HONG KONG: The Financial Services and the Treasury Bureau of the Hong Kong Special Administrative Region (HKSAR) government on Wednesday welcomed an inaugural issuance of insurance-linked securities (ILS) in the form of a “sidecar” by PICC Property and Casualty Company Limited in Hong Kong.
With a size of US$12 million, the issuance provides quota share reinsurance protection for offshore wind farm property insurance businesses on the Chinese mainland.
Christopher Hui, secretary for financial services and the treasury of the HKSAR government, said this move would enable Hong Kong to unleash the synergy effect of multilayered risk transfer and pooling mechanisms through ILS and other tools, thus consolidating the city’s strategic role as a regional and global catastrophe and specialty risk management hub.
Since the establishment of the bespoke regulatory regime for ILS and the launch of the pilot grant scheme in 2021, seven catastrophe bonds and one “sidecar” have been issued in Hong Kong to date, with a total issuance amount of about HK$6.3 billion (about US$802 million), securing protection against catastrophe and other specialty risks on the Chinese mainland and overseas.
A “sidecar” is an ILS structure through which investors provide capital to support a specific insurance or reinsurance portfolio. A “sidecar” is typically capitalised through equity or a debt instrument, such as preference shares or participating notes, and enables investors to share, on a quota-share basis with the sponsor, the premiums, claims and underwriting results of a designated insurance or reinsurance portfolio.
