Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Asia shows significant interest in ILS, market set for steady expansion


The insurance-linked securities (ILS) sector and the use of capital market capacity within Asian insurance and reinsurance is set to increase steadily, according to speakers and attendees at last week’s inaugural Artemis ILS Asia 2016 conference in Singapore.

We held our first conference at the iconic Raffles Hotel, Singapore last Wednesday, where over 170 delegates gathered to hear leading ILS market participants discuss the potential for ILS market growth in Asia and to network with the attendees.

Artemis ILS Asia 2016

Speakers came from across the global ILS and reinsurance market, with the local market extremely well represented as well. A good mix of ceding companies, protection providers, ILS fund managers, service providers, investors and the legal or regulatory side of the marketplace were all in attendance.

Traditional reinsurance coverage is very affordable in the Asian region, but as Lixin Zeng, CEO of AlphaCat Managers Ltd. the ILS investment management arm of Bermuda-based re/insurer Validus Group, explained to the gathering at the Raffles Hotel, there will be a growing opportunity and need for the capital market’s and ILS to increase penetration within Asia.

As a result, today the Asia region is dominated by the traditional reinsurance market as the tail contribution of Asian risk is small, but in time the rapid growth of insurance penetration and economic development means this tail-risk will increase.

Lixin Zeng discussed the investor perspective on insurance-linked securities (ILS) and the growth potential in the Asian region.

“Today cedents in Asia don’t really need to bother with ILS, as it’s very affordable,” Zeng said, but in time he explained “The tail-risk of Asia risk is going to be so much bigger, that the traditional reinsurance market will have to increase premium rates to make their capital model work.”

“It is important for Asian cedents to get familiar with and to start building some relationships with ILS and capital markets, that way when the growth (in tail-risk) materialises, the ILS managers are ready to provide capital support for Asian business,” Zeng continued.

“ILS is well-positioned to support the growth,” of the Asian markets, Zeng concluded, as has been previously seen in the impact ILS has had in peak catastrophe zone markets.

Akira Takahashi, Head of Asset Management Japan, at investment banking group Credit Suisse, spoke on the fact that Japan is currently the largest market in Asia for the ILS fund managers.

“Today, ILS is recognised as one of the major asset classes in the alternative bucket,” Takahashi commented. “I think in the Japanese market today we probably have $5 or $6 billion in total (in ILS), but the reality is that this is concentrated to 5 or 6 ILS managers.”

Dr Mili Eppler, a Senior Underwriter at Credit Suisse Insurance Linked Strategies Ltd., said that diversification is important as an ILS manager, but that being able to understand and quantify the risk is vital, noting that “This can be more challenging in some parts of Asia, so we really need to work closely with modelling companies and brokers to ensure we’ve understood the risk.”

Eppler also noted the insurance protection gap issue in Asia, saying “One way we could really enable greater access to alternative capital would be to create products with, for example, parametric triggers, where you remove a lot of the uncertainty about the underlying exposures.”

Greg Wojciechowski, President & CEO of The Bermuda Stock Exchange spoke on a panel discussing the need for efficiency within ILS domiciles, explaining that the ILS market is big enough and expanding rapidly enough for other regions of the world to find their niches, in order to facilitate and play host to transactions.

“Competitions a good thing,” Wojciechowski said, adding that the way forward between domiciles looking to enter the ILS market and to help it expand might be to work together on a collaborative basis.

This would be a positive step for the Asia region, enabling them to work with mature ILS domiciles such as Bermuda and to learn from best-practice already established in the industry.

Stefan Kräuchi, Founder of ILS Advisers, an Asia-based ILS investment adviser and also manager of ILS assets, said that fully-collateralized products may be very attractive in Asia,

“Here in Asia, investors we talk to are most concerned about counterparty risk. Being able to show them that there’s not much counterparty risk in those (ILS) instruments is often a very important and appealing selling point,” Kräuchi explained.

“In Asia we see a very strong preference for liquid investments,” Kräuchi continued, explaining to attendees that the Asian institutional investor-base are attracted to fund structures such as UCITS and instruments such as the 144A catastrophe bond.

Susan Lane, Co-CEO of Tokio Solution Management Ltd, commented that both lower pricing in Asia and also structural differences such as the lack of reinstatements can hinder growth of the ILS asset class into new regions.

“It’s an education need,” Lane explained, “The ILS market, once it finds a home and it’s comfortable, as investors become more sophisticated, as the buyers of the protection become more knowledgeable about it, then it tends to find its home and it tends to be a permanent home.”

Again, this helps to underscore the need for collaboration and relationship building, between Asian market participants and the global ILS sector.

Jinal Shah, Managing Director at RMS Capital Market Solutions, explained that risk models are set to expand in the Asia region, with RMS itself ready to release a slew of new peril focused models in the area over the next few years.

“Our focus over the next few years is in Asia,” Shah told the audience, “Over the next three years we are heavily investing in Asia, it’s an important and growing market.”

Shah said that while risk models are not a crystal ball, they can help users by providing greater clarity of the possible outcomes, but deal selection remains vital for investors and re/insurers.

Nick Griffiths, Director in the Reinsurance Division at broker RFIB Group Limited, explained to attendees that ILS market opportunities in Asia may extend outside of the more traditional peak catastrophe risks.

“The weather product does lend itself very nicely to ILS investors,” Griffiths explained. “Often it’s a seasonal product, so a short period where the collateral is deployed. And I would tie that in with agriculture and crop and we’re seeing more products and more offerings to the ILS world, both retro and directly.”

The event was a resounding success, with the attendees taking advantage of the networking opportunities throughout the day and more than 80 staying on to gather at the post-event cocktail reception.

For established ILS market participants, managers, investors and service providers, the importance of engaging with regional players in Asia cannot be understated.

The need for education was clearly highlighted throughout the conference, as too was the necessity for the local markets in Asia to start building relationships with ILS specialists right now in order to be aware of the options available.

Ceding companies we spoke with during the event and all week in Singapore expressed keen interest in bringing an element of collateralized coverage within their reinsurance programs and are excited to begin to make connections with the mature ILS markets of the world.

Reinsurers operating in Asia see definite opportunities to make use of ILS and the capital markets, both to augment their capacity and to retrocede risks, although there are clearly issues surrounding pricing to overcome.

Investors in Asia are either fascinated by what they see as an asset class offering perhaps the most de-correlated investment opportunity, while those already allocating capital to ILS are keen for more opportunities to deploy and watching the sector carefully as it grows.

We look forward to continuing to assist in the building of relationships between Asian insurance, reinsurance and investment markets and the ILS space. The opportunities for both sides in years to come are tantalising and well-worth investing the time to make connections and start building relationships.

Photographs from the day can be found here.

To all our attendees, thank you for joining us, we hope you enjoyed the day and will attend again next year in July for ILS Asia 2017, the date for next year’s event will be announced very soon.

To all our speakers, thank you for traveling so far to participate, for providing insightful and thought-provoking discussions and for engaging positively with the Asian market attendees.

Finally, we’d like to thank our kind sponsors of the event, without whom the day would not have been possible.

Artemis ILS Asia 2016 sponsors

Headline sponsor:

Bermuda Business Development Agency

Gold Sponsor:

Credit Suisse Insurance Linked Strategies Ltd.

Silver Sponsors:

AlphaCat Managers Ltd.

ILS Advisers


Cocktail Reception Sponsor:

RFIB Group Limited

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