IAG sponsors first Singapore catastrophe bond, A$75m Orchard ILS Pte

Insurance Australia Group (IAG) has sponsored its first catastrophe bond and the transaction is also the first cat bond to be issued in Singapore, using the countries’ Special Purpose Reinsurance Vehicle (SPRV) regulations.

The AUD $75 million Orchard ILS Pte Ltd transaction has broken new ground by becoming the first cat bond to be domiciled in Singapore.

IAG took advantage of the Singapore insurance-linked securities (ILS) grant scheme, which was launched in February 2018 and allows sponsors to receive a saving on issuance of their ILS transactions, hence the Orchard ILS Pte Ltd. deal provides the necessary evidence that the regulations and domicile are fit for purpose and now this deal could herald a wave of interest in issuing ILS from Singapore.

Orchard ILS Pte. Ltd. has issued AUD $75 million of catastrophe bond notes which have been sold to ILS investors, with the proceeds used to collateralize a portion of IAG’s recently renewed catastrophe aggregate reinsurance program.

GC Securities, the capital markets and broker dealer unit of reinsurance broker Guy Carpenter, acted as the sole structuring agent and sole placement agent for the catastrophe bond notes issued by Orchard ILS Pte. Ltd.

It’s an important transaction for a number of reasons, being IAG’s first full catastrophe bond issue, opening up an Asian ILS domicile in Singapore, bringing another Australian sponsor to market and providing a valuable source of peril diversification as well.

The Orchard ILS cat bond will sit as part of IAG’s 2019 catastrophe aggregate reinsurance cover, offering the insurer AUD $75 million of annual aggregate catastrophe reinsurance protection across a three-year term.

The coverage will be for losses suffered from catastrophe events affecting its insurance portfolio in Australia, we understand.

It makes up part of the firms aggregate sideways cover, which has become an important component of the firms reinsurance, paying out last year and now with its deductible eroded again this financial year. That aggregate layer attaches at AUD $375 million of losses to IAG and provides AUD $475 million of protection from that point.

The ILS grant scheme established by the Monetary Authority of Singapore (MAS) was utilised to get this deal to market, funding upfront ILS bond issuance costs for IAG.

In addition, Singapore’s progressive regulatory system was important to getting the deal to market. Something the country has been working on for a number of years now.

The regulations support the incorporation of a purpose-built reinsurance entity (the Special Purpose Reinsurance Vehicle (SPRV)) in Singapore to securitize insurance and reinsurance risks, in addition to which a favourable tax framework that provides tax neutrality to the reinsurance entity and ILS investors is also available.

Ng Yao Loong, Assistant Managing Director, Development and International Group, MAS, commented on the news, “The IAG cat bond issuance is a significant milestone in the development of Singapore’s ILS market. It demonstrates the growing capabilities of the Singapore financial sector in delivering such innovative capital market solutions. The (re)insurance industry, multilateral organizations and sovereigns are now able to tap additional risk transfer mechanisms to better address Asia’s disaster protection needs.”

David Priebe, Vice Chairman at Guy Carpenter, also said, “Singapore’s ILS grant scheme is an excellent initiative that has played an important part in enabling this transaction to take place. We hope the pioneering work of IAG, MAS, and GC Securities provides a springboard for greater use of insurance linked securities to close the protection gap in Asia and promote sustainable economic development in one of the most dynamic regions of the world.”

It’s an important transaction for the market, as it shows the Singapore ILS regulations are ready for use and that sponsors are attracted to the domicile.

It will be interesting to see whether Singapore can now attract further catastrophe bond issuances, as well as broader ILS transaction activity in the months and years to come.

You can read all about this new AUD $75 million Orchard ILS Pte Ltd transaction and every other catastrophe bond deal in the Artemis Deal Directory.

Join Artemis in Singapore on July 11th 2019 for the fourth annual ILS Asia conference, tickets are on sale now.

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.