Artemis Live - Insurance-linked securities (ILS), catastrophe bonds (cat bonds), reinsurance

On the final day of our recent ILS Asia 2021 event the audience was treated to an insightful discussion on the Asian catastrophe bond and ILS market from Cory Anger of GC Securities. With Hong Kong now established as a regulated domicile for insurance-linked securities (ILS) and catastrophe bonds, there could be several issuances out of the region by the end of 2021, according to Cory Anger. “Both the Chinese regulator and the Hong Kong Insurance Authority have been very supportive of sponsors, using a Hong Kong Special Purpose reinsurer for an ILS deal, whether it’s through the grant scheme, whether it’s working them through the regulatory approval process,” said Anger. As is the case in Singapore, in order to stimulate deal-flow out of Hong Kong the regulator has introduced a grant scheme which covers some of the costs of issuing a cat bond out of the region. This approach has been successful in Singapore with the number of issuances growing year-on-year, and Anger feels that by offering this incentive, Hong Kong has shown that it wants to make it a success. “I think they’re starting first with companies that haven’t yet brought as much risk to the ILS market, which is Chinese insurers and reinsurers. I think that that’s particularly exciting, because that’s really going to expand Asia risks that are available to the ILS market. “I think it’s very exciting what they’re doing and in particularly supporting China to be ceding risk outwards, out of the country. It will help risk takers understand the risk better, but also should be promoting more capital support in the Asia Pacific region, being sourced from the ILS market,” said Anger.

At our recent insurance-linked securities (ILS) conference for the Asia region, Morton Lane, of consultancy Lane Financial LLC, gave a keynote speech that examined 20 years of cat bond market performance and asked whether investors got what they had expected from it. Morton Lane's keynote looked at whether the performance of catastrophe bonds was worth the risk assumed and concluded that indeed investors did achieve the returns you would have expected from the advertised risk metrics of the deals offered in the period. During a Q&A at the end of his keynote, Lane also discussed the need for greater transparency in the insurance-linked securities (ILS) market, particularly for catastrophe bonds. “I’m lucky to have access to this data," he said. "I don’t think other people do. I think if they did, they could do better and more analysis, and come to better or more informed conclusions." "I think if there was more transparency the market would be more innovative because they could look at their experience. And, so, I know that the SEC considers these to be private market deals; they’re 144A deals. “I think it’s time that the SEC considers this market, which is now maturing fast, to be a public market so that other people can do this sort of analysis and come to these sorts of conclusions."

This session from our recent insurance-linked securities conference for the Asia region featured William Ho, CEO of MS Amlin Asia Pacific, who joined us to discuss the reinsurance market in the region and his firms use of ILS capital. Ho explained the Asia Pacific reinsurance landscape and the rate environment, identifying opportunities and initiatives underway to expand coverage to greater numbers. The capital markets have a key role to play here, as supportive reinsurance capacity to help Asia Pacific insurers grow and expand their portfolios. Insurance linked securities, from catastrophe bonds to sidecars, are useful tools and education about them is growing in the region. Ho discussed MS Amlin's own use of a reinsurance sidecar, which was the first ever sidecar transaction to feature solely Asian property catastrophe risks.

At our recent ILS Asia event we convened three experienced pension fund investors, from PGGM, Future Fund of Australia and the Healthcare of Ontario Pension Plan (HOOPP), who discussed key and timely issues of consideration related to their allocations to the insurance-linked securities (ILS) asset class. All of these pension investors have experience working with leading ILS investment managers and allocating across catastrophe bonds and a range of other reinsurance linked assets. Topics we discussed included, how the ILS asset class has adapted to the new world thrust upon it by the pandemic, climate change and how that factors into the industry's risk taking, the importance of modelling, challenges with social inflation, and how collateral is managed in reinsurance investment deals. The investors gave candid opinions on what it means to invest in ILS and reinsurance, as well as any concerns they have over the state of the industry right now.

During our recent ILS Asia event we interviewed two experts from Securis Investment Partners about the importance of investor communications, especially in relation to Asian perils & climate risk. Yuko Hoshino, Co-head of Global Investor Relations and Paul Wilson, Head of Non-Life Analytics, both from Securis Investment Partners LLP, gave an overview of the Asian ILS investor base and explored the experience of investors in the region after some challenging loss years. The impact of Japanese typhoon Jebi was a focus of the session and Hoshino explained that when the storm arrived in September of 2018, even local people did not expect that it would become the largest loss event in Japanese insurance history. For Securis, Hoshino explained that Jebi was more impactful for aggregate deals since the loss creep followed other 2018 events, including Hurricane Michael and wildfires. According to Hoshino, in the aftermath of Jebi, investors specifically asked questions around issues such as modelling for Japan typhoons, flood risk, the setting of side pockets and how losses would be reserved for. Wilson went on to explain that when he speaks with investors, he always looks to separate the two aspects of the use of the catastrophe models. The pair also explained how they approach investor discussions about key issues such as climate change, both from the investment and science sides of the equation.

