There is also a strong catastrophe risk ecosystem to support ILS issuances, with the leading catastrophe modelling firms with ILS expertise present in Singapore, and research institutes such as the Earth Observatory of Singapore and the Institute of Catastrophe Risk Management, to support data and modelling needs. Singapore also aims to serve as the Asian knowledge centre for new and emerging risks. b. Singapore is well recognised as a premier asset management centre in Asia, with deep capabilities across both traditional and alternative asset classes. As the gateway to alternative capital providers such as pension funds, family offices, and hedge funds in Asia, ILS fund managers are increasingly assessing Asian investors through Singapore. c. Singapore has a deep debt capital market, with a broad range of bond offerings to provide collateral for and to support innovative ILS products and structures. SGX, a dynamic stock exchange, can facilitate bond trading. 13 Second, Singapore has ready corporate, regulatory and tax frameworks to facilitate ILS issuances: a. ILS instruments can be issued and regulated in Singapore via the Special Purpose Reinsurance Vehicle (“SPRV”) regulations, which allows sponsors to readily securitise insurance risks in Singapore. b. To provide tax neutrality for ILS vehicles, Singapore offers the Approved Special Purpose Vehicle (“ASPV”) scheme. 14 Third, MAS has taken steps nurture the growth of the ILS market in the region. a. MAS launched the ILS grant scheme in Jan this year, which will fund 100% upfront issuance costs of catastrophe bonds in Singapore, up to $ million.
Growth remains strong in 2018, with issuance of catastrophe bonds the most prevalent type of ILS, more than doubling compared to the same period last year. ILS rates have stabilised after having risen post these disasters, and subsequently dipping with the influx of capital. Catastrophe bond managers have continued to launch new ILS funds in response to strong demand from investors. Today, the ILS market has grown to the point where it now provides 15% of global catastrophe reinsurance capacity. 5 Let me highlight 2 key reasons why ILS has been growing over the years: a. First, it offers sponsors a viable alternative to enhance risk transfer programs. ILS provides diversification of the source of risk capital, multi-year coverage, and also competitive rates compared to traditional reinsurance. b. Second, there is strong demand from investors given ILS’ low correlation with other asset classes, and low volatility. To illustrate, the Swiss Re Global Cat Bond Index has an annual volatility under 3%1, much below the 15% and 5% for equities and corporate bonds respectively. In addition, catastrophe bonds also offer ILS investors a liquid investment option as they can be traded on the secondary markets. 6 The ILS market has continued to innovate in response to the growing and changing needs of sponsors and investors. This innovation is happening along different dimensions, namely in risk types, geography, and structures. a. On risk types and geography. i. ILS has now expanded its scope to cover other lines of business like operational risks and mortgage risks.