The fragmentation of the Asia region means that for insurance-linked securities (ILS) managers, it’s more practical to focus on the locations with the more mature and larger institutional market, according to Timothy Yip, Executive Director at ILS Advisers.
On day two of our virtually held ILS Asia 2021 conference, held in association with headline sponsor AM RE Syndicate Inc., the audience heard from ILS Advisers’ Yip.
To start, Yip provided an overview of the history and maturity of ILS as an asset class in the Asia region, as places like Singapore and Hong Kong look to position themselves as hubs for risk transfer business, including ILS.
Of course, pension funds in both Japan and South Korea have been allocating to ILS for some time now, while Singapore has sovereign wealth investors that participate in the sector.
According to Yip, these areas in Asia and also if you expand to Asia Pacific and include Australia, have been the first to embrace the asset class because of the fact their institutional market size is just so much bigger.
“And, then, there’s also a lot more pooling of assets there. The assets under management for pension funds in Japan and Australia combined, is more than the total of the rest of Asia combined. So, just that sort of size and scale is huge,” said Yip.
“Australia has the fourth largest pension assets in the world, despite a population that’s less than some single cities in mainland China.”
Even if you exclude mainland China, which has different barriers to entry, continued Yip, that difference between Japan, South Korea and perhaps to a certain degree Singapore as well, is really quite drastic.
“With all those regions, the persistently low interest environment persists there, and combined with certain limited domestic growth, it sort of creates a lot of pressure, I think, on investors to meet return targets,” said Yip.
Ultimately, explained Yip, the more mature markets in the Asia region are the ones which already participate in the ILS universe.
“I think this allows them to develop a much more larger and more visible, and accessible concentration of institutional investors, family offices, and sort of the typical investors that would view ILS more favourably,” he said.
Adding, “It’s also just the practicality of it all. Say you’re a private ILS manager, your strategy is a little bit more complex than say a catastrophe bond focused fund. Realistically you need somebody there directly meeting the clients, or the investors, trying to explain it. It’s just a massive region. And it’s also a very far, far away region for most managers.
“You can only practically see so many cities and so I guess you sort of focus on where the best chances are. So Australia, Japan, South Korea over the years they’ve all learned and they’ve gone through that education process already,” said Yip.
As awareness of insurance-linked securities (ILS) expands though, some of the other countries in Asia may also become destinations for ILS fund marketing trips in time, although retirement and pension schemes currently do not exist to the same degree, meaning the investor mix may be a little different.
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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