We’re told that the grant program established by Singapore to attract catastrophe bond issuers to the domicile could total more than US $1.5 million per issue for cat bond transactions that qualify, providing a very attractive cost saving to any sponsors considering the domicile as a home for their insurance-linked securities (ILS).
Singapore has been targeting the ILS market and catastrophe bond issuance for a number of years, as it sought to add capital markets backed risk transfer business to an already healthy insurance and reinsurance market activity.
The country wants to position itself as a global hub for Asian risk transfer and capital market solutions such as ILS and cat bonds are at the heart of this ambition and international issuers would also be welcomed to the country.
Singapore developed specific ILS targeted special purpose reinsurance vehicle (SPRV) legislation a few years ago, setting up the framework required to allow ILS or cat bond transactions to be issued in the domicile, but the vehicle had yet to be used.
Then the government of Singapore announced a new ILS grant scheme in November 2017, that it said would fund 100% of the upfront costs incurred in issuing catastrophe bonds in the country.
We now know that the grant will cover up to SG $2 million (around US $1.53m) of qualifying expenses from a catastrophe bond issuance, with the transaction size expected to be above SG $ 50 million.
We’re told that the terms of the grant stipulate that issuers could be onshore or offshore and either companies or financial institutions. That means a corporate cat bond sponsor could potentially take advantage of Singapore’s ILS grant scheme in order to save on some of the expenses associated with issuing a catastrophe bond deal.
It’s also noteworthy that the Singapore ILS grant will be available up to the end of 2020 and that during that time an issuer may apply for the grant for multiple different catastrophe bond issues over the interim period.
For catastrophe bonds to qualify for the grant they must have a tenure of at least three years, its notes must be listed on the Singapore Stock Exchange at least as a dual listing, and a percentage of the costs involved in issuing the ILS must be paid to Singapore companies.
The grant can cover a range of expenses that catastrophe bond sponsors face, from legal costs, to risk modelling, broker fees for structuring or arranging ILS transactions, trustee, administration and other expense costs.
It’s a very attractive offering for those looking to sponsor catastrophe bonds, especially those looking to issue smaller transactions where economies of scale may not be as effective for them, for corporate or other types of sponsors, and also for the most established cat bond sponsors, as a $1.5m+ saving per issuance could be enough to attract even the most dedicated issuers to Singapore.
Singapore is beginning to attract service providers to facilitate anticipated ILS or catastrophe bond issues, we understand and further work is ongoing related to future enhancements of the special purpose reinsurance structure itself we’re told.
We also understand that discussions with Australian insurance giant IAG, over the potential for it to utilise Singapore as a domicile for an ILS, catastrophe bond or other collateralised reinsurance arrangement and which were first revealed last November, are also continuing.
The grant will be a very attractive incentive to look to Singapore for ILS issuance over the coming year. It will be interesting to see which companies will be the first to put it to good use.