PICC Property and Casualty Company Limited (PICC P&C) has issued the first insurance-linked securities (ILS) in the form of a sidecar in Hong Kong, providing quota-share reinsurance protection for offshore windfarm insurance risks in mainland China.
The $12 million transaction is also the first sidecar ILS issuance by a mainland Chinese insurance institution.
The deal follows PICC P&C’s issuance of a catastrophe bond in Hong Kong in 2022, marking another step in the insurer’s use of international capital markets to diversify insurance risks.
PICC P&C acted as sponsor, issuing sidecar notes through Great Wall Re Limited, a Hong Kong special purpose insurer.
The transaction reportedly gives the firm another route to securing proportional reinsurance protection through international capital markets and supports its strategy of combining reinsurance with insurance risk securitisation to diversify risk.
PICC P&C explained issuance also brings Chinese offshore wind insurance risks to international capital markets, potentially increasing international investors’ understanding of China’s green-energy insurance sector and broadening risk-transfer options for the industry.
Until this transaction, Hong Kong’s ILS market had comprised catastrophe bonds only. PICC P&C noted that the sidecar adds a new structure to the market and could encourage closer cooperation between mainland and Hong Kong insurers, capital markets and specialist service providers.
As per the firm, it may also support Hong Kong’s role as an international financial centre and foster financial innovation in the Guangdong–Hong Kong–Macao Greater Bay Area.
PICC P&C said it would continue exploring insurance risk securitisation and broadening risk-transfer channels to strengthen catastrophe risk protection.
In light of the announcement, the Insurance Authority (IA) welcomed the issuance, with its chief executive officer, Clement Cheung, pointing out that “Riding on policy support from the National Financial Regulatory Administration, this ILS issuance fully demonstrates the commitment and determination with which we pursue the development of Hong Kong into a global risk management centre.”
“The IA will also sustain efforts to facilitate the introduction of a protected cell company as an ILS structure and review the existing definition of eligible ILS investors for a more vibrant trading market,” he added.
Meanwhile, Secretary for Financial Services & the Treasury Christopher Hui said, “We welcome PICC P&C’s issuance of Hong Kong’s first ‘sidecar’. This demonstrates Hong Kong’s combined strengths in reinsurance and capital markets.
“The issuance marks significant progress gained for Hong Kong’s insurance industry and capital markets in risk transfer and the use of alternative capital under the support of our country. It will further enhance the market’s capacity to manage catastrophe and other specialty risks, and consolidate Hong Kong’s position as an international risk management centre.”
Organised by year, the directory tracks collateralised reinsurance sidecar launches and renewals, including details of each vehicle’s sponsor, the classes of insurance and reinsurance business covered, and the size of the sidecar, where known.
