The move will provide financing quickly in the aftermath of disasters or catastrophic losses by developing alternative risk transfer mechanisms, such as government pools.
Catastrophe bonds cover natural disasters, and form one of the fastest growing areas of the global insurance market. A record US$11.3 billion of catastrophe bonds were issued between June 2016 and June 2017, according to Aon. “Alternative capital” in the insurance market reached US$89 billion, another record, it said.
Lim Hng Kiang, the Singaporean minister for trade and industry, told the 14th Singapore International Reinsurance Conference this week: “To catalyse the development of Singapore’s ILS [insurance-linked securities] market, the [Monetary Authority of Singapore] will fund 100 per cent of the upfront costs incurred in issuing catastrophe bonds out of Singapore.”
He added: “This grant will run from January 1, 2018, and will be applicable to ILS bonds covering all forms of risks beyond just natural catastrophe risks.”
MAS would therefore fund 100 per cent of the upfront costs incurred in issuing catastrophe bonds, or assets that pay insurers if they suffered cataclysmic losses.
Singapore would also take advantage of the opportunities presented by China’s ambitious One Belt One Road project, Lim said, adding that a Singapore-based infrastructure consortium had been formed to address the issue.
Lim said the consortium would examine two lines of business, construction and project cargo and liability with the aim to offer property and casualty insurance solutions.
Beijing’s initiative intends to connect China with the rest of Asia and Europe through a series of land and sea trade routes. Road and rail links, gas pipelines, power plants and ports are due to be built in more than 60 countries, with total estimated infrastructure investment to exceed US$1 trillion.
“We . . . have seen healthy interest from Asia-Pacific issuers in the development of an [Asia-Pacific] market for catastrophe bond issuances, due to the proximity to and better understanding of the underlying risks,” said Lim, also the deputy chairman of MAS.
Singapore wants a slice of Chinese investment. Picture credit: Pixabay