ILS helps Hong Kong’s financial market diversify: Paul Chan

The passage of insurance-linked securities (ILS) legislation and now the successful issuance of a second catastrophe bond in the country, helps Hong Kong as it continues on its mission to further diversify its financial market and services sectors, according to Financial Secretary Paul Chan.

With the recent completion of Hong Kong headquartered reinsurance firm Peak Re’s first cat bond, which was domiciled in the country, traction continues and the Government sees an opportunity to help broaden out Hong Kong’s financial services base with ILS.

Financial Secretary Chan commented that, “In recent years, the risks brought by global climate change to human social and economic activities have been increasing, and various financial instruments and alternative investments that can effectively transfer related risks are gradually being valued by the market.”

Referring to the Peak Re sponsored and recently issued Black Kite Re catastrophe bond, he continued, “A few days ago, Hong Kong ushered in the issuance of Insurance-linked Securities (ILS) for the second time, with an amount of US $150 million, aiming to provide protection for industry losses caused by typhoons in Japan. ”

Chan further explained, “It is the second time that an ILS has been issued in Hong Kong, after I announced the launch of the Insurance-Linked Securities Grant Pilot Scheme in the 2021-22 Budget.

“The purpose of this scheme is to strengthen Hong Kong’s role as an international risk management centre, and each eligible application will receive a subsidy of up to HK $12 million under the scheme.

“At the same time, we have passed legislation to establish an exclusive regulatory system for ILS, including catastrophe bonds, thereby creating a thriving ILS ecosystem, enhancing underwriting capacity, strengthening financial resilience and narrowing the protection gap.”

Hong Kong sees an opportunity to become a hub for ILS in Asia and in particular as a conduit for insurance or reinsurance risk and private institutional capital to be connected to and from China.

But, the ILS venture is also more broadly part of Hong Kong’s ambitions to diversify its financial services base, in order to attract more business to the country.

“This issuance of ILS has allowed Hong Kong to move forward steadily on the road to the diversified development of the financial services industry,” Chan said.

Adding that, “We will continue to enrich the diversified development of Hong Kong’s financial market. As long as we recognize our own advantages and positioning, consolidate our strengths, make up for our shortcomings, grasp the international situation, and serve the needs of the country well, Hong Kong’s financial industry will surely achieve quality and peace of mind and so further increase in volume.”