With Singapore now an active hub for Catastrophe Bonds and Insurance-Related Securities (ILS) and with Hong Kong set to issue its first deal this year, the involvement of regional sponsors can help ensure their sustainability as homes. ILS, according to Paul Schultz, managing director. Officer (CEO) of Aon Securities.
Yesterday at our ILS Asia 2021 Virtual Conference, held in association with our main sponsor AM RE Syndicate Inc., Schultz from Aon Securities delivered a keynote address on ILS development in the Asia Pacific region.
The presentation and Q&A, which can now be viewed in full on demand, covered a range of topics from loss and penetration of risk transfers in the region to catastrophic bonds, secured reinsurance and homes.
Regarding ILS homes, Schultz noted the solid growth of Singapore as well as the potential of Hong Kong, which completed its legislative preparations for ILS earlier this year.
âAs far as Aon goes, we think there are huge benefits to having homes that can bring a sponsor base that knows and trades into the home. So knowing the regulations well, knowing what is going on, there are adequate service providers and capacities in the region, âsaid Schultz.
“I think the reality is that as far as the home can help bring more interest to the market, because those who trade in the market are comfortable with local regulations, we are very supportive and we we will make sure we do everything we can support all these different regions, âhe continued.
For an ILS domicile to be successful, Schultz stressed the need for a strong regulatory framework as well as the need for strong regional service providers.
It is safe to say that the recent success in Singapore and the growth in issuance has been supported by the regulator’s subsidy program, which, like in Hong Kong, covers part of the issuance costs of catastrophe bond transactions.
Schultz alluded to this and said that when you look at some of the types of sponsors who have used Singapore’s ILS scheme, the incentive has been a key part of the decision-making process for these ceding companies.
âBut, I still feel like you need the rooting of the local sponsor types in the jurisdiction, really, to make it sustainable over time.
âWhether the financial incentive programs will continue indefinitely is obviously something we are not aware of, but it has certainly brought some activity to Singapore. But I think the more you see Japan embracing Singapore, the more you would see other parts of the Asia Pacific region embracing Singapore. I think it just makes it more sustainable, âsaid Schultz.
Later adding: âRegional participation in Singapore-domiciled transactions, in our opinion, leads to the sustainability of the market. I think some of these transactions were clearly motivated to take advantage of this financial incentive, but what we believe to be more sustainable over time are the types of regional transactions that actually use the domicile in Singapore.
“And, we think the growth of this over the past two years has been substantial and we’re excited about what this really means for the sustainability of Singapore and ultimately Hong Kong in the region.”
The first deal outside of Hong Kong is about to come from sponsor China Re, and this will only be the second time the reinsurer has used the capital markets to secure retrocessional reinsurance in the form of a catastrophe bond transaction. .
According to Schultz, Hong Kong can be very attractive for Chinese issuers to come into the market.
The Hong Kong Insurance Authority is eager to attract sponsors from around the world, but it is clear that the entry of more Chinese cedants would fuel the sustainability factor highlighted by Schultz and also provide access to risk diversification for them. investors.
âHong Kong, we really think this will help facilitate the entry into the market of more Chinese issuers or sponsors. We are really excited about this. Obviously, the press has already covered some advance transactions that will be facilitated using Hong Kong.
âWe are delighted that this is just part of the industry. And, we think over time, the flexibility that comes from Singapore or Hong Kong, we think it will actually allow future emissions in the region and allow future growth, âSchultz said.
You can watch this ILS Asia 2021 session on demand here.
In addition to on-demand playback, we will be archiving each session of our ILS Asia 2021 online and virtual conference on our YouTube channel in the coming weeks and audio versions will also be uploaded to our podcast which you can subscribe to here.
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