Singapore has pledged to fully fund the upfront costs of local CAT bond issuances with effect from 1 January 2018 through a newly-formed insurance-linked securities (ILS) grant scheme, as the city-state seeks to carve out a prominent role in the global ILS bond market.
Minister for Trade & Industry (Trade) Lim Hng Kiang announced this in his keynote address at the opening of the 14th Singapore International Reinsurance Conference (SIRC) yesterday during which he outlined strategies for developing Singapore’s alternative risk transfer market through ILS and public-private partnerships.
Mr Lim, who is also Deputy Chairman of the Monetary Authority of Singapore (MAS), said the grant programme will be applicable to ILS bonds covering all forms of risks beyond just natural catastrophe.
“We are seeing a growing cluster of institutional investors and fund managers like Quantedge exploring allocation into catastrophe bonds, as they venture into niche and specialised strategies to extract better risk-adjusted returns.
“On the supply side, we too have seen healthy interest from Asia Pacific issuers in the development of an APAC market for catastrophe bond issuances, due to the proximity to and better understanding of the underlying risks.”
Mr Lim added the MAS is currently working with key industry players to issue a CAT bond in Singapore in the near future.
“This is but the first step of a longer journey as we look forward to working with the industry to further deepen the ILS eco-system here.”
Belt & Road risk consortium
As part of its alternative risk transfer strategy, the MAS also announced the formation of a Singapore-based infrastructure consortium to provide insurance solutions to risks associated with China’s One Belt One Road (OBOR) initiative.
The OBOR insurance consortium, which will be administered by China Re Singapore, will bring together Singapore-based insurers, reinsurers and brokers to provide capacity and risk management services for OBOR projects.
The consortium will pilot two lines of business: construction and project cargo & liability.
“We have established a group of interested lead and follow markets in Singapore to offer coverage in these two lines. The markets comprise leading insurers, reinsurers and Lloyd’s syndicates operating in Singapore, and we look forward to the industry’s active participation in this bold venture,” said Mr Lim.
He said: “The two strategies of ILS and public-private partnerships that I have highlighted earlier mark the metamorphosis of Singapore’s reinsurance industry as we transform from a mainstream traditional reinsurance hub, to a sophisticated full-fledged global capital for Asian risk transfer.”
In recent years, Singapore has strengthened its position as a leading specialty (re)insurance hub in Asia – its share of offshore non-life as a proportion of total non-life premiums rising steadily from 60% in 2010 to almost 70% in 2016.
Singapore’s share of global Asia-Pacific originated reinsurance premiums has also risen from 3% in 2013 to approximately 10% in 2016.
This year’s SIRC is significant because this is the first year it becomes an annual event. This means the SIRC is now able to serve as a platform for annual renewals, much like the Monte Carlo Rendez-Vous and Baden-Baden Meetings of the East.