Shanghai Insurance Exchange nears approval, cat bonds a feature

by Artemis on June 9, 2015

According to reports in local Chinese news media, the Shanghai Insurance Exchange is nearing approval and the plans will include providing a platform for trading in insurance or reinsurance risks, with securitisation and catastrophes bonds an expected feature.

The Shanghai Securities News, a Chinese language news digest, said that the long-awaited exchange is close to receiving its approval from the China Insurance Regulatory Commission (CIRC). The news outlet said that the approval could come as soon as this year.

The plans for the insurance and reinsurance exchange were initially floated in early 2011, but since that initial announcement there hasn’t been much detail on the plans or progress of the initiative.

The city of Shanghai is already established as a world financial center, but insurance and reinsurance in China has lagged behind banking and the securities industries and the exchange was seen as a way to boost the city’s importance in these markets.

Right from the start the plans for the exchange included the creation of a platform that could offer products such as catastrophe bonds, insurance derivatives and other forms of risk securitisation, aiming to facilitate trading and transfer of reinsurance risks and to diversify risk outside of the traditional market.

Those plans remain on the agenda, according to the Chinese language newspaper report. When considered alongside recent news that regulators the Securities Association of China (SAC) and the Insurance Institute of China (IIC) are to work on bringing the securitisation of insurance and reinsurance risks and catastrophe bonds to China, it is perhaps easier to see China making turning the plans into reality.

The development of an exchange that targets these products, the risk transfer they bring and the transfer of those risks to capital market investors, could help to encourage pricing transparency and centralised transactions, benefiting and accelerating the development of a cat bond and risk securitisation market in China.

Developing products like catastrophe bonds, insurance and reinsurance securitisation and insurance or risk-linked derivatives for China, with a focus on making them exchange tradeable could give the country a unique proposition.

Such a development would make transferring risks easier for Chinese insurance and reinsurance companies, as well as government risk pools and perhaps even Chinese corporations, who could access the market and end-investors more directly.

Read more on China’s ambitions in catastrophe bonds and insurance linked securities (ILS):

Shanghai plans insurance exchange, to include securitization of risks.

The prospects for catastrophe bonds in China: Willis.

China catastrophe re/insurance demand rising: Munich Re.

Chinese insurers could use cat bonds as a capital tool: Moody’s.

China catastrophe re/insurance system development a ‘difficult project’.

Swiss Re sponsored research suggests parametric insurance for China.

China calls for catastrophe bonds in fight against climate change.

Catastrophe bonds in China, some discussion on their feasibility.

China now considering issuance of catastrophe bonds.

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