Climate change stimulates cat bond development in Asia

Analysts at Fitch Ratings have suggested the catastrophe bond market will continue to develop given a rise in catastrophic events amid climate change.

The demand for bonds issued via private placement by ILS is rising, suggests Fitch, with regular capital infusions to the reinsurance sector and ISLs in Hong Kong.

Peak Re announced in June 2022 that it had completed the issuance of a $150 million 144A catastrophe bond through a newly established special-purpose insurer, Black Kite Re, which provided capital to protect against typhoon risk in Japan.

This was Hong Kong’s second catastrophe bond after the city enacted its special-purpose reinsurance vehicle and ILS regulations.

The first was issued by China Re, which sponsored the Greater Bay Re series (2021-1) catastrophe bond in September 2021, which aims to cover typhoon-related losses in the Greater Bay area and other regions in China.

Japan-based MS&AD Insurance Group sponsored another catastrophe bond – Tomoni Re (Series 2022-1) – which secured the company $220 million of per-occurrence reinsurance protection at the top-end of price indications.

The bond was launched to investors in March 2022 seeking a multi-year source of Japanese collateralised typhoon and flood reinsurance protection for the ultimate beneficiaries; MS&AD-owned insurance subsidiaries, Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance.

Singapore’s Catahoula II Re issued notes in June 2022 to provide catastrophe bond protection of $175 million against Louisiana-based storms and severe thunderstorms.

In January 2022, the Philippines government recovered a $52.5 million payout under the terms of its World Bank-issued catastrophe bond, after super typhoon Rai breached the parametric trigger for wind.

The bond provides $150 million of tropical cyclone disaster insurance protection on a modelled loss trigger basis through a class B, not tranche, while a class A tranche provides earthquake cover.