IAG taps ILS cat bond in Singapore

February 27 2019 by Andrew Tjaardstra

Insurance Australia Group has sponsored its first cat bond as part of its 2019 catastrophe aggregate reinsurance cover, which it recently increased by A$1 billion to A$9 billion.

The bond is also the first issuance in Singapore after the Monetary Authority of Singapore (MAS) introduced an insurance-linked securities (ILS) grant scheme in 2018 to fund upfront bond insurance costs.

The bond provides IAG with A$75 million (US$54 million) of annual aggregate catastrophe protection for three years until 17 January 2022 and is part of its aggregate sideways cover, which provides protection of A$475 million for losses in excess of A$375 million.

GC Securities, a division of Marsh and McClennan Securities which works closely with Guy Carpenter, acted as the sole structuring agent and sole placement agent for the bond issued through special purpose vehicle Orchard ILS.

David Priebe, vice-chairman at Guy Carpenter, commented: “Singapore’s ILS grant scheme is an excellent initiative that has played an important part in enabling this transaction to take place. We hope the pioneering work of IAG, MAS, and GC Securities provides a springboard for greater use of insurance linked securities to close the protection gap in Asia and promote sustainable economic development in one of the most dynamic regions of the world.”

Ng Yao Loong, assistant managing director for the development and international group at MAS, said, “The IAG cat bond issuance is a significant milestone in the development of Singapore’s ILS market. It demonstrates the growing capabilities of the Singapore financial sector in delivering such innovative capital market solutions.

“The (re)insurance industry, multilateral organisations and sovereigns are now able to tap additional risk transfer mechanisms to better address Asia’s disaster protection needs.”

Singapore’s bond scheme complements a regulatory system that supports the incorporation of a purpose-built reinsurance entity in Singapore to securitise risks, and a tax framework that provides tax neutrality to the reinsurance entity and ILS investors.

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