Swiss Re Insurance-Linked Fund Management

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Orchard ILS Pte Ltd

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Orchard ILS Pte Ltd – At a glance:

  • Issuer: Orchard ILS Pte Ltd.
  • Cedent / sponsor: Insurance Australia Group (IAG)
  • Placement / structuring agent/s: GC Securities was sole structuring agent and bookrunner
  • Risk modelling / calculation agents etc: ?
  • Risks / perils covered: Australia and New Zealand catastrophe risks
  • Size: $54m
  • Trigger type: Indemnity
  • Ratings:
  • Date of issue: Feb 2019

Orchard ILS Pte Ltd – Full details:

This is the first catastrophe bond to be sponsored by Insurance Australia Group (IAG) and also the first catastrophe bond to be issued using a Singapore domiciled Special Purpose Reinsurance Vehicle (SPRV).

The AUD $75 million (USD 54 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.

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 and New Zealand.

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.

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.

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