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China Re sponsors first Hong Kong cat bond, Greater Bay Re

1st October 2021 - Author: Matt Sheehan

State-owned reinsurer China Re has secured $30 million of typhoon cover as the sponsor of the first catastrophe bond to be issued out of Hong Kong.

China ReAccording to reports from our ILS-focused sister publication, Artemis, the now-completed Greater Bay Re Ltd. (Series 2021-1) cat bond was privately marketed to a handful of specialist funds and investors by Aon.

The bond was issued as a zero-coupon deal and provides China Re with a single year of retro reinsurance protection against losses from Chinese typhoons, on an indemnity trigger basis.

It’s understood that coverage will apply to certain areas with high exposure to typhoons, including the Greater Bay region, which lends its name to the bond.

Artemis’ sources also verified that the notes issued by Greater Bay Re have a maturity in October 2022 and were priced at 96.96 of par, which would imply a rough coupon equivalent of 3.04%.

Clement Cheung, CEO of the Insurance Authority of Hong Kong, commented on the deal: “This decision of a leading state-owned reinsurer not only exemplifies the potential and attractiveness of Hong Kong as an emerging ILS hub, but also demonstrates our crucial role as a global risk management centre.”

Notably, China Re will have benefited from reduced issuance costs for the Greater Bay Re cat bond, following the introduction of Hong Kong’s Pilot ILS Grant Scheme earlier this year.

“Taking full benefit of the explicit support given by the Central Government, we will ramp up efforts to nurture a vibrant ILS ecosystem, playing our part in increasing underwriting capacities, enhancing financial resilience and narrowing protection gaps,” Cheung added.

According to local reports, Zhang Renjiang, general manager of China Property & Casualty Reinsurance, described the issuance of Hong Kong’s first cat bond as a “major step forward” to promote development in typhoon risk areas.

“The Greater Bay Area is among the worst hit areas in the country, with many typhoons and heavy rains,” Renjiang was quoted by the South China Morning Post. “It is of the utmost importance to have proper insurance arrangements to manage the risks in these natural catastrophes to safeguard the development of the bay area.”

Aon Securities acted as the sole structuring agent and bookrunner for this issuance.

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