As options to issue insurance-linked securities (ILS) and catastrophe bonds expand in Asia, with the introduction of Hong Kong as a regulated ILS platform, attendees at our virtual ILS Asia 2021 conference this morning heard of the support China’s government is offering to the initiative.
Our virtual ILS Asia 2021 conference, held in association with headline sponsor AM RE Syndicate Inc., began today with a keynote interview with Mr. Simon Lam, Executive Director, General Business at the Hong Kong Insurance Authority.
Hong Kong already has an established insurance and reinsurance market, while its legislative preparations for ILS were completed at the beginning of 2021.
Since then the Insurance Authority has been building out its licensing and supervision infrastructure, with the support of an ILS working group, including notable ILS market players, Mr. Lam explained to the ILS Asia 2021 audience.
“As we all know, being efficient in licensing is very, very important for ILS issuers,” he explained. Saying that “We also started an ILS capacity building exercise for staff of the Insurance Authority, through the engagement of a professional ILS consultant.”
“The final piece was when the pilot ILS grant scheme was launched by the Hong Kong government in May,” Lam continued, saying that, “If you ask me where are we now, I would say that we are 99% ready for the first issuance.”
At the same time Hong Kong has been engaging with potential sponsors of insurance-linked securities (ILS) arrangements, to generate initial deal-flow interest.
Mr. Lam told our conference audience that, “In parallel, we are soliciting support from potential sponsors and I’m pleased to advise that we are already working on the first cat bond and hopefully, if all things go well, we will have the first ILS issue out of Hong Kong within this year.”
Here, Mr. Lam is referring to the transactional work to support a catastrophe bond issuance under the newly registered vehicle we revealed in a recent news report, with Greater Bay Re Limited registered as a company that will be licensed and used to issue a catastrophe bond on behalf of sponsor China Re.
It’s encouraging to hear direct from the regulator that work to get this first Hong Kong catastrophe bond to market is well underway.
Hong Kong’s ambitions lie more broadly and it would like to attract sponsors from all over the world, although Lam acknowledged that the close ties with China are very important to its nascent ILS platform.
“Hong Kong is not only targeting Asian issuers, but obviously our geographical location and time zone will pre-dispose us to the Asian issuers segment,” Lam continued.
Adding that, “Mainland China is an important cornerstone in our ILS strategy. So with the rapid growth of the mainland insurance market we are seeing very strong demand for risk transfer against nat cat, such as earthquakes and typhoons.”
The burgeoning Chinese insurance and reinsurance market is an opportunity and Lam hopes that Hong Kong can serve as a platform for mainland insurers to issue catastrophe bonds.
To which end there is also important support from China’s government Lam explained.
“In this context, the mainland (China) government has put up an official policy initiative to support mainland insurers to issue catastrophe bonds in Hong Kong,” Lam said. Adding that this is, “Both to promote ILS and also in the context of the Greater Bay Area Development Initiative.”
With the first catastrophe bond to be issued out of Hong Kong likely to be the aptly named Greater Bay Re, sponsored by China Re, the close cooperation between Hong Kong and the mainland China government are already set to deliver benefits.
“At the Insurance Authority we are also in close liaison with our peer regulator in China, the China Banking and Insurance Regulatory Commission on the policy support initiated. These are very strong policy support in terms of kick-starting Hong Kong as an ILS domicile,” Lam said.
As well as the on-demand playback, we will be archiving every session from our online and virtual ILS Asia 2021 conference over on our YouTube Channel in the coming weeks and audio versions will also be uploaded to our podcast which you can subscribe to here.
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