Published Date: 30 October 2019

Keynote Address by Ms Indranee Rajah, Minister in the Prime Minister's Office and Second Minister for Finance and Education at the 16th Singapore International Reinsurance Conference (SIRC) on 30 October 2019

Mr Marc Haushofer,
Mr Sivam Subramaniam,
Distinguished Guests,
Ladies and Gentlemen,
     Good morning. I am delighted to be able to join all of you today at the 16th SIRC in Singapore. To our delegates from overseas, a warm welcome to Singapore. I hope you will have an enjoyable stay here, and fruitful discussions with everyone gathered at this conference.
2     The theme for this year’s SIRC – “Winds of Change” – is timely. The global economy is undergoing a tumultuous period of change, and facing strong headwinds from a continuously changing and challenging environment. Climate risks and political risks, in particular, have evolved significantly, and emerged at the forefront of major threats that have potential to derail the growth of the global economy. So let me talk about two winds of change – the environmental headwinds, and political headwinds. We need decisive and concerted action to mitigate these risks.
Environmental Headwinds – Climate and Disaster Risks
3     So first, the environmental headwinds. Climate change is a global issue which has come under the spotlight in recent years. Across the globe, climate change is affecting the frequency, severity, and distribution of natural catastrophes and extreme weather events, such as windstorms, floods, and heatwaves. Asia has been one of the hardest hit regions.
  • Natural catastrophe events in Asia-Pacific have increased from an annual average of 44 in the 1970s to 144 in 2018, while the related economic losses for the region in the same period have risen from an annual average of USD 5 billion to USD 89 billion“Weather, Climate, and Catastrophe Insight: 2018 Annual Report”, Aon, 2019..
  • The insurance industry is already bearing the brunt of severe natural catastrophes with increased claims. At USD 20.6 billion, the overall insured loss for the Asia-Pacific region in 2018 was almost 91 percent higher than the average insured loss for the previous 17 years since the turn of the century“Weather, Climate, and Catastrophe Insight: 2018 Annual Report”, Aon, 2019..
  • The relentless sequence of disasters in Asia this year, including Typhoons Lekima in China and Hagibis in Japan, and the earthquake in Ambon, Indonesia, is a stark reminder of the increasingly volatile climate that we face in the future.
4     Yet, insurance penetration remains stubbornly low, with insured losses for natural catastrophes accounting for only about 9 percent of Asia’s economic losses, as compared to 24 percent of global economic losses.“2019 Global Modeled Catastrophe Losses’, AIR Worldwide, 2019. Climate change will exacerbate the frequency and intensity of natural catastrophes, and widen the natural catastrophe protection gap even further. This is significant for Asia where the emerging economies make up half of the top ten countries most impacted by climate risk.“Global Climate Risk Index 2019”, Germanwatch, 2019. The need to respond to climate change is even more pressing for Southeast Asia, the region that endures the most disaster fatalities in the world.“ASEAN Vision 2025 on Disaster Management”, ASEAN, 2016.
Working Together to Fortify Disaster Resilience in the Region
5     Singapore is working closely with ASEAN and the insurance industry to mitigate the impact of climate risk on our region’s economic and social development. ASEAN Member States came together in 2016 to establish the ASEAN Disaster Risk Financing and Insurance Programme, or ADRFI, as the central platform coordinating efforts to develop and implement disaster risk financing strategies for the region. In August this year, we officially launched ADRFI Phase 2, which saw the ASEAN Secretariat and the Nanyang Technological University’s Institute of Catastrophe Risk Management, or ICRM, come together to form a dual-programme office. Over the next three years, ADRFI will leverage the expertise of the insurance industry, academic partners, and multilateral development agencies in its risk assessment, risk advisory, and capacity building activities as part of the region’s climate and disaster resilience building efforts. For instance, ADRFI will establish a new ASEAN Data and Analytics Platform to construct a high resolution and objective natural catastrophe database for ASEAN. This will empower insurers and risk modellers to tailor effective solutions to mitigate the impact of disasters in the region. ADRFI’s focus on the upstream activities in disaster risk financing will strengthen the region’s overall disaster risk management capabilities, providing the foundation for future long-term downstream public and private disaster risk financing solutions.
6     One of these downstream solutions is the Southeast Asia Disaster Risk Insurance Facility, or SEADRIF. Supported by the World Bank and in partnership with Japan, SEADRIF serves as a regional platform to provide disaster and climate risk resilience solutions to Southeast Asian countries. Domiciled in Singapore, the SEADRIF Insurance Company was officially launched this month, and will initially offer a flood risk pool to Laos, Myanmar, and potentially Cambodia, with a view to expand to more countries and risk pools in the future. In the unfortunate event of a flood disaster, the risk pool will be able to provide quick response to reduce the impact on affected communities.
