Asian ILS market to benefit regional re/insurers: Fitch

The development and growth of an insurance-linked securities (ILS) market in Asia can only be a benefit to local insurance and reinsurance carriers, as well as those operating regionally, as the capital markets capacity can help them expand their ability to underwrite and diversify capacity sources, rating agency Fitch explained recently.

Fitch noted in a recent report that Asian insurers and reinsurers are taking up catastrophe reinsurance and retrocession cover in excess of the minimum regulatory requirements to improve their risk mitigation capabilities.

In the future insurance-linked securities (ILS), such as catastrophe bonds and other securitised reinsurance or retro arrangements backed by capital market investors, are likely to assist in this regard.

The ILS in Asia continues to increase, Fitch said and the rating agency believes the continued expansion of the ILS market in Asia will assist the regional marketplace, by helping to expand reinsurers’ capacity and diversifying their sources of capital.

Singapore’s expanding progress in attracting ILS transactions such as catastrophe bonds through its regulatory regime and ILS grant program will be a catalyst for expanding ILS activity in the Asia region.

Added to which, Hong Kong is also seeking to lean on its own already  developed capital markets, legal systems and proximity to mainland China, as it positions itself to become another ILS hub in Asia, the rating agency said.

Commenting on the Covid-19 pandemic and how that is affecting global ILS markets, Fitch said that, “Losses for catastrophe bonds should be limited despite the coronavirus pandemic, because the underlying risk covered is mostly property losses arising from natural catastrophe perils such as hurricanes, earthquakes, tornadoes and wildfires.”

However, Fitch said that the growth of the ILS market, in Asia and globally, is set to hinge on investor interest stemming from favourable catastrophe loss experiences.

Fitch also noted another factor that should help to promote use of ILS in Asia, the low insurance penetration rate in the region, particularly in the emerging countries, that provides reinsurers and therefore also ILS investors and funds with opportunities for growth.