21 ILS transactions have been launched in Singapore since 2018, including a growing number by Asian cedants

Insurance-linked securities (ILS) are an essential solution to tackling the climate crisis. This is according to Gillian Tan, assistant managing director (Development & International), Monetary Authority of Singapore (MAS).

She was addressing the challenges presented by complex risks in her keynote speech on the first day of the Risk and Insurance Management Society (RIMS) - Willis Towers Watson (WTW) Asia Pacific Risk Virtual Conference.

Tan warned that if no action on climate change was taken, Asia’s economy would shrink by 26% by 2050.

The protection gap is among the key challenges that must be dealt with for a region that is so highly exposed to natural catastrophes and weather extremes.

”In 2021 alone, the economic cost of catastrophes in the Asia Pacific region was $50 billion, accounting for 18% of the global total,” she said. ”However, Asia is significantly underinsured at only 17% of the total economic cost compared to the global average of 57%.

“Asia’s insurance markets are growing, but the pace of growth will not be able to match the region’s growing protection needs from natural catastrophes.

“A distinct lack of high quality and standardised data to accurately quantify risk exposure for climate risks or to build reliable models also remains a key challenge. 

Singapore has been stepping up efforts to support the development of risk pooling solutions as well as better risk modelling and analytics capabilities in an effort to support natural catastrophe risk financing in the region.  

“We see insurance-linked securities or ILS, which support additional fund raising from the capital markets, as a key solution,” said Tan. 

She noted that:

  • Asia’s ILS market is growing, as more cedants, both sovereign and corporates, look to such vehicles to raise additional risk capital.
  • Singapore is a leading domicile for ILS issuances in the Asia Pacific. As of June 2021, its ILS market share was 14% of the global market.
  • 21 ILS transactions have been launched in Singapore since 2018, including a growing number of transactions by Asian cedants, covering multiple perils such as typhoon, flood and cyclone risk in Asia. 

Tan said Singapore would build on this momentum and anchor capabilities in ILS structuring, risk modelling, loss reserve adjustments, and fund management to better support corporate and sovereign cedants in the Asian time zone.

MAS is also working on enhancing our regulatory, corporate, tax and bond listing regimes to support a wider range of ILS risks and instruments.

”Ultimately, supporting the growth of better climate risk financing solutions will require strong risk analytics, data and risk modelling efforts,” she added. ”We need to share resources, exchange notes and work together.”