7     Previously, disaster risk financing initiatives remained largely fragmented, and confined to national and local measures. With multilateral efforts such as ADRFI and SEADRIF, countries can effectively and affordably narrow the natural catastrophe gap in Southeast Asia, and fortify the region’s disaster risk resilience.
Closing Asia’s Protection Gap through Insurance-Linked Securities
8     At the same time, we have seen rapid growth in the use of alternative risk transfer solutions such as insurance-linked securities, or ILS, to guard against natural catastrophe risks. Catastrophe bonds provide an efficient route for insurers and reinsurers to access the capital markets, provide liquidity, and are an effective instrument for asset diversification due to their low correlation with the financial markets. They have also gained in prominence for their low volatility and stable returns.
9     The demand for ILS has grown significantly over the past few years. In the first half of this year, the ILS market recorded USD 3.2 billion of new issuances.“ILS market issuances decline 56% in first-half 2019: Swiss Re”, Business Insurance, 2019. Not only is the market seeing first-time sponsors, it is also seeing a broader spectrum of ILS users ranging from government bodies to corporate issuers, a sign that more investors and issuers recognise the benefit of ILS as an alternative to traditional reinsurance for risks.
10     The use of ILS is typically concentrated in mature markets where organised data and established models are available. Asia is catching up, and is now in a good position to develop its own ILS market by pooling together regional risks and capital to provide a source of diversification. In Asia, we have the Natural Catastrophe Data Analytics Exchange, a natural catastrophe data facility which aims to generate new insights for traditional markets and catalyse innovative disaster risk financing solutions for the industry. Regional initiatives such as SEADRIF and ADRFI will also harness a concerted effort to bridge the data gap for the region’s natural catastrophes, which will support not just governments in understanding Asian catastrophe risks, but also investors in valuing them.
11     Investors in Asia have begun to take notice, and interest in Asian catastrophe risks is fast picking up. In Singapore, we announced the ILS Grant Scheme two years ago, which funds the full upfront costs incurred in issuing catastrophe bonds out of Singapore. We have welcomed three issuances since then. Our first ILS, IAG’s Orchard ILS, was swiftly followed by Security First Insurance’s First Coast Re II, and Safepoint Insurance’s Manatee Re III. Our experience has sharpened our processes and deepened our institutional knowledge in ILS issuances, and we have since been able to process straightforward classic structure deals within eight weeks of application under a fast-track application scheme.
12     We encourage more firms to build up ILS capabilities in Singapore over time, and using Singapore as a domicile for issuances.
Political Headwinds – Increased Risks to Infrastructure Investment
13     I have covered some of the environmental headwinds in our midst. Let me now turn to political headwinds.
14     The way forward for Asia’s continued growth is the expansion of cross-border trade in order to create greater investment and economic opportunities. This will require the region to develop the necessary infrastructure required to connect our economies together.
15     Asia’s infrastructure requirements stands at over USD 1.7 trillion a year to 2030,“How PPP Advisory Services can Narrow Asia’s Infrastructure Gap”, Asian Development Bank, 2019. but investors remain cautious investing in long-term projects, particularly in new pastures where the risks are starker due to unfamiliarity. Construction risks associated with domestic regulations and contractual issues as well as political stability and violence can result in expensive delays or even entire investment losses. Vulnerabilities of emerging markets to external shocks such as currency and commodity price volatility can affect project sponsors’ cash flows and financing ability.
16     Political headwinds are compounding these risks. Protectionism is on the rise, and the open and rules-based global trading order that has propelled decades of rapid global economic growth is under serious threat. Higher tariffs and pressures of multilateralism are already damaging near-term growth prospects, and dampening investors’ confidence to invest in markets where infrastructure development is badly needed. This is where insurance can play a role to help governments and the private investors safeguard against these risks.
17     At this platform two years ago, we announced the formation of the Singapore-based Belt & Road Initiative (BRI) Insurance Consortium, which provides top-up capacity and specialised risk protection for BRI projects in the Asia-Pacific region outside of China. The Consortium has since expanded to provide investors with greater confidence to make long-term project commitments that will contribute to the region’s growth. Today, I am happy to announce the addition of two new lines of business to the Consortium, namely, political violence and political risk.
