Regional sponsors important to sustain Asian ILS domiciles: Schultz at ILS Asia

With Singapore now an active hub for catastrophe bonds and insurance-linked securities (ILS) and with Hong Kong primed to issue its first deal this year, regional sponsor participation can help to ensure their sustainability as ILS domiciles, according to Paul Schultz, Chief Executive Officer (CEO) of Aon Securities.

Yesterday at our virtual ILS Asia 2021 conference, held in association with our headline sponsor AM RE Syndicate Inc., Schultz of Aon Securities delivered a keynote on the development of ILS in the Asia Pacific region.

The presentation and Q&A, which can now be viewed in full on-demand, covered an array of topics from losses and risk transfer penetration in the region to cat bonds, collateralised reinsurance and domiciles.

On ILS domiciles, Schultz noted the solid growth in Singapore and also the potential of Hong Kong, which completed its legislative preparations for ILS earlier this year.

“As far as Aon is concerned, we think there are tremendous benefits for having domiciles that can bring in a sponsor base that is familiar with and trades in the domicile. So, familiar with the regulation, familiar with what’s happening, there’s adequate service providers and capability in the region,” said Schultz.

“I think the reality is, to the extent that the domicile can aid in bringing more interest to the market, because those that trade in the market are comfortable with the local regulation, we are highly supportive and we’ll make sure we do everything we can to support all of these different regions,” he continued.

For an ILS domicile to be successful, Schultz highlighted the need for a strong regulatory framework and also the need for strong regional service providers.

It’s safe to say that the recent success in Singapore and growth in issuance has been supported by the regulator’s grant scheme, which similar to Hong Kong, covers some of the issuance costs of catastrophe bond transactions.

Schultz alluded to this and said that when you look at some of the types of sponsors that have used Singapore’s ILS regime, the incentive has been a key part of the decision making process for those cedents.

“But, I still feel like you need the anchor of the types of sponsors that are local to the jurisdiction, really, to make it sustainable over time.

“Whether the financial incentive schemes will continue forever, obviously that’s something we’re not privy to, but that’s certainly brought activity into Singapore. But I think the more that you see Japan embrace Singapore, the more that you would see other parts of the Asia Pacific region embrace Singapore. I think that makes it just more sustainable,” said Schultz.

Later adding, “The regional participation in the Singapore domiciled transactions, we think, leads to the sustainability of the market. I think some of these transactions have clearly been motivated to take advantage of that financial incentive, but what we think is more sustainable over time are those regional types of transactions that actually use the domicile in Singapore.

“And, we think that the growth of that over the last couple of years has been substantial and we’re excited about what that really means for the sustainability of Singapore and ultimately Hong Kong into the region.”

The first deal out of Hong Kong is poised to come from sponsor China Re, and will be just the second time the reinsurer has leveraged the capital markets to secure retrocessional reinsurance in the form of a catastrophe bond transaction.

According to Schultz, Hong Kong can be very attractive for Chinese issuers to come to market.

The Hong Kong Insurance Authority is eager to attract sponsors from around the world, but it’s clear that the entry of more Chinese cedents would feed into the sustainability factor highlighted by Schultz, and also provide access to diversifying risks for investors.

“Hong Kong, we really believe will help facilitate bringing more Chinese issuers, or sponsors to market. We’re really excited about that. Obviously there’s been some coverage in the press already around some anticipated transactions that will be facilitated using Hong Kong.

“We’re excited about that just being part of the industry. And, we believe that, again, over time, the flexibility that comes through either Singapore or soon to be Hong Kong, we think will actually enable future issuance in the region, and allow for future growth,” said Schultz.

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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