In emerging Asia, there are opportunities for insurance-linked securities (ILS), despite the perception that reinsurance markets across the region remain in a developing phase, according to William Ho, Chief Executive Officer (CEO) of MS Amlin Asia Pacific, and Head of Reinsurance for Asia, MS Amlin.
With the exception of Japan, which is a peak zone and mature ILS exposure, risk transfer markets across the Asia region continue to develop.
And while reinsurance rates in the region have been firming over the last few quarters, according to Ho of MS Amlin, emerging Asian markets differ from more mature markets in two main ways.
“The demand for reinsurance capacity, the limits being purchased or amount of reinsurance, is still quite easily met by the supply on offer in the region,” said Ho, speaking during an interview at our virtual ILS Asia 2021 event, held in association with our headline sponsor AM RE Syndicates Inc.
“There is a capacity crunch that you would see in the US markets or potentially Japan or European markets, but you would be struggling hard to see that in this region,” he continued.
The second aspect, according to Ho, is that the perception towards reinsurance is still developing within these emerging regions.
“It’s not just the insurance business developing, I think the attitude and the approach to reinsurance protection is still in its developing phase, and sometimes that leads to a question over what’s the true value of the reinsurance. Especially when pricing is no longer getting softer and it’s going the other way. That’s been another challenging aspect,” said Ho.
As traditional reinsurance markets continue to mature across Asia, so too is the region’s ILS presence, supported by the establishment of Singapore and more recently Hong Kong as domiciles for the asset class.
“Certainly over the last three years there has been more activity in the region. Some ILS funds have established their bases, whether it be Hong Kong or Singapore. We’ve seen Asian based reinsurers getting more involved, using ILS capacity and we’re seeing more transactions there,” said Ho.
Aided by the country’s regulator’s ILS grant scheme, which covers some of the issuance cost of catastrophe bond transactions, Singapore’s ILS regime has gained momentum and this has accelerated in 2021.
“I think it’s still a bit short to say it’s a major hub right now, but momentum is certainly gathering and it will be quite exciting to see what happens over the next two to three years,” said Ho.
But as Singapore’s development as an ILS hub continues and with Hong Kong just getting started, might more ILS capital be used in Asia, or could the availability of reinsurance capacity temper this growth potential?
“I think that ILS capital will help challenge that reinsurance capacity,” explained Ho. “So I certainly think there are opportunities here. ILS capacity is a firm fixture in the reinsurance space. Looking at the global capacity available in the reinsurance space, the one notable growing percentage of market share is the ILS capital and, I think it’s a matter of time before that capital makes more of its way to Asia.”
Ho went on to explain that currently, what’s stopping this from happening is that the local business doesn’t fully meet investor or fund appetites and margin requirements.
“Inevitably that’s going to be more focused towards where there is a capacity crunch, or where there are the peak zone exposures and the larger potential rating adequacy to meet those requirements,” said Ho.
Adding, “I think there will be more opportunities here. Whether it be a diversification play, whether it be linking Asian capital into the ILS space, I think there’s a few angles to be looking at there to say for sure there will be more opportunity here and certainly more activity in the region.”
As well as the on-demand playback, we will be archiving every session from our online and virtual ILS Asia 2021 conference over on our YouTube Channel in the coming weeks and audio versions will also be uploaded to our podcast which you can subscribe to here.
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