Asia presents vast potential for third-party capital: Peak Re’s Reynolds
November 7 2024 by InsuranceAsia News
The Asia Pacific region, with its exposure to numerous natural perils, offers vast opportunities for employing third-party capital, including insurance-linked securities (ILS), says Iain Reynolds, director and head of catastrophe analytics and research at Peak Re.
Regulatory incentives in Hong Kong and Singapore are driving market growth, while diversification and reliable indices are key to structuring effective financial instruments.
“There’s a huge opportunity for employing third-party capital, including via ILS, for various insurance risks in the wider Asia Pacific region,” Reynolds told InsuranceAsia News (IAN).
The Asia Pacific region, exposed to numerous natural perils, presents vast potential for protecting physical assets.
Both third-party and traditional rated balance sheet capital play crucial roles in supporting the region’s economic stability.
Reynolds emphasises the importance of diversification in managing physical risks.
“The sheer scale of the region means that there’s plenty of diversification, which can be built as leverage for efficient third-party capital or ILS structures,” he said.
“Regulators in Hong Kong and Singapore have provided the incentives to trigger the market for issuers and we welcome those initiatives.” Iain Reynolds, Peak Re
With numerous family offices and institutional assets available for investment, there is significant potential to match financial assets with the region’s physical risks.
“Regulators in Hong Kong and Singapore have provided the incentives to trigger the market for issuers and we welcome those initiatives,” says Reynolds. These incentives are also attracting investors, which is seen as a positive development.
Globally, the ILS or third-party capital market is valued at approximately US$100 billion, with cat bonds accounting for nearly half of this. However, less than 10% of this capital is dedicated to the Asia Pacific region, with the majority focused on Japan.
There is a need for reliable indices to structure cat bond transactions or third-party capital transactions. as these are crucial for ensuring that the financial instruments accurately reflect the risks they are designed to cover.
“If we wanted to do something in India or China, what we would like to see would be a reliable index that we could gain confidence in that would be a good proxy that we would be able to understand how well that index would track our own financial position,” Reynolds said.
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