Published Date: 11 July 2019

"Singapore - Becoming an ILS Domicile for Asia" - Opening Speech by Ms Gillian Tan, Executive Director, Monetary Authority of Singapore, at Artemis ILS Asia 2019 on 11 July 2019

Ladies and gentlemen, good morning.
1     I am very happy to join you today at the 4th ILS Asia Conference in Singapore. It has been two years since Singapore embarked on plans to carve out her place as a new ILS domicile.  We are making good progress on this front as ILS becomes increasingly accepted as a risk financing mechanism and a mainstream asset class in Asia.
2     Artemis’ conference today will provide a platform for ILS sponsors and investors alike, to exchange and share valuable experiences and keep up to date with developments in the ILS market.
Pushing the Global ILS Frontiers
3     In 2017, the ILS market faced its largest test yet due to major losses from Hurricanes Harvey, Irma and Maria as well as wildfires that struck the United States. Despite this, growth in the ILS market remained resilient in 2018, with total alternative capital reaching USD 91bnartemis.bm/news/alternative-capital-seen-flat-at-91bn-at-year-end-2018-by-jlt-re/, representing 26% of total reinsurance capital. Issuances in 2019 have been more subdued due to continued loss creep and trapped collateral from the losses in 2017, but market outlook remains positive, as this dynamic market continues to push the envelope in terms of new risks, new sponsors, and new geographic territories.
4      What are these new risks? – Insurance-linked securities have traditionally been used to insure property against natural catastrophe risks such as windstorms and earthquakes. Even within the natural perils space, there has been an expansion in scope in the risks covered. 
  • In 2018, FloodSmart Re was issued by the US Federal Emergency Management Agency (FEMA).  FEMA was a first time issuer and FloodSmart Re was the first US flood cat bond. 
  • We also saw the Cal Phoenix bond, the first cat bond to solely cover wildfire, which was issued by a first time corporate issuer. 
5     Beyond natural perils, the industry is beginning to see ILS issuances covering newer risk types such as operational, pandemic and terrorism risks.  ILS capital is best deployed where there is a market gap and the industry is unable to meet the capacity needs.
6     We are now expecting to see the ILS market expanding to provide cover for cyber risks. The estimated economic losses from cyber-attacks are alarming. A global ransomware attack could cost almost US$200bn in losses, and as much as 85% of that is uninsured“Global ransomware attack could cost businesses almost $200bn, new study finds”. Press release by Lloyd’s – 29 Jan 2019. While affirmative risks arising out of cyber policies can be quantifiable, insurers are struggling to quantify silent cyber exposures which are not explicitly covered, and yet the potential losses may be catastrophic. As new and emerging risks such as cyber continue to remain challenging for the insurance market to address, the ILS market may be a critical enabler to solve these large protection gaps.
7     These are the risks.  I will now talk about new sponsors. The market is not just seeing first time sponsors but also a broader spectrum of ILS users, with ILS growing from an instrument used only by the insurers to manage their own books, to providing capacity for corporates and sovereigns. In 2018, one of the largest catastrophe bond of $1.4bn was issued by the governments of the Pacific Alliance, providing earthquake protection to Chile, Colombia, Peru and Mexico. ILS is becoming mainstream as a risk transfer solution, as alternative capital proves itself to be permanent capital despite the challenging market. This is a positive development. 
8     To keep driving interest from the corporate and public sector segment, there will need to be continuous innovation to adapt to the requirements of these new sponsors, many of whom would welcome the diversification opportunity that ILS products would provide.
9     I’ve spoken about new risks and new sponsors.  We are also seeing ILS take off in new geographies – Most of ASEAN’s population resides along low-lying coasts and river plains, and is highly vulnerable to rising sea levels. With the natural catastrophe protection gap remaining high, the severity and frequency of natural catastrophes can only worsen with climate change. The widening protection gap will have to be addressed with a combination of traditional and innovative risk transfer solutions. ILS can complement traditional solutions to provide coverage for peak exposures for governments, corporates and insurers in the region.
ILS in Asia
10     Let me speak in greater depth about Asia.  Asia is now well-poised to develop its ILS market by harnessing Asian risks and Asian ILS capital to provide diversification to the developed ILS markets. To catalyse the Asian markets, data, education and a lively marketplace are key. I will now cover each of these factors in turn.
