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Hong Kong gearing up to become a hub for ILS such as catastrophe bonds, Insurance Authority says

  • City must create an ecosystem for insurance-linked securities, IA CEO Clement Cheung says
  • IA has been selective with issuances to achieve a long-term solution that can leverage the strength of Hong Kong to serve first the Greater Bay Area, and, if possible, China and the region: Cheung

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A child peeps out from a government issued tent with the words ‘disaster relief’ in China’s northwestern Gansu province, in this file photo from December 2023, after a strong overnight earthquake. Only about 5 per cent of losses caused by natural disasters were covered by insurance in China last year. Photo: AP
Aileen Chuang
Hong Kong is building an arsenal to assist the world with raising funds for managing losses from natural disasters, the Insurance Authority (IA) said. The city is discovering more issuers, investors and data, as well as cultivating its modelling capabilities and talent.
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As an international financial centre, Hong Kong has shown the potential to become a hub for global insurers and supranational organisations issuing insurance-linked securities (ILS), after the World Bank listed its US$350 million catastrophe bonds in the city in March last year.

But what is more important is for the city to create an ecosystem, said Clement Cheung Wan-ching, the IA’s CEO.

“Our first mission is not to talk about the hub,” he said. “The first mission is aiming at resolving this huge protection gap on natural catastrophes, which exists around the world [and], in particular, in this region and China.”

Catastrophe bonds, or cat bonds, are a type of ILS that transfer risks associated with exceptional weather events to capital markets, giving the insurance industry greater capacity to underwrite more risks. In 2023, the issuance of cat bonds rose by 8 per cent to a record high of US$15 billion globally, according to reinsurance firm Swiss Re.

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While the record figure signals investor interest and growing demand for catastrophe risk management, it is still far short of the scale of natural disaster-related losses. According to German reinsurance firm Munich Re, last year natural disasters cost the world US$250 billion.

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