Hong Kong to extend ILS Grant Scheme by two years

The government of Hong Kong is proposing a two year extension to its Pilot ILS Grant Scheme, which it hopes will help to continue the development of its insurance‑linked securities (ILS) offering and attract more issuers to locate catastrophe bond and ILS arrangements there.

This was announced by Hong Kong’s Financial Secretary the Hon Paul MP Chan during his budget speech this week and welcomed by the Insurance Authority (IA).

The Hong Kong Special Administrative Region (HK SAR) of the People’s Republic of China published details of its insurance-linked securities (ILS) grant scheme back in May 2021.

The ILS Grant Scheme can provide for as much as HK $12 million of potential ILS or catastrophe bond issuance cost savings, for sponsors choosing to use Hong Kong as a domicile.

The ILS Grant Scheme was first used by Hong Kong based reinsurance company Peak Re, which benefited from the pilot for its first-time catastrophe bond sponsorship of the Black Kite Re Limited (Series 2022-1) deal in June 2022.

Chinese domestic insurer PICC Property and Casualty Company Limited, then sponsored a $32.5 million Great Wall Re Limited deal, to provide it with earthquake reinsurance in China, that also took advantage of the ILS Grant Scheme in Hong Kong.

The first Hong Kong based cat bond was the $30 million Greater Bay Re Ltd. (Series 2021-1) cat bond sponsored by mainland and state supported reinsurance giant, China Re Group in September 2021, but that transaction did not utilise the grant, perhaps as it was a private placement.

Now, Hong Kong is looking to attract more cat bond issuers and sponsors, with the extension of the ILS Grant Scheme likely to prove a draw as it can lower some of their costs of issuance.

Financial Secretary Paul Chan explained, “In recent years, we implemented a dedicated regulatory regime for insurance‑linked securities (ILS) and launched the Pilot ILS Grant Scheme, facilitating the issuance of several catastrophe bonds in Hong Kong and promoting diversified development of the insurance market.

“I propose a two‑year extension of the Pilot ILS Grant Scheme to continue attracting more issuing institutions and nurturing talent, with a view to supporting industry development and assisting our country in expansion of channels for risk diversification and management.”

The Insurance Authority (IA) welcomed the budget measure that will provide for extension of the Pilot Insurance-linked Securities Grant Scheme (Grant Scheme) for two additional years.

“The three catastrophe bond issuances taken place since October 2021 have generated strong interest among potential sponsors, and a timely decision to extend the Grant Scheme is necessary to nurture a vibrant ecosystem comprising key players on the value chain,” Stephen Yiu, Chairman of the IA said.

The IA said that the ILS Grant Scheme initiative can “contribute significantly towards achieving strategic goals set out in the Development Roadmap for the Insurance Sector in Hong Kong.”

Just yesterday we reported on a new World Bank IBRD facilitated catastrophe bond issuance, a $100 million parametric earthquake cat bond transaction for the Republic of Chile.

The notes from the IBRD – Chile 2023 cat bond are set to be listed on the Hong Kong Stock Exchange, which could mean that this new sovereign cat bond issuance can also benefit from the ILS Grant Scheme as well.