It increasingly looks like Hong Kong could break into the insurance-linked securities (ILS) market before too much longer, as with details of its ILS grant pilot now available, one local law firm said it is already receiving enquiries from potential sponsors.
Back in February, Paul Chan, the Financial Secretary of Hong Kong, revealed plans for a Pilot Insurance‑linked Securities Grant Scheme that will pay as much as HK $12 million per issuance, which is close to US $1.6 million of potential ILS or catastrophe bond issuance cost savings for sponsors choosing to use Hong Kong as a domicile.
This confirmed the availability of an ILS grant of up to HK$12 million (around US $1.55m) or 100% of total upfront costs for an ILS or catastrophe bond with a three or more year tenure, and up to HK$6 million (around US $775m) or 50% of total upfront costs for an ILS with a tenure shorter than three years.
With the market absorbing the details of the offering, it’s said that enquiries are already being made by potential ILS sponsors looking at Hong Kong as an issuance domicile.
Hong Kong based corporate and litigation law firm Timothy Low LLP explained recently that, “As a firm, we have already received enquiries as to the possible establishment of a Hong Kong based captive to issue insurance linked securities in Hong Kong.”
Adding, “If the experience in Hong Kong will be similar to that in Singapore, Hong Kong should see its first insurance linked securities issuance within a year.”
That ties in with the ambitions of the Hong Kong government, who believe that ILS activity in the Special Administrative Region (HK SAR) of the People’s Republic of China could begin before the end of the year.
We’ve also heard from other service provider contacts that have clients interested in finding out more about Hong Kong’s ILS offering.
With appetite for catastrophe bond and capital market’s backed reinsurance rising and market conditions conducive to strong pricing execution, the additional benefits of the ILS grant savings should also provide a draw to potential international issuers, as well as local Hong Kong or Asian sponsors.
With choice rising for issuing ILS around the world, these trends are serving to expand awareness of the market and sponsors understanding of the options available to them.