IAG issues first cat bond, uses new Singapore ILS laws for first time

Insurance Australia Group (IAG) has issued its first catastrophe bond; the deal also the first to be domiciled in Singapore, using its new insurance-linked securities (ILS) laws.

Orchard ILS provides IAG with A$75 million ($53.8 million) of annual aggregate catastrophe protection for three years and is part of its aggregate sideways cover, which in total provides protection of A$475 million excess of A$375 million.

The company said it adds a new element to its risk transfer programme and diversifies its suite of available reinsurance solutions.

In an attempt to break into the ILS market, the Monetary Authority of Singapore (MAS) introduced the so-called ILS grant scheme in February 2018. The scheme, which was developed in consultation with GC Securities and IAG, funds upfront ILS bond issuance costs.

The scheme also complements a regulatory system that supports the incorporation of a purpose-built reinsurance entities in Singapore to securitize risks, and a tax framework that provides tax neutrality to the reinsurance entity and ILS investors.

The fact that it has now been used for the first time could be seen as proof of the potential for ILS in the Asia region.

GC Securities acted as the sole structuring agent and sole placement agent for the catastrophe bond issued by Orchard ILS.

Ng Yao Loong, assistant managing director, development and international group, 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 organizations and sovereigns are now able to tap additional risk transfer mechanisms to better address Asia’s disaster protection needs.”

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David Priebe, vice chairman at Guy Carpenter, added: “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.”