Hong Kong targets insurance-linked securities co-operation with Shanghai

Hong Kong and the mainland China city and financial hub of Shanghai are looking to co-operate on a range of financial initiatives, with one of them being insurance-linked securities (ILS).

Representatives of the respective governments, financial regulators and exchanges met last week to discuss how to further enhance financial co-operation between Hong Kong and Shanghai.

Insurance and reinsurance market co-operation is one of the areas of focus, but so too is the area where reinsurance and capital markets collide.

There are going to be a series of measures implemented that help to expand mutual access to each others capital markets, with a deepening of co-operation between the securities markets of the two cities a key goal.

Insurance-linked securities (ILS), such as catastrophe bonds, could be an appropriate area to focus, bringing together capital market securities and reinsurance, which are two areas where co-operation between Hong Kong and Shanghai is hoped to deepen.

Regular meetings are set to be held, led by the Financial Services and the Treasury Bureau of the Hong Kong Special Administrative Region Government and the Shanghai Office for Advancing International Financial Center Development.

Speaking at a recent event, the Secretary for Financial Services and the Treasury of Hong Kong, Christopher Hui, explained, “Our initiatives in insurance-linked securities (ILS) have marked significant advancements. Since establishing a dedicated regulatory regime and pilot grant scheme in 2021, we have successfully facilitated the issuance of four catastrophe bonds, totalling US$560 million.

“The purpose of these financial instruments is to provide a safeguard against the financial repercussions of natural disasters such as typhoons and earthquakes, both within the Mainland and in other parts of the world.

“We also welcomed the inaugural listing of an ILS in Hong Kong, and strive to attract more issuing institutions and professional talent, with a view to fostering the ILS ecosystem and expanding diversified channels for risk management.”

Just recently, Hong Kong secured a second listing of a World Bank catastrophe bond on the local exchange, as the Jamaica catastrophe bond was listed there.

Highlighting the importance of integration and co-operation between Hong Kong and the Chinese mainland, Hui said, “We see tremendous potential to enhance connectivity between the Mainland and Hong Kong insurance markets.”

Hui also noted that, “As we focus on regional integration and the expansion of insurance services, we are equally committed to ensuring the sustainability and resilience of the insurance sector through regulatory enhancements.”

Hong Kong has always had a focus within its reinsurance and ILS market initiatives to seek greater integration with Chinese insurers and potential sponsors of catastrophe bonds.

Just a fortnight ago, executives from the Insurance Authority of Hong Kong noted the importance of aligning the countries ILS ambitions with those of China, in saying that developing capital market disaster risk transfer facilities for local insurers and reinsurers, as well as for municipalities in China, would be a focus.

It’s encouraging to see the focus continuing, within the broader efforts to co-operate with Shanghai.

It’s also notable that, in recent months, our sister publication Reinsurance News reported that the Shanghai Insurance Exchange (SIE) launched an international reinsurance business trading platform, and that it quickly signed its first inward business agreement shortly after.

On the listing of the Jamaica cat bond from the World Bank’s IBRD, Clement Cheung, Chief Executive Officer of the IA said, “The citizens in Hong Kong are no stranger to the devasting impact of tropical cyclones. This issuance of insurance-linked securities (ILS) shows clearly that we care for and are willing to support economies in mitigating the risks arising from natural disasters.

“Going forward, we will dedicate efforts to forging an ecosystem that nourishes institutional investors, data modelling capabilities and professional talents.”