There is good potential for the growing institutional and private wealth investor base in Asia, including Singapore, to invest in insurance linked securities (ILS), according to Mr Lim Cheng Khai, executive director of the Financial Markets Development Department of the Monetary Authority of Singapore (MAS).
He said this in his opening keynote speech titled "Growth and Opportunities in the ILS Market: A Singapore Perspective" at the Artemis ILS Asia 2024 conference held in Singapore yesterday.
He said that the accumulation of family wealth and institutional capital in Asia Pacific presents opportunity to tap into a bigger investor pool. Traditionally, ILS investors have been pension funds, institutional investors, and private wealth clients in North America, Europe, and Japan. Indeed, some private wealth clients in Singapore are beginning to allocate funds to ILS, through their banks’ discretionary allocations.
To support ILS growth, MAS is looking into the required regulatory, tax, and legal infrastructure required to support such instruments, and will progressively implement them, Mr Lim added.
Opportunities in Asia
Stating that Asia presents a good match for demand from investors and fund managers for geographical diversification in their ILS portfolios, Mr Lim made the following points:
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Asia is vulnerable to climate risks and natural disasters. Over the past 30 years, Asia-Pacific countries experienced six natural disasters yearly on average, double that of countries in Latin America and the Caribbean, and triple that of sub-Saharan Africa.
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There is scope for private-public partnerships to help Asian governments, at sovereign and municipal levels, to tap the alternative risk transfer market to protect key assets, or vulnerable segments of their population, from natural catastrophes.
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Wealth in the Asia-Pacific affluent segment is estimated to expand at an annual rate of 11% from 2021 to 2026. There will also be continued growth in pension assets. This is estimated to reach $32.4tn, driven by reforms to existing pension systems and shifts towards alternative investments.
ILS developments in Singapore
Mr Lim also highlighted developments in the ILS arena in Singapore.
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The World Bank is growing its capabilities in Singapore, to actively support the risk financing needs and promote solutions in Asia.
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With increasing ILS volumes and a growing pool of investors, ILS fund managers too, have grown their assets under management. The combined AUM for the top tier ILS fund managers globally has increased by 4.2% over the past six months to $80bn. MAS has been engaging some ILS fund managers that are considering setting up offices in Singapore.
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To facilitate proper pricing and underwriting, there is a need for better data and risk modelling. Singapore is committed to supporting these efforts.
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To address data gaps, Singapore, in partnership with the ASEAN Secretariat and the Nanyang Technological University Institute of Catastrophe Risk Management, supported the ASEAN Disaster Risk Financing and Insurance Phase 2 programme (ADRFI-2). A data exchange and analytics portal that provides high-resolution exposure and loss data to ASEAN member states has been developed, to support ASEAN governments to manage and mitigate their natural catastrophe risk exposures.
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Singapore has a growing base of professional service providers and insurance expertise to support ILS issuances, including legal professionals, insurance managers, risk modellers, claims reviewers and loss reserve specialists.
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The MAS encourages the ILS industry to also use Singapore as a test-bed for innovative products, tapping on the country’s deep sustainable finance and digital assets eco-systems.
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Issuers can tap on MAS’s ILS Grant scheme, which defrays the costs of ILS issuances in Singapore. The ILS grant scheme has supported 28 catastrophe bond issuances over the past five years, raising a total of $4.4bn. It was enhanced in 2023 to allow cedants to issue a broader spectrum of ILS instruments, including sidecars and collateralised reinsurance arrangements.
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Singapore saw four catastrophe bond renewals this year – a vote of confidence from the cedants on Singapore’s value as an ILS domicile. Singapore also continues to receive interest from potential issuers covering risks from India and Africa.
Investor outreach
To promote investor interest, MAS has been working with industry partners on investor outreach and education, said Mr Lim.
In the past year, MAS has partnered SGX, Aon, and Amundi to host investor education sessions. MAS has also engaged private banks, and the Wealth Management Institute in Singapore to build mindshare on ILS as an asset class.
Mr Lim said, “While some are not immediately ready to allocate capital to ILS, it is an important first step for the private wealth segment and institutional asset owners to be apprised of opportunities in this asset class.
“Market participants have also shared with us that they are beginning to see some private wealth clients in Singapore allocating to ILS, through their banks’ discretionary allocations.
“We welcome more stakeholders in the ILS ecosystem to partner with MAS and other opinion multipliers to engage the investor base in Singapore.”