"Singapore - Pushing the ILS Frontier in ASIA" - Welcome Speech by Mr Benny Chey, Assistant Managing Director (Development & International), Monetary Authority of Singapore, at the 6th Edition of the Artemis Insurance Linked Securities (ILS) Asia (Vi

Published Date: 09 July 2020 the Monetary Authority of Singapore

1   I would like to first thank Steve Evans, Owner and Editor-in-Chief of Artemis for inviting me to say a few words. 

2   The Artemis ILS Asia conference is today the leading platform for the ILS community in Asia to exchange ideas, share valuable insights and experiences, and keep pace with the latest developments in the ILS world. For the past five years, the conference has been a key rallying point for the ILS community in the region to come together each year in Singapore. 

3   I am delighted to welcome you once again to Singapore for an even bigger and better 6th edition of the Artemis ILS Asia conference. Technology has enabled us to remain digitally connected and engage with one another virtually, even though we are not able to meet in person this year. I understand from Artemis that we have hit a new record of more than 780 registrations this year, which is four times more than last year.

Growth and Resilience of the Global ILS Market

4   Globally, investor appetite for ILS continues to grow, with cumulative ILS issuances expanding by over 14% in 2018 and a further 10% in 2019 to about USD 120 billion. [1] The total volume of outstanding catastrophe bonds, which is a subset of ILS, has also continued to grow, crossing above USD 40 billion as of end 2019, the highest that the market has seen to-date. [2] This is notable given the series of natural catastrophes in the past three years that have rattled the ILS markets, including major typhoons Jebi, Hagibis and Faxai in Japan alone in 2018 and 2019, and wildfires around the globe, including in California and Australia, with estimated insurance losses of over USD 49 billion. [3]

5   The global ILS market has shown remarkable resilience even in the face of COVID-19. The first quarter of 2020 alone saw 27 ILS issuances of about USD 5 bn, an 82% increase year-on-year, making this the most active first quarter for ILS in the last 10 years. [4] ILS issuances in 2020 now look on track to match or even surpass that in 2019. When we look back on the past two decades, it is encouraging to see that ILS capital generated in 2019, which was about USD 11 billion, has increased by ten-fold since 1999. [5]

6   One of the key attractive features of ILS is its low correlation to other asset classes, which offers good diversification and therefore resilience for any investment portfolio, including during COVID-19. This stems largely from its return streams being driven primarily by loss events – and in particular natural catastrophe events, rather than growth, inflation or credit drivers as with other bond or equity asset classes. Global institutional investors have indicated that they would be maintaining their private market allocations, including alternative assets such as ILS, despite the current market volatility – with 15% of those in a recent survey also indicating that they were looking to increase these allocations. [6]

New Risk Landscape and Opportunities for ILS

7   The world, and the insurance industry in particular, needs to pay more attention to emerging complex risks such as pandemics, cyber risks, and climate change. COVID-19 is a stark and sober real-life example on the potential for such risks to cause massive and simultaneous damage and disruptions to lives, businesses and public finances all around the world. For the insurance industry, such risks could trigger payouts across many lines of insurance at the same time. We have seen the spillover effects across closely inter-connected economies and the hardening of premium rates in both insurance and reinsurance markets around the world as demand for such insurance cover rises. There is a need therefore to develop and grow a robust and resilient insurance market and infrastructure to ensure that the flow of insurance covers do not seize up during market stresses.

8   How will the ILS community respond to these changes and contribute to a more robust and resilient insurance market? Complexity, while challenging, also presents tremendous opportunities if we get the fundamentals right. Catastrophe bonds was one such product of innovation. It enabled us to tap on capital markets as a complementary source of demand and capital to provide capacity for peak risks like natural catastrophes where traditional insurance and reinsurance capacity has not been able to provide sufficient capacity at acceptable terms and conditions.

9   We saw two recent examples of such innovations. The first-ever Pandemic Bonds, issued in 2017 by the World Bank to support its Pandemic Emergency Financing Facility for developing countries, was triggered recently due to COVID-19. Another example is the first-ever dedicated Climate Resilience Bond issued in 2019 by the European Bank for Reconstruction and Development, whereby proceeds from the five-year bond would help to finance investments in climate resilience projects that would further serve to reduce exposures and strengthen resilience over time.

