Singapore’s first ILS transaction paves the way to be Asian hub


Singapore’s first insurance-linked securities transaction (ILS) has been finalised, according to law firm Rajah & Tann Singapore which acted as Singapore counsel to the transaction. The ILS comprises a catastrophe bond sponsored by Insurance Australia Group.

The bond is the first Australian dollar-denominated catastrophe bond in the global market and a A$75m ($54m) Series 2019-1 Class A Principal At-Risk Variable Rate Notes due 17 January 2022. The bond’s issuer, Orchard ILS, is the first special purpose reinsurance vehicle (SPRV) licensed by the Monetary Authority of Singapore (MAS).

Rajah & Tann Singapore head of insurance and reinsurance practice Simon Goh said, “This is an exciting development for Singapore’s ambition to be the hub in Asia for ILS.

“The fact that we completed this inaugural ILS transaction within a few weeks demonstrates the efficiency and business-friendly regulatory environment in Singapore. Following this successful transaction, we are optimistic that more issuers will consider coming to Singapore.”

He added that this catastrophe bond will facilitate the development of Singapore’s capital markets which will be needed to support ILS issuances. It may also encourage new deals and possible listings on the Singapore stock exchange for such bonds.

Mr Goh, who led the Rajah & Tann team for the deal, is a member of the MAS alternative risk transfer working-group which developed recommendations for the ILS grant scheme.

Introduced by the MAS in February 2018, this scheme funds upfront ILS bond issuance costs and complements Singapore’s regulatory system. It supports the incorporation of a purpose-built reinsurance entity under the SPRV regulations in Singapore to securitise risks, as well as sustains a neutral tax framework for the reinsurance entity and ILS investors.

ILS are expected to see significant growth based on global estimates and can be considered as a creditable avenue for insurers and reinsurers to spread their risks to the capital market, especially in this region. Almost half of the world’s economic losses from natural disasters in the last 20 years has occurred in Asia, according to data from the United Nations’ Economic and Social Survey of Asia and the Pacific.

While economic losses in Asia Pacific is expected to exceed $160bn annually by 2030, insurance penetration remains low. Only 8% of natural catastrophe losses are insured compared to 40% in developed regions. Based on such figures, analysts have noted that ILS have a significant opportunity to play a larger role in closing the protection gap and reducing the financial impact of natural disasters in the region.

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