APAC ILS, Parametric Markets Set for Growth Surge
Insurance-linked securities (ILS) and parametric markets in the Asia-Pacific (APAC) region are poised for growth, according to Tony Gallagher, APAC CEO of leading broker Marsh Re. Gallagher highlighted the region’s potential to expand within these markets, despite their current nascency compared to other regions.
APAC’s ILS market set to expand
The APAC region has transitioned from isolated transactions to a broader ecosystem, with multiple reinsurers exploring ILS. Gallagher noted that while the number of catastrophe (cat) bonds in APAC is still relatively small compared to the U.S., he expects the market to build out. Rating agencies like Fitch have also predicted a steady rise in Asian ILS issuance, supported by fixed income markets and growing climate awareness.
Regulatory measures are expected to further drive market development, encouraging the use of cat bonds and other forms of ILS. Gallagher suggested that a combination of ILS and traditional markets could deliver strong solutions for clients, and he anticipates more sidecars to support growth – a product currently not prevalent in the APAC region.
Parametric re/insurance gains traction
APAC is emerging as one of the fastest-growing regions for parametric re/insurance, driven by a substantial protection gap, severe weather patterns influenced by El Niño, and regional capacity constraints in traditional reinsurance markets. Gallagher highlighted parametric re/insurance’s potential as a solution for high-risk areas where traditional markets are unwilling to participate, as well as for governments seeking to protect public sector assets.
The Philippines has been a notable buyer of cat bonds and parametric products. Throughout Asia, parametric solutions are increasingly providing cover for individual risks, bringing in new capital solutions. However, Gallagher acknowledged that some clients struggle with basis risk, which can be managed by working with brokers to understand exposure and develop appropriate triggers.
Evolving client expectations
As the risk environment in APAC evolves, so do client expectations. Gallagher noted that clients are seeking holistic business solutions to protect their earnings volatility and capital, with a focus on using reinsurance to support stable returns for shareholders. The reinsurance solution toolkit is expanding, with ILS solutions moving into long-tail protection.
