China Reinsurance issues first catastrophe bond in Hong Kong to cover future typhoon damage in bay area

It comes just days after Chinese regulators gave the green light for mainland insurance companies to issue ‘Act of God’ bonds in Hong Kong

The US$30 million bond could pave the way for the city to be a hub for natural disaster fundraising, says head of the Insurance Authority of Hong Kong

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Cars submerged in floodwaters after heavy rains hit the city of Zhengzhou in China’s central Henan province. Photo: AFP

Published: 3:49pm, 1 Oct 2021Updated: 8:50pm, 1 Oct 2021

China Reinsurance (Group) issued a US$30 million catastrophe bond in Hong Kong on Friday to pay for future claims resulting from typhoon damage in the Greater Bay Area and other parts of the country, according to a company announcement.

The bond issued by the state-owned reinsurance giant’s subsidiary, China Property & Casualty Reinsurance, comes just a few days after Chinese financial regulators said they would allow mainland insurance companies to sell catastrophe bonds in Hong Kong.

It is the first such bond to be sold in Hong Kong, and could pave the way for the city to act as a fundraising hub for mainland Chinese and other international insurance companies to raise capital to meet their funding needs for natural disasters.

“This decision of a leading state-owned reinsurer not only exemplifies the potential and attractiveness of Hong Kong as an emerging [catastrophe bond] hub, but also demonstrates our crucial role as a global risk management centre,” said Clement Cheung, chief executive of the Insurance Authority of Hong Kong.

China Reinsurance, or China Re, is the biggest reinsurance company in the country and the sixth largest globally.

Also known as an “Act of God” bond, the catastrophe bond is a special type of debt issued by insurance or reinsurance companies and normally bought by hedge funds and pension companies. The instruments are attractive because they usually pay a higher interest rate than other fixed income products.

The proceeds can only be used for paying insurance claims related to natural disasters such as earthquakes, flooding and typhoons.

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