Hong Kong lists its first cat bond
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Hong Kong has listed its first catastrophe bond by the International Bank for Reconstruction and Development, the lending arm of the World Bank.
The $350m (£285m) insurance-linked security offers protection against losses related to earthquake risks in Chile over the next three years.
Three other ILS have previously been issued in Hong Kong, but this is the first World Bank bond and the first cat bond ever listed on the Hong Kong Exchanges and Clearing.
“It bears testament to Hong Kong’s position as an international financial centre and the vibrant development of the Hong Kong insurance industry,” said financial secretary Paul Chan.
According to the World Bank, the $350m cat bond is part of a $630m aggregate earthquake risk coverage transaction for Chile that also includes $280m of cat swaps and is the largest ever single-country catastrophe risk transfer transaction.
“Chile’s high exposure to earthquake risks can significantly impact the government budget. This transaction offers financial resilience as part of a broader government strategy of disaster risk preparedness and fiscal responsibility,” said the Bank.
The bond is supported by the Hong Kong Insurance Authority, which administers a grant scheme established in 2021 to encourage the development of the ILS market in Hong Kong.
Stephen Yiu, chairman of the authority, said: “The decision by a prominent international body like the World Bank to partner with Hong Kong marks an important milestone in our journey of striving to become a vibrant ILS hub, while enhancing public awareness on how alternative risk transfer tools could supplement underwriting capacity to increase financial inclusiveness and close protection gaps.”
The most recent ILS in Hong Kong was issued in December also in the form of a $32.5m cat bond by Chinese insurer PICC Property and Casualty Company (via Great Wall Re) to provide coverage for earthquake risks in China. Previous cat bonds were launched in June 2022 by Hong Kong reinsurer Peak Re (via Black Kite Re) and in October 2021 by China Re (through Greater Bay Re) to cover losses caused by typhoons in Japan and in China, respectively.
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