Chinese domestic insurer PICC Property and Casualty Company Limited has sponsored a $32.5 million Great Wall Re Limited deal to provide it with earthquake reinsurance in the third catastrophe bond issuance to be domiciled in and issued out of the Hong Kong market.
PICC P&C set up Great Wall Re as a special purpose insurer (SPI) domiciled and registered in Hong Kong.
Great Wall Re has issued a single tranche of notes totalling $32.5 million and these notes have been sold to insurance-linked securities (ILS) investors, with the proceeds used to collateralise a reinsurance agreement between the SPI and PICC P&C.
Through this reinsurance agreement, the Great Wall Re cat bond will provide PICC P&C with $32.5 million of fully collateralised reinsurance protection against losses from earthquakes in China running across a three-year term.
This cat bond is the first issued out of Hong Kong for a primary insurer, meaning that it is the first to provide reinsurance instead of retrocession, with the previous sponsors having been China Re and Peak Re. The issuance of this cat bond also qualified for Hong Kong’s Pilot ILS Grant Scheme, which offers to support up to HK $12 million towards the issuance cost of a transaction.
PICC P&C suggested the cat bond is “an important measure to build a dual-pillar risk diversification system of reinsurance and insurance risk securitization,” adding that it provides a powerful supplement to the existing catastrophe reinsurance arrangements that it has in place while allowing it to diversify its risks into the capital markets.
The firm also said that it intends to continue to explore the role of catastrophe bonds in catastrophe risk management as it looks to disperse its risks to manage its exposures.
Clement Cheung, Chief Executive Officer of the Insurance Authority of Hong Kong (IA), commented on the issuance, stating, “The arrival of a second ILS issued in Hong Kong by major Mainland insurance groups reinforces our crucial role as a risk management centre, serving unique needs of the country while offering full and open access by the rest of the world.
“As efforts are stepped up to increase the number and variety of ILS issuances, a vibrant ecosystem comprising key players on the value chain will soon take shape in Hong Kong.
“The IA will sustain collaboration with industry stakeholders to realise different goals set out in the Development Roadmap for the Insurance Sector in Hong Kong and elevate our global competitiveness as an international finance centre.”
