Shanghai Insurance Exchange could launch within days

by Artemis on June 8, 2016

The anticipated Shanghai Insurance Exchange could launch as early as this weekend, according to reports in Chinese news media. While product specifics remain private, reports suggest the exchange will facilitate insurance derivatives and other forms of risk securitization at some stage.

With $343 million (2.235bn yuan) of required financing being secured from 91 companies in May, reports from China now state that the Shanghai Insurance Exchange could launch as early as this weekend, at the two-day Lujiazui Forum held from the 12th of June.

The insurance exchange will be the first of its kind in China as the country takes steps to reach its goal of becoming a leading insurance and reinsurance hub by 2020.

It’s understood that the exchange will facilitate trading for insurance and reinsurance, as well as services and offerings for shipping insurance, insurance assets and special risk insurance, reports the South China Morning Post.

Specific product information and the types of insurance and reinsurance-linked investments that will be tradable via the exchange remains limited and, or private, but it’s believed by market observers that reinsurance trading will feature at some point in the future.

Furthermore, since the exchange was first mooted in 2010, plans were revealed for the exchange to offer insurance derivatives, catastrophe bonds, and other forms of risk securitization, ultimately enabling risk to be diversified outside of the Chinese insurance market via the abundance of capacity in the capital markets.

It’s important to stress that we can’t be certain on the use of insurance derivatives and capital markets features and capacity to be part of the new exchange, as privacy remains high.

However, reports from Chinese news media, stating that the country wants to become a leading centre for insurance and reinsurance business, and messages from the Chinese Insurance Regulatory Committee (CIRC), suggest that other types of insurance and reinsurance trading, including for insurance derivatives, and services will feature in the future.

Artemis has reported previously how the CIRC continues to push for insurers and reinsurers in the country to be able to access capital markets capacity and features, via the introduction of legislation that enables the securitisation of insurance liabilities and their transfer to the capital markets.

The push from the Chinese regulator along with the establishment of the Shanghai Insurance Exchange and its potential use of insurance derivatives and so on, implies that traditional re/insurance and insurance-linked securities (ILS) could all be a part of the China’s new insurance framework in the future.

Again, while this isn’t clear, should insurance derivatives, cat bonds, and so on be a feature of the exchange it suggests that third-party investors might be able to invest in securities through the platform, which would support the desired growth ambition of the exchange.

During the 2016 Shanghai International Insurance Forum held earlier this week, Pei Guang, Head of the Shanghai branch of the CIRC said, “Shanghai is poised to emerge as a major global insurance centre by 2020 with rising pricing power and a voice in reinsurance, shipping insurance, and insurance capital operations.”

The Chinese insurance sector continues to lag behind the country’s securities and banking industries, with the launch of the new exchange and the Shanghai insurance investment fund signs of the city’s potential to establish itself as a world leading re/insurance centre.

“Shanghai will accelerate modernisation and internationalisation of the local insurance sector. Shanghai’s insurance business has developed at its best pace in the past five years, and we will continue to fight for the success of becoming an international insurance centre in the next five years,” said Guang.

When the exchange does actually launch, whether that be this weekend or at a later date, it will be interesting to see what its initial focus is. News media reports from China suggest that insurance assets could be among the first to be traded, with the reinsurance business coming later. At least once the Shanghai Insurance Exchange is launched we should begin to get a clearer picture of its plans.

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

Shanghai Insurance Exchange financing secured, launch nears.

China regulator progressing cat bond & insurance securitisation rules.

China regulators agree to accelerate use of catastrophe bonds.

Shanghai Insurance Exchange nears approval, cat bonds a feature.

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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