  • First, Data. Unlike more mature markets like the US, Europe, Japan and Australia, which have the most organised data and the most developed models to support risk securitisation, the rest of Asia still suffers from a lack of standardised and good quality data.  There are gaps in modelling and valuation which can make pricing challenging. This is one of the key reasons why ILS has not taken off in Asia in the past. The Natural Catastrophe Data Analytics Exchange, led by the Nanyang Technological University’s Institute of Catastrophe Risk Management, together with the industry consortium and PERILS AG, aims to bridge the natural catastrophe data gap in Asia. NatCatDAX uses remote sensing capabilities and advanced methodologies to create a comprehensive open-source database combining economic exposure and loss data with industry data. The NatCatDAX is expected to be completed by March 2020, and it will increase the availability of quality data in the region.  This will support the understanding of Asian risks and the valuation needs of investors. 
  • Second, awareness and education.  We can do more as a market to educate sponsors on how ILS can contribute to a more effective risk management strategy, and create more innovative structuring solutions. Singapore works closely with international organisations like the World Bank and the Asia Development Bank to explore ways to support sovereign issuers that have begun to show strong interest to build ILS into their disaster risk and financing strategy. Apart from sovereign issuers, there is also a strong pipeline of interest by insurers and reinsurers in the region that are new to the market. We are hopeful to see a breakthrough in new countries and sponsors in Asia tapping on the ILS market to protect their risks.  This would also bring diversification in the geographical coverage of catastrophe exposures to investors. From the capital supply perspective, Asia provides less than 9% of ILS capital, with only specialty ILS fund managers, and a small number of larger pension funds and institutional investors taking on these risks. Raising the awareness of ILS as an alternative asset class would be a crucial next step to drive interest in ILS products.
  • The third factor is proximity to market. Having a marketplace within Asia, including an efficient domicile and access to ILS service providers in the same time zone, would be beneficial to the ILS market in Asia. The ecosystem here has to complement the global service providers who have been the leading forces for the market, while also adapting to the unique risks and culture in Asia, to better respond to Asia’s ILS needs.  
Singapore – Becoming an ILS Domicile for Asia
11     In Singapore, we celebrated our first ILS issuance, the Orchard ILS transaction by Insurance Australia Group (IAG) in December 2018. This was followed by the issuance of First Coast Re II by Security First Insurance and the issuance of Manatee Re III by Safepoint Insurance.  These issuances were a multiple of firsts on many fronts:
  • Orchard ILS was the first SPRV licensed in Singapore and its cat bond was the first to be issued out of Singapore and an Asian domicile.  It was also IAG’s first catastrophe bond.
  • The First Coast Re II transaction was the first full-fledged 144A-type catastrophe bond to be issued here by Security First, the first Floridian issuer to do so in Asia.
12     With these deals under our belt, Singapore is fast maturing as a viable ILS domicile with more established processes and institutional knowledge in place to efficiently facilitate new ILS issuances. In particular, the MAS has introduced a fast-track application scheme to process straightforward classic structure deals within 8 weeks of application.
13     But this is just the beginning of the journey. To create a sustainable and dynamic ILS hub, Singapore must build an ecosystem and infrastructure that can adapt to the evolving requirements for new structures. The demand for ILS as a reinsurance tool is still developing in most of Asia, and the region will need time to build up data and capacity capabilities to adopt disaster risk financing tools. As the ILS market in Asia continues to build momentum, we must continue to strive to create a forward-looking ILS hub.
14     Specifically, we will continue to strengthen our foundation in the following three areas:
  • First, we will refine our regulatory, corporate and tax infrastructure, to enable the structuring of a wide range of ILS, and support innovation in the market;
  • We will also develop a vibrant ecosystem of ILS service providers in the Asian time-zone to service Asian risks and clients; and
  • Finally, we will continue to promote investor interest in the region.
15     The ILS market is reaching an inflection point, both globally and in Asia. Together with each of you, our industry partners, we look forward to co-creating a sustainable and dynamic ILS to provide solutions for emerging risks.  Your perspectives, energy and ideas will be crucial to this work.
16     On that note, I look forward to the discussions this morning, and wish you a productive conference as well as a fruitful time in Singapore. Thank you.