Will investor comfort finally catalyse Asia’s ILS expansion?

Despite this activity, ILS remains relatively new to the region. 

Investors are advised to look into insurance-linked securities (ILS) for the asset class to gain more pull, according to an S&P Global Market Intelligence report.

The Singapore central bank is planning a new ILS grant scheme next year, running until December 2028.  The scheme will subsidise up-front issuance costs for a wide range of ILS products, including natural catastrophe, longevity, mortality, operational and cyber risks.

For new property catastrophe bonds that include any Asia-Pacific risks, issuers can receive funding support equal to 70% of issuance costs, capped at $770,000 (S$1m). 

New deals without Asia-Pacific exposure will be eligible for a 50% grant, also capped at $770,000 (S$1m). Renewals will receive a 30% grant up to $386,802.31 (S$500,000).

Singapore Exchange (SGX) already lists several ILS transactions. 

Japanese insurers Mitsui Sumitomo Insurance, Aioi Nissay Dowa Insurance and Tokio Marine & Nichido Fire Insurance each sponsored $100m catastrophe bond deals in 2024.

Zenkyoren sponsored Nakama Re Pte. Ltd. issuances of $150m in 2024 and $100m earlier this year. 

Catastrophe bonds from Louisiana Citizens Property Insurance Corp., the New Zealand Earthquake Commission and the International Bank for Reconstruction & Development, each above $100m, are also listed on SGX.

Despite this activity, ILS remains relatively new to the region. 

Some observers say the MAS scheme may not be enough to build long-term demand. 

Investor participation in catastrophe bonds is still concentrated. Gallagher Securities reported that more than 100 investors track and invest in the market, but around 20 of them drive most of the activity. 

Slightly more than half of total direct investor capacity is based in North America, with most of the remainder in Europe and only limited participation from Asia.

Regulators across the region have tried to remove friction for ILS issuers, including through grant schemes and simplifying fund setups, the report quoted Soeren Soltysiak, Asia CEO of reinsurance solutions at Aon PLC.

He noted that ILS managers are becoming more active in promoting their strategies and that asset managers in Australia and Japan are starting to allocate more capital to the instruments.

He added that securitising new risks such as cyber will require larger exposures in Asia before they can be transferred to capital markets through catastrophe bonds. 

For now, he expects most activity to remain focused on natural catastrophe risks.