First Hong Kong cat bond, Greater Bay Re gets China Re $30m of typhoon cover

The very first catastrophe bond to be issued out of Hong Kong has now been completed, with a $30 million Greater Bay Re Ltd. (Series 2021-1) cat bond coming to market on behalf of sponsoring reinsurer China Re.

The transaction actually completed in September, but has only come to light this morning as it was relatively privately marketed by Aon we understand, with only a handful of specialist cat bond funds or investors privy to the deal.

The Greater Bay Re Ltd. cat bond was issued as a zero-coupon deal and only provides its sponsor with a single year of retro reinsurance protection we understand.

China Re is a state-owned reinsurer in China, so it is notable that the first issuance to come from Hong Kong is from the company.

China Re had previously sponsored a the also relatively small Panda Re Ltd. (Series 2015-1) cat bond back in 2015, to secure Chinese earthquake risk reinsurance protection.

As we explained back in June, the Greater Bay Re Limited special purpose issuance vehicle had been registered in Hong Kong and we knew at the time that the sponsor would be China Re P&C.

Greater Bay Re Limited has issued a single $30 million tranche of Series 2021-1 cat bond notes, which were structured as zero-coupon notes and sold to a small group of cat bond investors, we understand.

Aon Securities acted as the sole structuring agent and bookrunner for this issuance.

The $30 million of notes will provide China Re with a one year source of retro reinsurance protection against certain losses from Chinese typhoons, on an indemnity trigger basis. Coverage includes the Greater Bay region and other areas of high exposure to typhoons, we understand.

Maturity of the notes is expected in October 2022, we’re told.

Being zero-coupon in nature, the $30 million of notes issued by Greater Bay Re were priced at 96.96 of par, we’re told, which would imply a rough coupon equivalent of 3.04%.

This is a notable achievement for Hong Kong, which has managed to get its first cat bond to market in the same year as its regulatory regime for insurance-linked securities (ILS) was completed.

“Clement Cheung, Chief Executive Officer of the Insurance Authority of Hong Kong, commented, “This decision of a leading state-owned reinsurer not only exemplifies the potential and attractiveness of Hong Kong as an emerging ILS hub, but also demonstrates our crucial role as a global risk management centre.

“Taking full benefit of the explicit support given by the Central Government, we will ramp up efforts to nurture a vibrant ILS ecosystem, playing our part in increasing underwriting capacities, enhancing financial resilience and narrowing protection gaps.”

The Hong Kong Insurance Authority also said that ILS and cat bonds are “an effective tool to mitigate the risks posed by natural catastrophes,” adding that the volatile financial markets also “stokes the appetite among institutional investors for products that bear lesser correlation with economic cycles.”

China Re, as sponsor of the Greater Bay Re cat bond, will have benefited from reduced issuance costs under Hong Kong’s Pilot ILS Grant Scheme.

The South China Morning Post reported that Zhang Renjiang, general manager of China Property & Casualty Reinsurance commented on the issuance, “The Greater Bay Area is among the worst hit areas in the country, with many typhoons and heavy rains. It is of the utmost importance to have proper insurance arrangements to manage the risks in these natural catastrophes to safeguard the development of the bay area,.

“The first issuance of a catastrophe bond in Hong Kong is a major step forward to promote the Greater Bay Area development.”

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.