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ILS has shown “remarkable” resilience: Monetary Authority of Singapore


Even in the face of Covid-19, the resilience of the insurance-linked securities (ILS) market has been impressive, but moving forward, the entire risk transfer industry needs to be more attentive to emerging complex risks, says Benny Chey, Assistant Managing Director (Development and International), Monetary Authority of Singapore (MAS).

benny-chey-ils-monetary-authority-singaporeIn his opening speech at the virtually held Artemis ILS Asia 2020 conference, all of which is available on demand, Chey explored the development of ILS in Asia and more broadly, the industry’s global expansion and evolution over the past 20 years.

He underlined the significant levels of catastrophe losses experienced in recent years, including a series of typhoons in Japan, and wildfires in numerous parts of the world that, combined with other events, “rattled” the marketplace.

But despite the losses of recent years and even in the face of the ongoing Covid-19 pandemic, “the global ILS market has shown remarkable resilience,” said Chey, continuing to note the record-breaking level of catastrophe bond issuance in Q1.

In fact, since Chey’s speech, the Artemis Deal Directory shows that as of July 20th, total cat bond and ILS issuance exceeded $9.6 billion, which puts FY2020 in a good position to break issuance levels and, this is in spite of Covid-19 related uncertainty and volatility.

“Global institutional investors have indicated that they would be maintaining their private market allocations, including alternative assets such as ILS, despite the current market volatility. With 15% of those in a recent survey also indicating that they were looking to increase this allocation,” said Chey.

So, globally, it’s clear that ILS remains an attractive asset class, providing investors with valuable diversification and importantly, low correlation to other asset classes – something that was highlighted by the solid performance of ILS in the 2008 global financial crisis and again during the current crisis.

However, and despite all the positives, Chey stressed that it’s critical that the risk transfer sector becomes more mindful of emerging risks and takes action moving forward.

“The world, and the insurance industry in particular, needs to pay more attention to emerging complex risks such as pandemics, cyber risks, and climate change. Covid-19 is a stark and sober real life example of the potential for such risks to cause massive and simultaneous damage and disruption to lives, businesses, and public finances all around the world.

“For the insurance industry, such risks could trigger payouts across many lines of insurance at the same time. We have seen the spill-over effects across closely interconnected economies, and the hardening of premium rates in insurance and reinsurance markets around the world as demand for such insurance cover rises.

“There is a need, therefore, to develop and grow a robust and resilient insurance market and infrastructure to ensure that the flow of insurance covers do not seize up during market stresses,” said Chey.

Adding, “Complexity, while challenging, also presents tremendous opportunities if you get the fundamentals right.

“Catastrophe bonds was one such product of innovation. It enabled us to tap on capital markets as a complimentary source of demand and capital, to provide capacity for peak risks, like natural catastrophes, where traditional insurance and reinsurance capacity has not been able to provide sufficient capacity and acceptable terms and conditions…

“I am confident that the global ILS community will rise to the occasion and that in the case of Singapore, this community here will also continue to grow and serve Asia’s rising protection needs in complex risks.”

Towards the end of his speech, Chey also revealed that the MAS has extended its ILS grant scheme to the end of 2022, a move that is expected to result in more issuance out of the region as Singapore continues to mature as a viable ILS hub in Asia.

You can watch Mr. Chey’s opening keynote from the virtual ILS Asia 2020 conference in full below:

We’re archiving every session from our online and virtual ILS Asia 2020 conference over on our YouTube Channel.

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