China Re & Singapore discuss ILS and cat bond cooperation

The Chairman of Chinese reinsurance firm China Re visited Singapore recently where he discussed issues related to the reinsurers work in the Singapore re/insurance market, including discussions on the potential for cooperation between China Re and Singapore in the area of catastrophe bonds.

China Re is no stranger to catastrophe bonds, having sponsored a ground-breaking transaction back in 2015 which became the first cat bond exposed to catastrophe perils in China.

That cat bond, the $50 million Panda Re Ltd. (Series 2015-1) Chinese earthquake exposed transaction, is set for maturity in July and as far as we know there hasn’t yet been a concerted effort to replace it yet.

We understand from market sources that traditional reinsurance and retrocession pricing for reinsurers in China is currently very cheap, with diversification helping the world’s largest markets for reinsurance and retro to offer China Re a very reasonably priced renewal.

However, if China Re is looking to Singapore for discussions related to catastrophe bonds, the reinsurer could perhaps take advantage of the very generous up to $1.5 million cat bond issuance grant that the country is offering to those looking to issue ILS within Singapore.

To hear more about the potential for Singapore to become an ILS domicile joins us at our 12th July conference, ILS Asia 2018, in the city.

Yuan Linjiang, the Chairman of China Re, visited Singapore in May and met with Deputy Prime Minister Tharman Shanmugaratnam to discuss issues related to the reinsurance sector.

China Re established a branch office in Singapore two years ago and has been growing the amount of business flowing through the market.

The pair also discussed the Belt & Road Initiative, the importance of catastrophe insurance technology and data, as well as issues related to catastrophe bonds and insurance-linked securities (ILS).

China Re was a founding member of the Singapore-based Natural Catastrophe Data and Analytics Exchange (NatCatDAX) Alliance, an initiative set up to increase the availability of both insurance and economic data related natural catastrophe risks in Asia. Hear from the Programme Manager of NatCatDAX at our upcoming Singapore conference.

Hence, the reinsurer is all too aware of the level of catastrophe exposure it holds at home in China and elsewhere that it underwrites around the world, which likely makes the capital markets an attractive option for retrocession and reinsurance.

China Re cited the benefits of issuing its first catastrophe bond Panda Re, so it is to be hoped that the reinsurer will look to the capital markets again in order to replace the current transaction when it matures.

In the meeting, the Chairman of China Re and the Deputy Prime Minister of Singapore discussed Singapore’s position in reinsurance and ambitions in ILS, we understand, with the Deputy PM saying that he hoped the pair could expand their cooperation towards catastrophe bond issues as well.

Whether the Panda Re cat bond gets renewed will likely come down to cost and while ILS capital can price very cheaply, it sometimes cannot match the pricing offered by major reinsurers that can wield their global and line of business diversification to discount the cost of coverage.

Hence looking to Singapore as a potential home for a Panda Re 2018 transaction would seem to make a lot of sense for China Re, as the ILS grant offering from the country could be just what is required to make an ILS issuance more cost-comparable again.

China Re Chairman Yuan Linjiang said that the reinsurer will deepen its cooperation with Singapore across all aspects the pair discussed, while also developing the firms Singapore branch into a key piece of China Re’s international strategy.

Learn more about the potential for ILS in Asia by joining us at our upcoming conference in Singapore, July 12th 2018.

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