Hong Kong: Looking To Become A Catastrophe Bond Hub

Hong Kong is positioning itself as a hub for insurance-linked securities (ILS), particularly catastrophe bonds, as it aims to aid global fundraising for managing natural disaster losses.

Clement Cheung, CEO of Hong Kong’s Insurance Authority (IA), has emphasized the necessity of creating the right ecosystem for this endeavor. The city is witnessing increased engagement with issuers and investors, especially in China’s Greater Bay Area, alongside efforts to enhance talent and risk modeling capabilities in local universities.

A key challenge in natural-catastrophe insurance coverage is the scarcity of data, hindering risk assessment and underwriting. Hong Kong, considered a global financial center, has the potential to attract transnational entities and international insurers to issue ILS instruments. Notably, the World Bank listed $350 million in catastrophe bonds in Hong Kong in 2023, securing Chile against earthquake-related financial risks.

Catastrophe bonds transfer extreme weather risk to capital markets, expanding insurers’ capacity to underwrite higher risk. With global cat bond issuance reaching a record $15 billion in 2023, advocates tout ILS as a valuable tool for disaster risk management, offering investors asset diversification unaffected by interest rates and capital market fluctuations.

Source: GLOBAL FINANCE