capital market and ILS business activities for the insurance and reinsurance broker in Japan and playing a key role in numerous Japanese catastrophe bonds over the years.

Yamamoto has been an important conduit for the ILS and catastrophe bond market in Japan, having developed core relationships with Japanese cat bond sponsors and reinsurance cedents and worked on the structuring of opportunities in the country.

Having been the Head of the Capital Markets Group in Asia for Aon Securities, Yamamoto led numerous ILS transactions in Japan, including catastrophe bonds, catastrophe derivatives, industry-loss warranties (ILW’s) and collateralized reinsurance arrangements.

During his time at Aon Securities, Yamamoto led the structuring for numerous catastrophe bonds for Japanese sponsors, including notable programs such as Nakama, Kizuna, Sakura, Tomoni, Umigame, and Asagao.

Yamamoto said he has originated and structured approximately 70% of cat bond deals issued that covered Japanese perils since 2010.

Before he joined Aon Securities in 2009, Yamamoto worked for investment bank J.P. Morgan in 2007 in Japan focusing on fixed income products including ILS funds, and before that in 2000 he joined Sumitomo Mitsui Banking Corporation where he also had a fixed income focus and worked in New York for the firm as well as Japan.

KEYSTONE ILS Capital is Yamamoto’s new business venture and the focus will be on expanding the use of insurance-linked securities (ILS) in Japan, helping cedents and corporate risk transfer buyers understand the potential of ILS such as catastrophe bonds to protect themselves against peak natural catastrophe perils such as Japanese earthquakes and typhoons.

KEYSTONE ILS Capital is positioned as a consultancy that will help Japanese organisations understand and access ILS markets for insurance, reinsurance and risk transfer.

Recognising the potential for more peak Japanese natural catastrophe perils to be transferred to the capital markets, Yamamoto will now focus on tapping the need for risk transfer for peak risks, while facilitating access to efficient risk transfer for those that need it.

He believes the Japanese economy is particularly exposed to major earthquake events and requires more capital to support recovery when major events occur, with the potential economic risk seen as large as the entire global reinsurance market.

Traditional insurance and reinsurance protection is often significantly below the actual exposures being retained by Japanese organisations and companies, meaning the potential to transfer more of the risk is clear, but education and assistance in accessing capital market forms of risk transfer and utilising ILS structures is required.

Yamamoto explained the thesis behind KEYSTONE ILS Capital, “While Japan is a disaster-prone country, it is also an economic powerhouse. Rather than using its economic power to bear all natural disaster risks domestically, it can encourage risk transfer to international capital markets and, at the same time, participate as an investor in various disaster risks overseas with its freed-up capital.

“As a result, the country as a whole can exchange domestic disaster risks for diversified overseas risks, thereby diversifying the timing of economic losses over time. In addition, the greater the transfer of risk, the less reliance on public assistance will be needed, creating incentives for disaster prevention and mitigation, thereby reducing the social costs borne by future generations.”

So, KEYSTONE ILS Capital will act as a consultant to facilitate ILS solutions for financial institutions and companies in Japan that are considering the use of catatstrophe bonds or other forms of risk transfer to the capital markets.

The new venture will also consult to Japanese financial institutions that are looking to develop catastrophe risk financing products for their customers.

Yamamoto’s new venture will also specialise in parametric risk transfer solutions, helping to design new parametric triggers for risk transfer opportunities and may develop a platform to make access to parametric risk transfer much simpler in Japan.

KEYSTONE ILS Capital will also provide insight to clients on ILS investment opportunities, helping organisations and investors to find the right allocations and evaluate market opportunities.

At the core of the venture, KEYSTONE ILS Capital will facilitate the transfer of large catastrophe risks held by Japanese entities to the capital markets through the use of insurance-linked securities, while also serving as a catalyst to encourage domestic and international stakeholders to enter the insurance-linked securities market in Japan.

Yamamoto sees the potential market volume as considerable, given the significant level of natural catastrophe risk that is evident in Japan and is largely retained by re/insurers, organisations, corporations or businesses, and financial institutions there.

Yamamoto’s experience in originating and structuring ILS deals for Japanese cedents can now be expanded to focus on further developing the market for ILS in Japan, which ultimately will be beneficial for the entire marketplace and he will no doubt become a key conduit for ILS companies looking to grasp opportunities in the country.