At our recent ILS Asia 2021 event, a panel of experienced insurance-linked securities (ILS) professionals discussed investment management issues with a view to the Asian marketplace. In spite of the pandemic and the inability to travel, the panellists noted that through the use of technology it’s still possible to build relationships with prospective investors and overall, developments in the ILS industry continue to be positive. Panellists discuss the appetite for ILS and reinsurance linked investments among the Asian investor community and the fact it persists. They also discussed the importance of communication around things like loss creep and climate change, especially when considering new investors in the Asia region. Building partnership with investors in ILS was seen as key by the panellists, given the need to educate and keep communication around reinsurance loss events and also the vagaries of how the ILS structures themselves work.

This podcast episode features an interview with Timothy Yip, Executive Director at ILS Advisers, an insurance-linked securities focused advisory and investment management arm of HSZ Group. Yip joined us to discuss the investor landscape in Asia and how that is reflected in the insurance-linked securities (ILS) space. There's a clear appetite for diversifying sources of return, as we see among the global institutional investor base, so reinsurance is definitely relevant as an asset class. But the Asia region investor base has differing levels of maturity and education and Tim Yip took us through how he looks at different countries in the region and their chances of allocating to the ILS and reinsurance linked asset class. 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.

At our recent ILS Asia 2021 conference, Shevawn Barder, CEO of AM RE Syndicate gave an excellent keynote speech on opportunities for ILS funds and investors to partner with businesses like her own to access the returns of US specialty business. The keynote speech is then followed by a Q&A with Artemis editor Steve Evans, in which the subject was explored more deeply. Barder explained why the US specialty lines opportunity should be attractive to investors and also reinsurers from the Asia region, as well as the rest of the world. She called it an “opportunity for Asian reinsurers investors and capital providers to tap into the US primary market.” She explains how the US program segment of the insurance market works, saying that the MGA model has become increasingly sophisticated and that “they have a very specialised and focused business model, and a very low cost infrastructure,” making them ideal for capital partners to work with and “an effective way to access the primary US market.” Barder also explains how working with an MGA partner, such as a reinsurance intermediary like AM RE Syndicate, means investors and reinsurers can put their capital behind an origination focused underwriting partner, to gain access to business they may not otherwise find it easy to source.

Our recent ILS Asia 2021 conference featured a panel discussion where experts explored the emerging insurance-linked securities (ILS) platform in Hong Kong and asked what considerations there may be for sponsors of or investors in catastrophe bonds and other ILS. Thanks to the efforts of Singapore and more recently Hong Kong, there’s an exciting and growing opportunity for the insurance-linked securities (ILS) sector to play a meaningful role in the Asia region, according to these industry experts. Aided by its ILS grant scheme, Singapore has witnessed a surge in cat bond issuance over the past 12 months or so. Investor interest in ILS is high and as the Asia region looks to capture some of the demand, Hong Kong is also positioning itself to become a hub for ILS business. With interest in the asset class heightened, our panellists shared their thoughts on what this might mean for the ILS market in Asia, and also for issuances in Hong Kong. The panel featured: Stefan Kräuchi, Founder, ILS Advisers an ILS fund manager and investment adviser based in Asia; Andy Souter, Co-Head of P&C at Hong Kong based reinsurer, Peak Re; Simon Lam, Executive Director, General Business, Hong Kong Insurance Authority; and Ricky Spitzer, Partner at global law firm Mayer Brown.

This episode of our podcast features an interview with Simon Lam, Executive Director, General Business at the Hong Kong Insurance Authority, who joined our latest event, ILS Asia 2021 to discuss Hong Kong's plans for its new insurance-linked securities platform. Hong Kong already has an established insurance and reinsurance market, while its legislative preparations for ILS were completed at the beginning of 2021. Since then the Insurance Authority has been building out its licensing and supervision infrastructure, with the support of an ILS working group, including notable ILS market players, Mr. Lam explained to the ILS Asia 2021 audience. “As we all know, being efficient in licensing is very, very important for ILS issuers,” he explained. Saying that “We also started an ILS capacity building exercise for staff of the Insurance Authority, through the engagement of a professional ILS consultant.” “The final piece was when the pilot ILS grant scheme was launched by the Hong Kong government in May,” Lam continued, saying that, “If you ask me where are we now, I would say that we are 99% ready for the first issuance.” At the same time Hong Kong has been engaging with potential sponsors of insurance-linked securities (ILS) arrangements, to generate initial deal-flow interest. Mr. Lam told our conference audience that, “In parallel, we are soliciting support from potential sponsors and I’m pleased to advise that we are already working on the first cat bond and hopefully, if all things go well, we will have the first ILS issue out of Hong Kong within this year.” The panel session mentioned at the end will be included in a later podcast episode.