MDB’s can help bring scale to ILS issuances in Asia: Singapore Deputy PM

Speaking at the 20th Singapore International Reinsurance Conference (SIRC), Mr Gan Kim Yong, Deputy Prime Minister and Minister for Trade and Industry, and Chairman of the Monetary Authority of Singapore, explained that multilateral development banks have a key role to play in bringing scale to insurance-linked securities (ILS) issuances in Asia.

During his speech, the Deputy PM of Singapore noted that across the 28 catastrophe bond issuances in Singapore over the past 5 years since it established itself as one of Asia’s ILS hubs, 13 cat bonds have covered perils in Asia, providing US $1.6 billion in coverage.

But Mr Gan said, “Whilst this is a good start, Asia currently accounts for less than 5% of the global catastrophe bond market.”

Singapore wants to build on its success as a reinsurance hub for the Asia region and part of this is the development of ILS markets “to unlock additional risk financing capacity for peak catastrophe risks,” the Deputy PM explained.

“Through such alternative risk transfer instruments, we can unlock additional risk financing capacity, and complement that provided by traditional insurers and reinsurers,” he added.

Expanding the availability of insurance and reinsurance capacity is being achieved, through instruments such as parametrics and also Singapore’s ILS marketplace.

But there is a need for more capacity, to support Asia’s natural catastrophe, weather and climate risks, which remains an area of focus for Singapore.

One challenge being faced, when it comes to catastrophe bonds and ILS for Asian sponsors, is the economies of scale needed in accessing the ILS market for capacity.

Here, Singapore’s Deputy PM sees multi-lateral development banks as having an important role to play.

“With their strong credit rating, good in-country relationships and sovereign support programmes, multilateral development banks can bring scale to ILS issuances in Asia by partnering sovereigns on programmatic issuances,” he told the SIRC audience.

Adding that, “For example, they can provide a ready platform from which to issue catastrophe bonds, offering faster time to market and cost savings compared to individual countries building issuance capabilities on their own.”

In addition, Gan also recognised the opportunity to tap into Asia’s investor community to bring more capital to catastrophe bonds and ILS for the region.

We reported yesterday that, for ILS to thrive in Asia and grow, the participation of regional investors needs to increase, while continued development of regulatory frameworks and local expertise is also required.

Dputy PM Gan said during his SIRC keynote speech, “There is opportunity to channel some of the growing flow of investments from private wealth and institutional investors in Asia towards ILS – and to this end, MAS is partnering with the ILS industry to promote ILS as an asset class for private wealth and investment portfolios.”

The Singapore Dputy PM concluded his speech by saying, “As Asia undergoes four fundamental transitions in the years ahead, there are opportunities for the reinsurance industry to play a key role in its growth and development, to insure a dynamic, sustainable and resilient Asia.

“Through strengthening our insurance ecosystem, deepening capabilities, including in AI, and developing alternative risk transfer markets in Asia, we will reinforce Singapore as Asia’s leading reinsurance hub.”