Could be ‘several’ Hong Kong cat bonds by year-end: Anger at ILS Asia 2021

With Hong Kong now established as a regulated domicile for insurance-linked securities (ILS) and catastrophe bonds, there could be several issuances out of the region by the end of 2021, according to Cory Anger, Managing Director of GC Securities.

On the final day of our virtual ILS Asia 2021 event, in association with our headline sponsor AM RE Syndicate Inc., the audience was treated to an insightful discussion on the Asian catastrophe bond and ILS market from Anger of GC Securities.

This interview can now be viewed on-demand here.

Following in the footsteps of Singapore, Hong Kong finalised its legislative preparations for ILS at the start of 2021 as it looks to become a regional hub for insurance-linked business.

Since then, regulators have been working hard and engaging with potential sponsors, which has led to the registration of Greater Bay Re Limited as an entity that will be licensed and used to issue a cat bond on behalf of China Re.

“Both the Chinese regulator and the Hong Kong Insurance Authority have been very supportive of sponsors, using a Hong Kong Special Purpose reinsurer for an ILS deal, whether it’s through the grant scheme, whether it’s working them through the regulatory approval process,” said Anger.

As is the case in Singapore, in order to stimulate deal-flow out of Hong Kong the regulator has introduced a grant scheme which covers some of the costs of issuing a cat bond out of the region.

This approach has been successful in Singapore with the number of issuances growing year-on-year, and Anger feels that by offering this incentive, Hong Kong has shown that it wants to make it a success.

“I think they’re starting first with companies that haven’t yet brought as much risk to the ILS market, which is Chinese insurers and reinsurers. I think that that’s particularly exciting, because that’s really going to expand Asia risks that are available to the ILS market.

“I think it’s very exciting what they’re doing and in particularly supporting China to be ceding risk outwards, out of the country. It will help risk takers understand the risk better, but also should be promoting more capital support in the Asia Pacific region, being sourced from the ILS market,” said Anger.

On day 1 of Artemis ILS Asia 2021, Simon Lam, Executive Director, General Business at the Hong Kong Insurance Authority, said that if all goes smoothly, the market will see the first ILS issuance out of Hong Kong within this year.

But according to Anger, the efforts of the region and its commitment to the ILS space means that, “we would expect there could be several deals executed before the end of the year.”

Of course, it remains to be seen just how much the Hong Kong ILS platform is used this year for the issuance of cat bonds. However, the recent success witnessed in Singapore coupled with Hong Kong’s relationship with mainland China, suggests the region has the potential to be able to attract sponsors from China and the wider world.

Commenting on Hong Kong’s relationship with mainland China as a special administrative region, Anger said, “I think that they have a unique relationship that allows them to work with the sponsor base and facilitate them out into the market, they don’t necessarily need to look to the international markets.

“With that being said, I think they’ve been very open, they’ve worked with experienced service providers as consultants globally in setting up their framework, so that there is the possibility of foreign sponsors utilising a Hong Kong Special Purpose Reinsurer.”

Adding, “I think a key thing for investors, is also just making sure that they’re comfortable with the requirements of Hong Kong, that the sponsor is also comfortable. You know whether we seek governing law, or any tax issues that are specific and unique, out of interacting with a Hong Kong Special Purpose Reinsurer.

“I think that they’ve tried to be very thoughtful of that and I think the grant scheme is meant to help manage any aspects that there might be.

“They have listened to all the consultants, intermediaries and folks that want to help them have a functioning jurisdiction that’s available not just for Mainland China but also for the broader international community.”

You can watch this session of ILS Asia 2021 on-demand here.

As well as the on-demand playback, we will be archiving every session from our online and virtual ILS Asia 2021 conference over on our YouTube Channel in the coming weeks and audio versions will also be uploaded to our podcast which you can subscribe to here.

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