For the first time in the history of the catastrophe bond market, a transaction has been issued out of Singapore, underlining the potential of the insurance-linked securities (ILS) market in the region.
The deal, Orchard ILS Pte Ltd, is sponsored by Insurance Australia Group (IAG) as part of its 2019 catastrophe aggregate reinsurance protection, and is the first time IAG has utilised the capital markets for reinsurance protection.
Orchard ILS Pte Ltd provides IAG with AUD 75 million of annual aggregate cover over a three year term forming part of its aggregate sideways protection, which, in total provides IAG with AUD 475 million of protection excess AUD 375 million.
The issuance of this catastrophe bond supplements IAG’s reinsurance protection, while at the same diversifying its available reinsurance solutions.
In 2018, the Monetary Authority of Singapore (MAS) introduced the ILS grant scheme in an effort to develop the ILS market in the region. The scheme was developed with industry experts, including GC Securities and IAG, and serves to fund the upfront cost of issuing an ILS transaction.
Ng Yao Loong, Assistant Managing Director, Development and International Group, MAS, said: “The IAG cat bond issuance is a significant milestone in the development of Singapore’s ILS market. It demonstrates the growing capabilities of the Singapore financial sector in delivering such innovative capital market solutions.
“The (re)insurance industry, multilateral organizations and sovereigns are now able to tap additional risk transfer mechanisms to better address Asia’s disaster protection needs.”
David Priebe, Vice Chairman at Guy Carpenter, added: “Singapore’s ILS grant scheme is an excellent initiative that has played an important part in enabling this transaction to take place. We hope the pioneering work of IAG, MAS, and GC Securities provides a springboard for greater use of insurance linked securities to close the protection gap in Asia and promote sustainable economic development in one of the most dynamic regions of the world.”
GC Securities, a division of MMC Securities LLC, acted as the sole structuring and placement agent for the catastrophe bond transaction.
