Paul Schultz, Chief Executive Officer (CEO) of Aon Securities, expects to see different types of sponsors increasingly enter the insurance-linked securities (ILS) marketplace in Asia and also around the globe.
Delivering a keynote at the virtually held Artemis ILS Asia 2020 conference, Schultz explored the history and evolution of ILS in Asia as interest continues to swell in jurisdictions eager to establish themselves as regional risk transfer hubs.
After his speech, Schultz welcomed questions from the audience and was queried on the potential for corporate sponsor growth in the region.
“Yes, absolutely,” said Schultz. “I would say on the type of sponsor, we think that corporate sponsors, government sponsors, so really getting away from the traditional sponsors of catastrophe bonds, we think that that’s a very reasonable growth expectation, not only in Asia but globally, that more different types of sponsors will come to the market.
“And, so, we see corporates and governments as well represented in that.”
He continued to note that one of the reasons Aon Securities expects to see growth in different types of sponsors coming to market in Asia, is diversification, which is vital to insurers and reinsurers to access the cat bond markets.
“We think that the diversification argument and the flexibility around structures, and I can’t state that enough, the flexibility around creating innovative structures that react a little bit differently, I think will be important,” said Schultz.
Both Singapore and Hong Kong have ambitions to become a viable hub for ILS business in Asia, underpinned by regulatory regimes and in the case of Singapore, an ILS grant which funds the upfront issuance costs of catastrophe bonds.
While catastrophe bond issuance out of Singapore has gained traction as a result of the scheme, which has now been extended for a further two years, in order to compete with other parts of the world, the region will need to evolve and enable the facilitation of other ILS structures and risks, outside of the traditional catastrophe bond and nat cat space.
As well as additional and different sponsors, Schultz also told the audience how he expects that fundamentally, this asset class is going to attract more capital, some of which is going to come out of the Asia Pacific region.
“Asia Pacific already participates as investors, and really important investors in some regards, to the space. And, I think we envisage more. As we just look at the relative performance of ILS compared to other asset strategies, we continue to believe that that is fundamentally an attractive place to attract capital. Especially in prolonged, low interest rate environments, prolonged negative interest rate environments, the attractiveness of ILS I think is even more pronounced.
“Fundamentally, Asia Pacific, we see capital coming out of Japan, we see capital coming out of Singapore, we see capital coming out of Australia, New Zealand, and we expect more. We are in a number of conversation ourselves with a number of investors in those regions. It is still viewed as a little bit of an esoteric asset class, so I think there’s a little bit more education involved with it,” said Schultz.
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