Hong Kong to offer incentives for catastrophe bond issuers, investors as it eyes hub status The Hong Kong government will offer incentives to attract more issuers and investors to participate in catastrophe bonds in the city to help address growing climate risks. “Hong Kong is the best investment hub for catastrophe bonds because we have capital, financial infrastructure and all the professionals and brokers needed to support the issuance of these products,” said Clement Lau Chung-kin, executive director of policy and legislation at the Insurance Authority, on Friday. Catastrophe bonds, also knows as Cat bonds, are insurance-linked securities used by insurers to transfer extreme risks to bond investors – usually pension funds, sovereign investors, family offices and other wealth managers. Since the government unveiled its Cat bond regulatory regime in 2021, seven deals have been completed, with issuers like the World Bank and Peak Reinsurance (Peak Re) raising a total of US$800 million. Hong Kong-based Peak Re in April issued its second Cat bond, raising US$50 million to cover earthquakes and typhoon risks in Japan, China and India. That followed a US$150 million issuance in June 2022 to cover typhoon risks in Japan. Lau said he would like to see more mainland and international insurers use Hong Kong as a Cat bond issuance hub, noting that currently most of these bonds were issued by US firms in Bermuda. Hong Kong is considering tax incentives to attract family offices to invest in alternative investments such as Cat bonds on top of the grants offered by the government in 2021 to offset up to 100 per cent of the upfront bond-issuance expanses. “[While] we are able to attract new players in Hong Kong, we are also moving towards a new phase of attracting repeat issuers such as Peak Re,” Lau said after the authority hosted its second annual conference to promote Cat bonds in the city. Hong Kong could use its proximity to mainland China, which was prone to natural catastrophes such as flooding, earthquakes and typhoons, to become a fundraising hub for such products, he added. The protection gap for natural catastrophes in mainland China was 90 per cent – higher than Asia’s 80 per cent average and significantly above North America’s 30 to 40 per cent, according to data from the National Financial Regulatory Administration. “Cat bonds not only offer new business opportunities for insurance companies but they also provide additional capital to support insurance companies to cover the damage caused by natural catastrophes,” Lau said. “They have a strong social objective.” The world’s first catastrophe bonds were launched in the 1990s following Hurricane Andrew’s devastating impact on Florida in 1992, which bankrupted several insurance companies due to the enormous disaster losses. Since then, the outstanding risk coverage of Cat bonds worldwide had grown to US$50 billion as of February, according to data from Artemis Deal Directory, which compiles data on catastrophe bonds and related transactions. Cat bonds also offer new opportunities for investors, with the returns linked to the frequency and severity of the natural disasters in locations listed by the bonds, according to Ocean Chiu Wai-yeung, associate director of general business at the Insurance Authority. Bonds that triggered payments easily offered higher yields, while those with a high threshold for payouts offered lower returns, Chiu said. For example, Cat bonds that triggered payments for damages caused by a 7-magnitude earthquake would offer lower returns than those that paid for damages caused by earthquakes of any intensity, he said. https://www.scmp.com/business/banking-finance/article/3312483/hong-kong-offer-incentives-catastrophe-bond-issuers-investors-it-eyes-hub-status (ICE HONG KONG)

Fonte notizia: South China Morning Post