China’s insurance regulator has called on insurers in the country to seek sponsorship of catastrophe bonds in Hong Kong in order to access diverse sources of reinsurance capacity and to offload peak natural disaster risks.
The China Banking and Insurance Regulatory Commission (CBIRC) said in a notice that domestic Chinese insurers sponsoring catastrophe bonds from Hong Kong will support its “closer” economic partnership agreement between the country and the Administrative Region. special.
As we have already explained, the Chinese government has supported the development and introduction of catastrophe bond rules in Hong Kong and views the special purpose reinsurance vehicles that can now be established there as an avenue for insurers of mainland China to access capital markets for risk transfer and reinsurance purposes.
The CBIRC has said it wants to support domestic P&C or life insurers willing to use Hong Kong’s ILS regulatory regime to sponsor catastrophe bonds.
As a result, he issued the notice to explain the process they need to undertake and said the topic of catastrophic bonds is “of great importance to stabilize the cost of disaster risk diversification, form a mechanism for multi-level disaster risk sharing and supporting the construction of the Hong Kong Financial Center.
He explains that Cat Bonds can be used to transfer disaster risk from natural disasters such as earthquakes, typhoons, floods and public health emergencies.
The notice also states that the Hong Kong Special Purpose Insurance Entity (SPI) “has a strong protection mechanism for ceding insurance companies.”
Reporting requirements are also confirmed, as any sponsor of mainland China’s Hong Kong Catastrophic Bonds will need to report to the CBIRC, or its agency at the provincial level, within 15 business days after an insurance company Special Purpose has issued catastrophe bonds on its behalf.
Hong Kong-based special purpose reinsurance issuers will also need to be registered in China’s reinsurance registration system, in order to comply and be used by mainland carriers.
This is another encouraging move from China, which clearly sees the opportunity for its insurance companies to become users of the catastrophic Hong Kong bond platform and exploit global capital markets for their own benefit. reinsurance.
The Chinese government has long talked about the need to diversify its peak disaster risk outside the country and this provides the ideal mechanism to do so.
As we also explained earlier, the first company intended to be a special purpose insurance-related securities (ILS) vehicle was registered in Hong Kong a few months ago, with Greater Bay Re Limited established to issue catastrophe bonds on behalf of the national reinsurer China Re.
To date, no Greater Bay Re cat bond operations have yet been revealed, but it still takes time for a new home to make the first issues.
Other catastrophic Hong Kong bonds are also reportedly in the works, with the possibility that a number of bonds will be marketed in the coming months.
Most importantly, to be successful internationally, Hong Kong must be a competitive cat bond and an ILS home option for sponsors.
But its proximity and connection to mainland China means that it could first become a cat bond issuance platform for insurers in the Chinese domestic market, which would be a very interesting development for the securities market. insurance related (ILS).