Hong Kong renews push to become hub for insurance-linked securities as World Bank lists its cat bonds in the city
- Hong Kong’s Insurance (Amendment) Bill provided the regulatory framework for insurers to transfer risk to the capital markets
- Since 2021, the city has raised US$713 million through five catastrophe bond issuances, offering insurers an alternative option to traditional reinsurance
Hong Kong is keen to support economies in mitigating risks arising from natural disasters and will enhance its expertise in managing financial losses from such perils, the head of the city’s insurance regulator said on Monday at the listing of the World Bank’s US$150 million catastrophe bond.
Catastrophe bonds are insurance-linked securities (ILS) that offer insurers an alternative option to traditional reinsurance and allow catastrophe risks to be transferred to a wider investor base who in turn receive a high yield for agreeing to cover damages which they consider unlikely. The transfer of risks associated with exceptional weather events to mostly professional investors, will protect natural disaster prone Jamaica over the next four hurricane seasons.
“We will dedicate efforts to forging an ecosystem that nourishes institutional investors, data modelling capabilities and professional talents,” said Clement Cheung Wan-ching, CEO of the Insurance Authority (IA). “This issuance of ILS shows clearly that we care for and are willing to support economies in mitigating the risks arising from natural disasters.”
The note listed on the Hong Kong stock exchange will mature on December 29, 2027, at a floating rate. Bloomberg has estimated a coupon rate of 12.51 per cent. It is the renewal of the World Bank’s 2021 catastrophe bond for Jamaica. International Bank for Reconstruction and Development, the lending arm of the World Bank, issued securities to provide insurance coverage for the Government of Jamaica against named storm events.
Payouts to Jamaica will be triggered when a named storm event meets the criteria for location and severity set forth in the bond terms.
“This catastrophe bond serves as another example of how developing countries can mitigate disruptive economic impacts brought by natural disasters,” said Jorge Familiar, World Bank treasurer. “We are proud to have partnered with the IA on this transaction and in further developing the ILS market for our clients.”