Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

China in need of a catastrophe pool; a good fit for catastrophe bonds?


China, with its population of over 1.3b and its rapidly modernising infrastructure and economy, is still not particularly well covered by insurance for natural disasters. Many international insurance and reinsurance companies are active in China but much of the population remains at risk of disaster which they are not covered for.

Catastrophe insurance pools have been mooted as the answer for many years as a way to provide a backstop and they would provide an obvious way to cover property risks through a public-private risk transfer partnership. Index-based weather insurance is also on the cards as we’ve written about recently here and that will be of benefit to rural farmers and the like, but China being a country of economic contrasts will require a more holistic solution. The most populous nation in the world and heavily exposed to natural catastrophes, China is a prime candidate for an insurance pool but that pool, while acting as a backstop, will also need backing up itself.

This article from AM Best (via discusses the merits and difficulties of setting up a national catastrophe insurance pool in China and cites the difficult task of achieving concensus among stake holders as a major reason for one not already existing.

One of the sticking points we hear from sources is discussions about how to reinsure the pool adequately. Catastrophe bonds are a possible answer, but a nervousness around securitisation and a lack of understanding among interested parties has made discussions difficult. We’d like to see instruments such as Swiss Re’s Multicat structure being adapted to provide ultimate cover for any insurance pool.

Any catastrophe bond which covered Chinese property risks would be well received by investors and we can surely only be a few years away from an issuance covering an Asian country other than Japan?

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