Greater Bay Re, the first authorised special purpose insurer (SPI) in Hong Kong, has inaugurally issued insurance-linked securities (ILS) in the form of a catastrophe bond. The bond was made available by China Re and the China Property and Casualty Reinsurance Company. It provides protection against losses suffered as a result of typhoons in mainland China following the heightened frequency and severity of natural catastrophe events. The issuance was facilitated by a regulatory regime for SPIs launched by the Insurance Authority (IA) in March this year, as well as the pilot ILS grant scheme as part of the 2021-2022 budget which subsidises upfront costs of up to HK$12 million for each eligible transaction. The IA notes that ILS is an “effective tool” to mitigate the risks associated with such events because it is not as susceptible to economic cycles as commercial insurance products. Clement Cheung, CEO of IA, comments: “This decision of a leading state-owned reinsurer not only exemplifies the potential and attractiveness of Hong Kong as an emerging ILS hub, but also demonstrates our crucial role as a global risk management centre.” “Taking full benefit of the explicit support given by the central government, we will ramp up efforts to nurture a vibrant ILS ecosystem, playing our part in increasing underwriting capacities, enhancing financial resilience and narrowing protection gaps.” Last month, the IA highlighted how Hong Kong can leverage its status as a captive domicile and reinsurance hub to consolidate its position as a global risk management centre.
