Catastrophe bonds broaden China’s risk diversification channels: China Re

The issuance of the first catastrophe bond through Hong Kong has helped to open up a new channel for risk diversification for the domestic catastrophe insurance market, according to the sponsor of the Greater Bay Re Ltd. (Series 2021-1), China Re Group.

Last week we reported that China Re had successfully secured the issuance of a $30 million catastrophe bond covering Chinese typhoon risks for its subsidiary China Re P&C, when the anticipated Greater Bay Re transaction was completed.

It’s a landmark cat bond transaction, being the first to be issued out of a new domicile, Hong Kong, while also being the first to cover a new peril from China, in typhoon risk.

For China’s insurance and reinsurance market, access to the capital markets in an efficient manner for risk transfer could be critical longer-term, as catastrophe and severe weather exposure in the country is significant and domestic re/insurers will require access to international risk capital to diversify risk outside of its borders.

China Re, the sponsor of the first Hong Kong insurance-linked securities (ILS) issuance, made this clear in saying that catastrophe bonds can “help broaden the country’s catastrophe risk diversification channels” and “enrich the insurance industry’s methods for catastrophe risk management,” in China.

China Re also noted that this greatly enhances the Chinese insurance industry’s expertise in risk management and its ability to innovate, which is expected to promote the construction of the country’s catastrophe insurance market.

China Re Group highlighted the important emphasis that the country’s government has placed on catastrophe insurance in recent years, with it seen as an important economic lever that can help people and businesses recover after natural disasters and severe weather.

Alongside a focus on disaster reduction and relief, China’s government has also had a focus on insurance and risk diversification for a number of years now, with government entities having often pointed to the potential for capital markets backed reinsurance and risk transfer.

Now, with the launch of Hong Kong’s first catastrophe bond, the Chinese insurance industry has a local conduit to international risk capital, should its domestic market seek to take advantage of it.

The Chinese government and its insurance regulator have been promoting use of the Hong Kong ILS regulatory regime, as a positive way to reduce concentration of catastrophe risk in the country.

As we explained recently, China’s insurance regulator called on insurers in the country to look to catastrophe bonds in Hong Kong as a way to access diversified sources of reinsurance capacity and offload peak natural catastrophe risks.

China Re said that the regulator, the China Banking and Insurance Regulatory Commission, provided support in getting the Greater Bay Re Limited catastrophe bond to market.

The cat bond issuance “fully reflects China Re P&C’s technical advantages and innovative capabilities in catastrophe risk management,” the company further explained.

While the cat bond issuance is called “pioneering” and noted as an important step for the company and the broader Chinese insurance marketplace.

Finally, Zhang Renjiang, general manager of China Property & Casualty Reinsurance, explained that, “The first successful issuance of catastrophe bonds in Hong Kong is a specific measure taken by the insurance industry to serve the national strategy and support the construction of the Guangdong-Hong Kong-Macao Greater Bay Area.”

China’s insurance and reinsurance market continues to grow, with insurance penetration rising at some of the fastest rates around the world.

The country’s government and regulator are clearly aware of the benefits of access to the insurance-linked securities (ILS) market, which could see catastrophe bonds becoming a major component of domestic market insurers reinsurance arrangements in time.

You can read all about this new Greater Bay Re Ltd. (Series 2021-1) cat bond, the first to come out of Hong Kong, in our Artemis Deal Directory.