  • China Re and Chaucer have come together with Singapore-based Lloyd’s syndicates and insurersThese include Singapore-based Lloyd’s syndicates Talbot, Munich Re Syndicates, Beazley, Canopius, QBE, and Liberty Specialty Markets. to establish a political violence facility with an initial capacity of USD 250 million to insure against risks of political violence in countries along the BRI.
  • To support the Asian infrastructure ecosystem in Singapore and the BRI Insurance Consortium, 10 Singapore-based political risk insurers have come together to establish a political risk insurance facility with a total insurance capacity of USD 700 million.The 10 Singapore-based political risk insurers are AXA-XL, AIG, Aspen, Chaucer, China Re, Chubb, Markel, Talbot, Tokio Marine Kiln, and Zurich. This facility can insure infrastructure projects by protecting equity investments from traditional political risk perils such as confiscation, expropriation and nationalisation, and also currency inconvertibility and exchange transfer. It can also insure investors against risks of non-payment by parties to infrastructure projects, at the same time helping domestic governments benefit from deeper pools of liquidity and investor interest in their countries.
18     Together with the other two existing lines of business coordinated by China Re, namely, Construction All Risk and Project Cargo, these facilities will put the Singapore insurance market at the forefront of providing a one-stop solution for infrastructure projects, including the BRI.
19     Only by growing the pie together, can we create greater investment and economic opportunities in the region.
Global-Asia Insurance Partnership (GAIP): Reigniting the Spirit of Cooperation and Collaboration
20     In addition to climate and political risks, Asia is also facing persistent and structural protection gaps which are impacting the region economically, financially, and socially:
  • The life and mortality risk protection gap is estimated at USD 40 trillion.“Mortality Protection Gap in Asia 2018”, Swiss Re, 2018.
  • The health protection gap is estimated at USD 1.8 trillion, and is estimated to hit USD 146 trillion by 2030.“Mortality Protection Gap in Asia 2018”, Swiss Re, 2018.
  • The retirement income gap of just India, China, and Japan alone is estimated at well above USD 25 trillion.“Asians must wake up to the hidden costs of retirement”, Nikkei Asian Review, 2018.
21     These are only some protection gaps confronting a rapidly growing and changing Asia, and they will only evolve and grow over time. MAS is working closely with the insurance industry, regional regulators, and academia on the Global-Asia Insurance Partnership, or GAIP, as a strategic response to deal with the structural and emerging risks that Asia faces. With Nanyang Technological University as its academic and talent partner, GAIP aims to be the leading global centre of excellence in insurance and risk management in Asia, for Asia, by Asia. GAIP will produce actionable research, data, insights, and policy recommendations that will empower the insurance industry and regional policymakers to address both existing and new protection gaps in the region. In the longer term, this will help increase the level of penetration of insurance-based and risk financing solutions in Asia, in line with the developed markets.
22     GAIP has garnered strong support from the global insurance industry. AIA, AIG, Aon, Allianz, Great Eastern Life, Prudential, SCOR, Swiss Re, and WillisTowersWatson have committed to be Anchor Partners, and MSIG, Nippon Life, and NTUC Income have come on board as Supporting Partners. In addition, eight regulators, as well as the Access to Insurance Initiative, have come on board as Affiliate Partners.
23     The line-up of partners is strong testament to the collective will to collaborate and work across boundaries to address the massive protection gaps in Asia. Against the tide of retreating multilateralism, GAIP can be a role model for demonstrating the strength of cooperation.
24     These are indeed challenging times for the global economy and Asia’s promising growth prospects. Climate risks and political uncertainty are the epitome of present day risks – global, complex, and ever evolving. The insurance industry, by combining its risk financing capacity, with its risk mitigation capabilities, can play a huge role in managing these risks. But the road ahead will remain difficult, unless we work together.
25     The insurance industry has to work with other key actors, including policymakers, regulators, technology firms and academia, to overcome some of the systemic challenges in addressing these risks. These challenges include a dearth of data in the region, a lack of uniform or inter-operable standards and definitions, and an insufficient base of research and development combining technical, actuarial, economic and social analysis and approaches. Partnerships will be critical in addressing the significant protection gaps facing the region, to support sustained growth and economic development, and enhance Asia’s resilience.
26     Opportunities reveal themselves to those who seek them. At a time when the global economy finds itself confronted by strong headwinds, I invite the insurance industry to work together to ride the winds of change and opportunities, so that we can emerge stronger.
27     Thank you very much, and I wish all of you a fruitful conference.