Singapore to expand ILS offering, as confidence in it grows: Minister Alvin Tan

Insurance-linked securities (ILS) deal flow in Singapore has been increasing, showing that the market is gaining in confidence in Singapore’s ILS regime, Minister of State for Trade and Industry and Monetary Authority of Singapore (MAS) Board Member Alvin Tan has said, also explaining that expansions to the ILS regulations are coming.

Speaking at the Singapore International Reinsurance Conference (SIRC) earlier this week, Alvin Tan explained that the government of Singapore remains focused on increasing the amount of reinsurance business undertaken there.

Part of this is expected to be delivered through growth of Singapore’s insurance-linked securities (ILS) market activity, on which Tan explained the country will continue to build-out the regulatory environment necessary to support an growing range of ILS structures and transactions.

Tan said that, “In Asia, the outlook for the reinsurance industry remains positive,” explaining that urbanisation and the growth of the middle class in Asia mean more risk capital is required to provide insurance and absorb risks through reinsurance.

“These growth trends in Asia will benefit Singapore’s insurance industry, given our role as a key reinsurance centre for the region. The reinsurance industry has grown deep roots in Singapore over the past five years. During this period, total reinsurance premiums more than doubled, to reach S$20 billion in 2021,” Tan said.

He said that one of the reasons Singapore has been able to grow its reinsurance business volumes is thanks to a vote of confidence from the industry in the country and how it has developed its marketplace.

One of the areas of growing confidence in Singapore is its ILS market, Tan said, with catastrophe bond issuance from the country building in number.

“We have complemented our reinsurance market growth and debt capital markets capabilities by establishing Singapore as a domicile for Insurance-Linked Securities, or ILS,” Tan said.

Adding that, “To date, Singapore has supported 22 ILS in the form of catastrophe bond issuances, by cedants across US and Asia-Pacific.

“In spite of the market uncertainties from COVID-19, the ILS deal flow reflects a growing familiarity and confidence in Singapore’s ILS regime.”

Singapore’s government aims to continue to build-out the countries risk financing infrastructure, including “growing capabilities in risk pooling arrangements and in ILS, to complement our capabilities in reinsurance and fund management,” Tan explained.

Discussing the future of Singapore’s ILS regulatory regime, Tan said that the desire is to expand the offering to meet the market’s needs.

“We have had success in facilitating the issuances of catastrophe bonds. Our next aim is to allow cedants to be able to issue a broader spectrum of ILS.

“This includes sidecars, and collateralised reinsurance arrangements. We will look into the required regulatory, tax and legal infrastructure required to support these instruments and progressively implement them.

“As we explore the feasibility of these propositions, MAS would like to partner industry partners and experts to co-develop a comprehensive outcome together,” he stated.

In addition, further work to attract more service providers to Asia to support ILS transaction issuance and facilitation, which is important for the health of Asia’s ILS market going forwards, both in being able to meet the needs of experienced ILS and cat bonds sponsors, as well as to build-out a local market base of sponsors too.

“Asia’s ILS market has also shown good growth potential. We are thus looking to develop a vibrant ILS ecosystem in Asia to service Asian risks and clients, including structurer-arrangers, modelling firms, lawyers, advisors, loss reserve specialists, ILS fund managers and investors. MAS is keen to support firms in this space to build capabilities, networks and expertise,” Tan said.