Hong Kong gets inaugural US$350 million catastrophe bond listing in boost to global risk management hub ambitions

Listing of the World Bank catastrophe bond reflects Hong Kong’s growing attractiveness as a platform for international issuers looking to access the region’s deep and diverse funding pool, HKEX’s Nicolas Aguzin says

City will continue to offer staunch support as a risk-management centre to bolster the safety and resilience of the global community, Insurance Authority chairman says

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The inaugural listing underscores Hong Kong’s efforts towards building itself into a natural-disaster fundraising hub. Photo: AFP

Published: 8:45pm, 28 Mar 2023

Hong Kong’s first locally listed catastrophe bonds, worth US$350 million and issued by the World Bank, made their debut on the city’s stock exchange on Tuesday.

The notes, also known as cat bonds or “Act of God” bonds, are a special type of debt issued by insurance or reinsurance companies and are 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 from these notes can only be used to pay insurance claims related to natural disasters such as earthquakes, flooding and typhoons.

The notes, also the first bonds issued by the World Bank in Hong Kong, will secure Chile against financial risks brought about by earthquakes. The notes will mature in three years with a floating rate – Bloomberg has estimated a coupon rate of 9.56 per cent.

“Another first today, as we warmly welcome the first catastrophe bond to HKEX’s markets,” said Nicolas Aguzin, the CEO of bourse operator Hong Kong Exchanges and Clearing (HKEX). “Today’s listing of the World Bank catastrophe bond reflects Hong Kong’s growing attractiveness as a platform for international issuers looking to access the region’s deep and diverse funding pool.”

The inaugural listing of the bonds, which are insurance-linked securities (ILS), was boosted by a scheme set up in 2021 to encourage the development of the local ILS market, and underscores Hong Kong’s efforts towards building itself into a natural-disaster fundraising hub.

“Hong Kong is driven towards development into a leading international risk-management centre … It bears testament to Hong Kong’s position as an international financial centre and the vibrant development of the Hong Kong insurance industry,” Financial Secretary Paul Chan Mo-po said in a statement issued by the government and the Insurance Authority (IA) on Tuesday.