China targets digital reinsurance trading in Shanghai

According to reports, the Chinese financial regulator and Shanghai government leaders have jointly announced the launch of a new reinsurance strategy that aims to bring digital trading of reinsurance risks to Shanghai.

Termed an “international reinsurance board”, the goal is to enable trading, clearing and settlement of reinsurance transactions digitally, it seems, all housed within a new arm of the Shanghai Futures Exchange.

Alongside the announcement, implementation rules have been announced that are designed to turn Shanghai into a global reinsurance hub, with some 22 measures announced covering market infrastructure and institutions, the need for reinsurance talent, as well as product development and innovation.

Reinsurance businesses will be encouraged to set up in a free trade zone within Shanghai, to help reduce costs and processing time, especially on cross-border settlement related issues.

The goal is to both bring reinsurance business to Shanghai and enable Chinese firms to provide more reinsurance capacity globally, it seems.

The digital trading of reinsurance has been discussed in China for some years now, with Shanghai’s Futures Exchange highlighted as a potential venue before.

This reinsurance exchange is expected to be open to both domestic and foreign reinsurance entities and attracting more foreign players and capital is part of the plan here, it is said.

Details are scarce and we’ve yet to see the full plan, but it’s an encouraging step for China to take in further modernising its own reinsurance market, while providing new market facilities that could be used by others.

Where it could get very interesting is if China takes learnings from Hong Kong’s development of its insurance-linked securities (ILS) regime, or integrates the Shanghai reinsurance trading exchange with that, allowing for efficient transfer of risks through reinsurance to the capital markets.