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
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.
“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.
The proceeds can only be used for paying insurance claims related to natural disasters such as earthquakes, flooding and typhoons.
The China Re bond issued via a Hong Kong special purpose company called Greater Bay Re will only be used to pay out insurance claims related to typhoons in the mainland.
In the last couple of years the government has introduced numerous measures to promote professional talent and capital flow within the bay area, Beijing’s ambitious plan to integrate nine cities in southern Guangdong province with Hong Kong and Macau in a bid to create a powerful and vibrant economic zone.
Beijing is encouraging mainland insurers to tap funds in Hong Kong after the country was hit hard by bad weather in recent months. July’s floods in Henan province are likely to generate total insurance claims of up to 11 billion yuan (US$1.7 billion), according to Goldman Sachs, in what could be the largest payout for a natural catastrophe in China’s history.
A large portion of the claims could come from Zhengzhou, where a lot of property and cars were damaged, Goldman Sachs said in a report in July.
Insurance payouts in the wake of natural catastrophes totalled US$89 billion globally in 2020, the fifth-highest on record, according to the world’s second-largest reinsurer, Swiss Re. That is up from US$63 billion in 2019 and above the previous 10-year average of US$79 billion, the Swiss Re report said.