10   ILS structures offer tremendous growth opportunities to develop innovative and viable solutions or to co-create new market products that further strengthen our risk management capacity for complex risks. I am confident that the global ILS community will rise to the occasion and that in the case of Singapore, this community will continue to grow and serve Asia’s rising protection needs in complex risks.   

Asia is Maturing as the Next Frontier for ILS Growth

11   Asia accounted for roughly 45 percent of the world’s economic losses from natural disasters in 2019, amounting to USD 66 billion. Yet, it remains the most vulnerable region with the largest protection gap. [7] On average across the last ten years, only about 15 percent of total economic losses in Asia for natural disasters have been covered by insurance. This figure is considerably low as compared to an average of 17 percent in Latin America and the Caribbean, 31 percent in Europe, and 54 percent in North America within the same period. [8]

12   Together with traditional reinsurance capacity, ILS can play a critical role in closing Asia’s protection gap.  Indeed, Asia is rapidly maturing as the next frontier for ILS market growth. We are beginning to see growing interest and confidence to transfer Asian originated natural catastrophe risks to the capital markets, including the first catastrophe bond issuance in Singapore covering Asian natural catastrophe risks by Mitsui Sumitomo Insurance (MSI). In addition to the growing number of issuances, Asian reinsurers and insurers have also begun to leverage ILS markets to explore new business opportunities – through acquisitions of entities with specialised capabilities in the alternative risk transfer and alternative credit space. We also observed strong interest from institutional investors when the World Bank held its investors roadshow in Singapore for the Philippines catastrophe bond issuance last year. This is another positive indication that more institutional investors in Asia will be looking to invest or step up their allocations to ILS.

Singapore the Leading ILS hub in Asia

13   Singapore is continuing to mature as a viable ILS hub in Asia. Since the inaugural catastrophe bond issuance by the Insurance Australia Group back in 2018, Singapore has now supported nine catastrophe bond issuances including landmark transactions such as:

• the first full Rule 144A catastrophe bond issued by Security First Insurance Company in May last year, which reflects Singapore’s capabilities to support the most liquid type of ILS offering;

• the first Asian sovereign catastrophe bond covering earthquake and typhoon risks in the Philippines, which was also the first catastrophe bond listed on the Singapore Exchange; and

• the first Asian catastrophe bond covering typhoon and flood risks in Japan, sponsored by Mitsui Sumitomo Insurance.

14   The Monetary Authority of Singapore (MAS) launched the ILS Grant Scheme in 2018 to encourage ILS issuances in Singapore and develop Singapore as the leading ILS hub in Asia.  The grant has been well received by the industry and take-up has been very good. On the back of a strong pipeline of industry interest to issue the next wave of catastrophe bonds in Singapore and to ensure that we maintain this momentum, I am also pleased to announce today that MAS will be extending our ILS grant scheme for an additional two years, until 31 Dec 2022. The ILS grant scheme, which funds 100 percent of upfront issuance costs of catastrophe bonds in Singapore up to SGD 2 million, will continue to help issuers focus on the merits of growing this asset class while removing the near term frictional costs of issuances in Singapore.

15   Singapore remains strongly committed to grow the Asian ILS market and further strengthen the ILS ecosystem. We will continue to explore ways to enhance our regulatory, corporate, tax and bond listing regimes to support a wider range of ILS risks, including pandemic, cyber and climate risks, different types of instruments, such as reinsurance sidecars, collateralised reinsurance and industry loss warranties, as well as structures such as multiple issuances in one vehicle using segregated cells. The Singapore Exchange (SGX) is assessing the feasibility of introducing a platform for the listing of catastrophe bonds. We are also keen to grow a vibrant ILS ecosystem based in Asia to service Asian risks and clients, including structurer-arrangers, modelling firms, lawyers, advisors, loss reserve specialists and ILS fund managers.

Closing

16   In closing, I warmly invite the global ILS community as well as sovereign and international entities in the region and around the world, to partner with Singapore and be part of Asia’s ILS growth. Thank you.