Singapore regulator aims to strengthen position as leading Asia ILS hub

Expanding capacity through alternative risk transfer instruments will be critical if the Asia Pacific region is to start to close the protection gap, according to Ravi Menon, managing director at the Monetary Authority of Singapore (MAS).

The regulator said ILS could help unlock additional risk-financing capacity from capital markets and private investors, highlighting the use of catastrophe bonds both for natural disasters and cyber, where he said more issuances were “in the pipeline”.

As part of its drive to be the leading ILS hub in Asia, the Singapore regulator operates a grant scheme which funds 100 percent of upfront ILS bond issuance costs, up to a total of S$2mn ($1.46mn).

Menon said other initiatives were in development to further boost Singapore’s attractiveness as an ILS hub, including the introduction of corporate structures that can facilitate multiple ILS issuances using segregated cells, and an ILS ESG transparency initiative which aims to improve ESG-related data and disclosure across ILS transactions.

“MAS is also working closely with the industry and investors on education sessions to grow a well-informed and expanded ILS investor base. There is a good opportunity for Asian investors, particularly in the growing private wealth sector, to invest in ILS as part of a diversified portfolio,” Menon said.

“ILS typically has low correlation with traditional financial assets, and terms and pricing in the global ILS market have improved, especially in the catastrophe bond segment. As of September 2023, the average yield on catastrophe bond funds was 11.8 percent, almost double that of corporate bond funds.”

He also highlighted the opportunity of attracting more captives to Singapore. “Corporates are increasingly forming captives to meet their own bespoke risk protection needs,” Menon said. “Their in-depth understanding of the risks faced by their parents’ organisation allows for bespoke insurance solutions and proactive risk management.”