Finance ministers from the Association of Southeast Asian Nations (ASEAN) group of countries are set to discuss disaster resilience and risk transfer at meetings scheduled for next week in Singapore, with the group looking to find ways to bring disaster risk financing up to speed.
Economic growth has far outpaced the availability of disaster risk financing in the region, the ministers believe, so the meetings scheduled for next week will have a focus on this area and what can be done to enhance ASEAN members access to disaster insurance, as well as what can be done to increase their resilience.
Singapore is the ASEAN chair for 2018 and the countries Finance Minister Heng Swee Keat explained the importance of disaster resiliency for the region.
He explained that several ASEAN members are highly exposed to natural disasters, but the protection gap continues to widen as economic growth outpaces the availability of insurance solutions and reinsurance capital to back them in the region.
He commented, “We will focus on enhancing disaster resilience, and support initiatives which enhance Asean’s ability to cope with and recover from such shocks.”
Importantly, the meeting is expected to discuss the availability of catastrophe risk data, particularly exposure data, vital for the efficient structuring and transfer of disaster risks in the region.
With a focus on ex-ante risk finance expected, as well as creating mechanisms to build the much-needed risk capacity for ASEAN disaster risks, the meeting could find it is in the ideal place, with Singapore currently working to become a regional insurance-linked securities (ILS) and catastrophe bond hub.
The minister highlighted the importance of working to “facilitate risk management and strengthen capacity building” across the region.
As we wrote recently, Singapore is offering catastrophe bond sponsors a healthy grant to make it very attractive to try out the domicile for any ILS issuances.
With organisations like ASEAN and their resulting disaster risk plans often needing donor funding, or contributions from members, a reduced cost catastrophe bond program for the region, issued through Singapore, could be a very interesting opportunity.
If the ASEAN meetings can see members coming to some agreement on how best to build the necessary risk capital to back disaster risk financing programs for the region, as well as putting in place risk transfer policy and guidance, there should be plenty of interest from both traditional reinsurance markets and the capital markets in providing the capital needed to back such efforts.
The region has already been implementing the ASEAN Disaster Risk Financing and Insurance Programme, which looks to pool risks from across the region. Such a risk pool could easily find itself a candidate for transfer to the capital markets in years to come.
With Singapore well-positioned, due to its chairing of ASEAN and also its location in the region, this could be a real opportunity for the country to find an ILS related niche if the use of catastrophe bonds was considered as a way to back any ASEAN disaster risk transfer efforts.