The inaugural catastrophe bond issuance in Hong Kong is a clear vote of confidence in the Special Administrative Region (SAR) and a sign of the exciting opportunities that lie ahead, according to regulator the Insurance Authority (IA).
The implementation of Hong Kong’s insurance-linked securities (ILS) regulatory regime and the legislation necessary to establish special purpose insurance or reinsurance vehicles for securitisations and issuance of catastrophe bond notes, is an initiative that has been portrayed as having close ties to mainland China.
This work culminated in the successful issuance of the first catastrophe bond in Hong Kong last month, with the $30 million Greater Bay Re Ltd. (Series 2021-1) cat bond sponsored by mainland and state supported reinsurance giant, China Re Group.
China Re itself explained how Hong Kong’s ILS regulatory environment would be important for China’s insurance and reinsurance market, by opening up a new channel for risk diversification for the domestic catastrophe insurance market.
Hong Kong’s insurance market regulator also stressed the connectivity between the SAR and China’s broader economic plans in a statement.
Dr Moses Cheng, Chairman of the IA, explained, “The National 14th Five-Year Plan has positioned Hong Kong as a global risk management centre serving both external and internal clients under the ‘dual circulation’ economic strategy, offering dynamic and exciting prospects for our insurance industry.”
The 14th Five-Year Plan explains China’s ambitions for Hong Kong to be a global asset and risk management hub, as well as a gateway for capital flows into China.
In addition, the Greater Bay Area plan, also envisages Hong Kong as the financial hub and it is therefore appropriate that the inaugural catastrophe bond from Hong Kong cover Greater Bay Area typhoon risks, as the major component of its expected loss and exposure makeup.
“Building on this premise, the IA has set itself the goal of building an ecosystem to take full advantage of our forte as a super connector of international trade and investment activities, while nurturing domestic demands by participating in development of the Guangdong-Hong Kong-Macao Greater Bay Area,” Dr Cheng said.
The Insurance Authority highlighted the emergence of Hong Kong as an ILS and catastrophe bond hub as one of the key developments of recent times for its financial market.
“Final preparations for the inaugural issuance of insurance-linked securities by a leading state-owned reinsurer,” is one of the “clear votes of confidence on our attractiveness as an international financial centre and a premier base for regional headquarters,” the regulator explained.
We’re told that early preparatory work is underway on a second catastrophe bond to be issued from Hong Kong, although we’re unsure if this is another mainland sponsor or an international company.