ILS gains attention as climate change felt around the world: HK IA’s Cheung

On announcing the completion of the second catastrophe bond issuance domiciled in Hong Kong, the Insurance Authority’s CEO Clement Cheung explained that insurance-linked securities (ILS) are a focus as they gain increasing attention.

The Insurance Authority said that it welcomes the second issuance of insurance-linked securities (ILS) in Hong Kong.

As we’ve been reporting for a month, reinsurance firm Peak Re, which is headquartered in Hong Kong, sponsored its first ever catastrophe bond and used its local financial marketplace to do so.

The $150 million Hong Kong domiciled Black Kite Re Limited (Series 2022-1) cat bond issuance provides Peak Re with a source of industry loss based retrocessional reinsurance against Japanese typhoons over a multi-year period, backed by the capital markets.

As we explained earlier this week, Peak Re’s first cat bond while the second to be issued out of Hong Kong, is the first full 144A cat bond issuance and also the first to be able to utilise the insurance-linked securities (ILS) grant program introduced by Hong Kong’s Government.

Hong Kong’s Pilot Insurance-linked Securities Grant Scheme, which was launched by its Government in May 2021, can provide a sponsor with benefits worth up to HK$12 million of subsidy for each application.

Black Kite Re Limited, the issuance vehicle for Peak Re’s first cat bond, has now been authorised as a special purpose reinsurance company under Hong Kong’s ILS regulatory regime.

Discussing the completion of Hong Kong’s second catastrophe bond issuance, the Insurance Authority’s CEO said that the ILS market is gaining in profile and that Hong Kong is seeing increasing sponsor interest.

“With the impact of climate change vividly felt around the world, ILS is gaining prominent attention as an effective tool for risk transfer and a class of alternative investment.

“Following the inaugural issuance pioneered by a Mainland reinsurer in October last year, we have detected keen interest from a diverse spectrum of potential sponsors,” Cheung explained.

The goal is to position Hong Kong as one of the main centres for ILS activity around the world, helping to contribute to the deployment of more diversifying capital into insurance and reinsurance risk markets.

Cheung said, “In realising the aspiration of Hong Kong to become a global risk management centre, we will sustain efforts in building a vibrant ILS ecosystem, thereby enhancing underwriting capacities, strengthening financial resilience and bridging protection gaps.”

As Hong Kong’s traction increases, the ILS market has growing optionality for both domiciling and issuing ILS or catastrophe bonds, as well as for investors to access new sources of risk from regional sponsors as well.

You can read all about the Black Kite Re Limited (Series 2022-1) catastrophe bond from Peak Re, as well as every other cat bond transaction in our extensive Artemis Deal Directory.