First Singapore cat bond completed in just a few weeks: Goh, Rajah & Tann

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The successful issuance of the AUD $75 million Orchard ILS Pte Ltd catastrophe bond, the first for sponsoring insurer Insurance Australia Group (IAG) and the first cat bond to be issued in Singapore, took only a few weeks, according to a lawyer who worked on the transaction.

simon-goh-rajah-tannThe issuance of the Orchard ILS Pte Ltd. cat bond in Singapore opens up a new domicile for sponsors of insurance-linked securities (ILS), who may choose to follow in IAG’s footsteps to secure reinsurance from the capital markets.

Orchard ILS Pte Ltd. is the first Special Purpose Reinsurance Vehicle (SPRV) to be registered, licensed by the Monetary Authority of Singapore (MAS) and successfully put to use under Singapore’s ILS regulations.

With Singapore also offering an insurance-linked securities (ILS) grant scheme, which launched in February 2018 and allows sponsors to receive a saving on issuance costs associated with an ILS transaction, it poses an attractive option to cat bond and ILS sponsors from around the world.

But importantly, Singapore managed to get this first deal to market relatively quickly, which is a consideration for all cat bond sponsors when they look at a new domicile for issuance.

Law firm Rajah & Tann Singapore acted as Singapore counsel to this transaction.

Simon Goh, Head of the Insurance & Reinsurance Practice at Rajah & Tann commented on the deal, “This is an exciting development for Singapore’s ambition to be the hub in Asia for insurance-linked securities (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.”

Goh is a member of the MAS alternative risk transfer working-group that came up with the ILS grant scheme idea and assisted the regulator in drafting up the necessary rules to bring ILS business to Singapore.

The grant scheme is designed to fund the upfront ILS or cat bond issuance costs for a sponsor. So it makes Singapore a very attractive option, now that proof of concept has been achieved and the fact it seems this transaction took no longer than it could have in some established domiciles will only heighten the attraction of Singapore.

Goh said that the successful first catastrophe bond in Singapore will help to expand Singapore’s capital markets by adding the new asset class of insurance-linked securities and also providing the stimulus to generate a new set of service providers locally.

Having experienced local service providers is key, as this will support insurance-linked securities issuances in Singapore as traction and interest pick up.

Goh also said that there could be listings on the Singapore stock exchange for any locally domiciled cat bonds and ILS as well.

Goh and his team at Rajah & Tann, which included partner Lee Xin Mei from the Debt Capital Markets Practice, assisted IAG in navigating the Singapore legal and regulatory aspects of this transaction. This also involved advising on the qualifying criteria for the ILS Grant Scheme, Qualifying Debt Securities Scheme and the Tax Incentive Scheme for a Special Purpose Vehicle engaged in an Asset Securitisation Transaction.

Knowledgeable local service provision is key for Singapore now and it’s encouraging to see a local firm providing key advice for this first Singapore cat bond issuance.

So, economically the development of an ILS market will be positive for Singapore itself, but it is also positive for the Asia region and will help to continue expanding the use of ILS and collateralised forms of reinsurance or retrocession in the region.

Education remains key to broaden ILS use in regions such as Asia, but now with proof of concept Singapore is positioned to capitalise on its first-mover advantage in Asia.

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We’re returning to Singapore for our fourth conference on insurance-linked securities (ILS) for the Asian region in July. Super Early Bird tickets are now on sale. Register early for the best prices.

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