Data key to delivering Hong Kong and China’s ILS goals

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The availability of robust data sets and information on losses will be key for Hong Kong and China to deliver on their goals for insurance-linked securities (ILS) market development, according to speakers at a recent conference.

hong-kong-ils-catastrophe-bond-china-reThe first Hong Kong domiciled catastrophe bond, China Re’s $30 million Greater Bay Re Ltd. (Series 2021-1) typhoon cat bond, showed the reinsurer responding to the demands of major Chinese urban centres and utilising the new insurance-linked securities (ILS) platform in Hong Kong to access the capital markets.

Speaking at the Hong Kong Insurance Authority’s Asian Insurance Forum 2021 event recently, Hu Xiao, Vice Chairman and CFO, China Reinsurance (Hong Kong) Limited, explained that this was an important first step, in recognising synergies between Chin and Hong Kong’s financial market and is seen as particularly relevant to ambitions to create a green finance hub.

“We collaborated with the Greater Bay Area (GBA) to further promote green finance. When China Reinsurance established our local Hong Kong branch, some local governments contacted us, for example Shenzhen government, who have suffered from typhoon losses each year.

“Those typhoons have resulted in a lot of injuries and casualties, so they wanted to repackage typhoon as catastrophe products and release them to overseas investor markets.

China Reinsurance had its first cat bond back in 2015 in Bermuda, focused on earthquake with Panda Re. But later we wanted to do the same in Hong Kong and this year with the regulatory bodies and government passing legislation, we could set up an SPI to issue catastrophe bonds in Hong Kong,” China Re’s Hu Xiao explained.

He went on to highlight that Hong Kong’s ILS grant scheme was helpful in enabling China Re to issue its first catastrophe bond and how working with the Greater Bay Area governments made this possible.

“The government also offered a subsidy, so for first time issuers they would subsidise your issuance capital and we were very thrilled when we heard the news,” Hu Xiao said.

“Our Beijing headquarters had a working group to promote the issue and we worked with the finance authority, resulting in our first catastrophe bonds, the Greater Bay Re issue.

“The target was very suitable for the Greater Bay Area (GBA), to protect against the typhoon risks in the region.”

It was also critical to connect with the international catastrophe bond investor community, Hu Xiao explained.

Saying, “Many of the investors, including international catastrophe bond investors, welcomed the development and this issue and it also supports Hong Kong’s development as a green finance centre.”

Eric Hui, Chairman of the Hong Kong Task Force on Green Insurance, Hong Kong Federation of Insurers, also participating in the panel discussion, explained that there are opportunities to take this work much further, but stressed the importance of data.

“We are working on an ESG centre for green and sustainable finance, and I am co-chair for a data working group. In a study with banks, asset owners and managers, we found that many financial service companies are looking for lots of climate-related loss data, so as to buy insurance,” Hui said.

Continuing, “So, there’s a very close collaboration between banks, asset owners and insurers and the loss data that we are looking for is not only about physical loss, but it’s also about loss of life or health.

“We are talking about the Greater Bay Area (GBA) here, we’re talking about a big community, a big territory and if we can manage the data very well, channel the data very well between banks and insurers, then we can become more powerful to price up ILS, not only for CAT, but maybe for other sustainability products and for pandemic as well, that’s something we can do further in GBA.”

Hu Xiao of China Re Hong Kong said this is part of a greater strategy to make the necessary connections to the capital markets because climate change is expected to ramp up disasters in China.

“The vision is great, because in the future in mainland China there will be a lot of climate change related events and disasters,” he said. “With ILS investors don’t need to establish their own insurers, but can participate in green insurance through the ILS issuance.”

Hu Xiao went on to explain that China Re’s underwriters needed to connect with global capital markets and foreign ILS market investors, in order to better understand what kind of product opportunities there could be in future.

“ILS is a good example of the insurance industry linkage with other financial service sectors. ILS will be a very good promoter for the insurance and financial services in Hong Kong,” he explained.

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