Asia market development to support non-cat ILS growth: Panellists

Investments in non-catastrophe insurance-linked securities (ILS) can bring some significant benefits to investors, but for this market to develop in Asia, the region’s primary insurance market needs to evolve, according to industry experts.

Today, Artemis held a virtual panel discussion with main sponsor Vesttoo, as an extension of our ILS Asia 2021 conference, which explored the benefits of non-cat ILS with a view to emerging Asia.

This panel can now be viewed on-demand here.

Yaniv Bertele, Chief Executive Officer (CEO) at Vesttoo, explained that some of the advantages of participating in non-cat ILS, for investors, includes being able to hedge some of the risk exposure linked with market risk and cat dominant portfolios.

“Providing a significant diversification, along with the uncorrelated nature of those non-cat, high frequency, low severity types of transaction,” said Bertele.

“Providing, what I believe to be an attractive risk reward based on the low severity and high frequency nature of those transactions, being a lot more long-term transactions that create what we call a sustainable alpha with minimum loss probabilities, specifically associated with the risk remote layers,” he continued.

In terms of what this capital could do for cedents in Asia, Bertele highlighted some unique challenges facing the region, including changing regulations and demographics which can differ from country-to-country.

“I think that insurers in the region must improve their risk management in light of those developments in order to be able to meet their payment obligations, liabilities development, claims etc., and support regional economies as well as maintain that growth.

“So first and foremost, hedging their risk exposure, boosting their market resilience and sustainability. Regulatory compliance is especially important now in times of the global pandemic and those horrible natural catastrophes happening in the Far East,” said Bertele.

Expanding on the opportunity in the region, panellist Shevawn Barder, CEO, AM RE Syndicate Inc., ILS Asia 2021’s headline sponsor, said that while there should be opportunities to write attritional non-nat cat risks in Asia, there’s a long way to go.

“I recognize that there is economic growth and big growth potential in the future. However, there are factors that need to be recognized as the huge geographic footprint this region fills. It’s vast in terms of size, there are significant cultural and economic diversity, there are language issues and currency risks. Not to mention a diverse regulatory environment, with regards to the insurance industry in APAC,” said Barder.

“Then there’s the rate environment, the reliability of data, the use of analytics to create reliable information that insurance companies can benchmark their results against. And there is concern with regards to economic viability due to currency rates. In addition, there is a significant protection gap.

“So, it’s really about the evolution of the insurance industry in these countries, and creating a viable alternative to nat cat offerings,” she continued.

The specialist Lloyd’s insurance and reinsurance marketplace has had on the ground presence in the region for around two decades.

During this time, explained Thomas Haddrill, Head of Market Development, Asia Pacific, Lloyd’s, Singapore, demand for nat cat cover has unsurprisingly been consistent, given the region’s vast exposure to a range of natural disasters.

“But I think that this is a region that doesn’t buy enough cover to protect against those risks at present,” said Haddrill.

Adding, “And I think that we’re definitely starting to see that maturing of the primary insurance markets and that diversification of demand towards more specialty and niche covers. Certainly through our experience of what the Lloyd’s market is writing in this region.”

The session also featured Bruce Ford, Head of Client Solutions, Lockton International APAC Reinsurance, who explained that while there is strong demand for non-nat cat reinsurance in the region, supply is an issue.

“There’s a lack of capacity for D&O, E&O, cyber, general casualty in some regions as well, or classes where a few big players might have had something of a monopoly on life and health, springs to mind there.

“Not to mention also now legacy business and there’s a lot of players out looking for legacy business in the region. There are some people who are looking for someone to provide that legacy support.

“So there’s a dearth of capacity for long-tail, international business.”

As a result, Ford explained that rates have skyrocketed in some of those classes of business and in some others, you simply can’t buy primary insurance cover.

“So conditions are ripe for capital markets to make a bit of a move into this space,” said Ford.

According to Bertele, there’s huge amounts of investor interest they are just waiting to see that it’s not a passing trend and is something sustainable and available.

“And if you look at all of the reports coming out in recent years, I can confidently say that alternative risk transfer is just going to get bigger and bigger, democratized away from the cat. While the demand for alternative capital is only going to increase, as well the demand for non-correlated, stable, alternative asset classes, such as these,” said Bertele.

You can watch this session of ILS Asia 2021 on-demand here.

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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