(From left) Head of Listing of the Hong Kong Exchnages and Clearing Ltd Katherine Ng, Vice-President and Treasurer of the World Bank Jorge Familiar, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu, Chief Executive Officer of the Insurance Authority Clement Cheung and Group Head of Emerging Business and FIC of the HKEX Glenda So attend a gong-strike ceremony to mark the inaugural insurance-linked securities listing at the HKEX on March 28, 2023. (PHOTO / HKSAR GOVERNMENT)
The World Bank’s first catastrophe bond made its debut on the Hong Kong Stock Exchange on Tuesday, bearing testament to Hong Kong’s development as a leading international risk management center.
The $350 million World Bank Catastrophe Bond offers protection against losses related to earthquakes in Chile over the next three years. It is a part of a $630 million aggregate earthquake risk coverage transaction for Chile that includes $280 million of catastrophe swaps. This is the inaugural listing of insurance-linked securities (ILS) in Hong Kong.
Secretary for Financial Services and the Treasury Christopher Hui Ching-yu noted the government has been committed to strengthening Hong Kong's role as a global risk management center
“Against the backdrop of a rising trend of catastrophic events caused by climate change, the government of Hong Kong Special Administrative Region is committed to supporting the Hong Kong insurance sector in offering a greater variety of comprehensive products and solutions to assist the country and global market players for better management of relevant risks," Financial Secretary Paul Chan Mo-po said in a government statement.
“Hong Kong will continue to offer staunch support as a risk management center to bolster safety and resilience of the global community, while enhancing public awareness on how alternative risk transfer tools could supplement underwriting capacity to increase financial inclusiveness and close protection gaps," Insurance Authority Chairman Stephen Yiu Kin-wah said in the statement.
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In the Tuesday gong-strike ceremony to celebrate the inaugural listing, Secretary for Financial Services and the Treasury Christopher Hui Ching-yu noted the government has been committed to strengthening Hong Kong's role as a global risk management center.
“I believe the listing of ILS is very important to maintain the competitiveness of the insurance industry, in strengthening Hong Kong's risk management and solution provision capabilities, thus allowing mainland and international investors to increase channels for risk diversification,” the financial services chief said. “Today’s issuance and the listing ceremony exactly demonstrate Hong Kong’s unique bridging role.”
He said financial authorities in Hong Kong are looking forward to cooperating with more institutions in the future, regarding the development of the ILS market.
Secretary for Financial Services and the Treasury Christopher Hui Ching-yu delivers a speech at a gong-strike ceremony to mark the inaugural insurance-linked securities listing at the Hong Kong Exchanges and Clearing Ltd on March 28, 2023. (PHOTO / HKSAR GOVERNMENT)
“We choose Hong Kong as the location for issuing the catastrophe bond because the World Bank has established a strong cooperative relationship with the Insurance Authority and obtained the support of Hong Kong Exchanges and Clearing,” World Bank Vice President and Treasurer Jorge Familiar said in the ceremony.
Familiar believes that Hong Kong, as an international financial center, has great potential for development in the ILS market, and the World Bank will continue to cooperate with local regulators in the future.
This is the fourth ILS issuance in Hong Kong since the implementation of the streamlined regulatory regime and the launching of a pilot grant scheme in 2021.
Catastrophe bonds are ILS that transfer a specified set of risks from the issuers (insurance companies) to investors. Catastrophe bonds emerged from a need by insurance companies to alleviate some of the risks they face if a major catastrophe occurs, which would incur damages that they could not cover through the invested premiums. If no catastrophe occurs, the insurance company would pay a coupon to the investors. But if a catastrophe does occur, then the principal would be forgiven and the insurance company would use this money to pay their claim-holders.
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“Today’s listing of the World Bank Catastrophe Bond reflects Hong Kong’s growing attractiveness as a platform for international issuers looking to access the region’s deep and diverse funding pool,” HKEX Chief Executive Officer Nicolas Aguzin said in the World Bank’s statement on Tuesday.