The government of Hong Kong is budgeting for a further three year extension to its Pilot ILS Grant Scheme, as the Special Administrative Region continues to target bringing catastrophe bond and insurance-linked securities (ILS) issuance to its financial market.Hong Kong aims to continue developing its still nascent insurance‑linked securities (ILS) market, with attracting issuers seen as the most important initiative, it appears.Hong Kong has been especially active in looking to encourage more issuers to locate catastrophe bond and ILS arrangements there.Offering a grant to issuers, to assist in paying some of the high issuance costs for insurance-linked securities (ILS) such as catastrophe bonds, is one way Hong Kong has been trying to attract more ILS business to its market.

The Hong Kong Special Administrative Region (HK SAR) of the People’s Republic of China first published details of its insurance-linked securities (ILS) grant scheme back in May 2021.There has been some success over the years since Hong Kong introduced ILS regulatory regime and the ILS grant scheme.The first Hong Kong issued based cat bond was a $30 million deal sponsored by mainland and state supported reinsurance giant China Re Group in September 2021.

However, that transaction did not utilise the grant we understand.The ILS Grant Scheme was , which benefited from the pilot for its debut catastrophe bond sponsorship of the $150 million Black Kite Re Limited (Series 2022-1) deal in June 2022.Chinese domestic insurer PICC Property and Casualty Company Limited then sponsored its $32.5 million deal, to provide it with earthquake reinsurance in China, and this deal also took advantage of the ILS Grant Scheme in Hong Kong.

After that, Hong Kong saw the notes from the World bank facilitated $350 million cat bond listed on its stock exchange in 2023, and also the notes from the $150 million IBRD CAR Jamaica 2024 cat bond listed in 2024.It’s important to note, these two World Bank cat bonds were not issued using Hong Kong special purpose reinsurance vehicles, just the notes were listed there enabling the sponsors and facilitator to benefit from the ILS Grant Scheme.Most recently, reinsurance firm Taiping Re secured a three-year source of fully-collateralized retrocessional reinsurance through its debut $35 million catastrophe bond which was issued out of Hong Kong and became the sixth catastrophe bond under Hong Kong’s insurance-linked securities (ILS) regulatory regime.

Back in February 2023, the Hong Kong government budgeted for , which takes it through to around this time.But, during the government’s 2025-26 budget speech this week, Hong Kong’s Financial Secretary Paul Chan said that the plan now is to further extend the insurance-linked securities (ILS) grant scheme by an additional three years.Financial Secretary Chan said, “As an international risk management centre, Hong Kong has been providing diversified risk management tools.

We are proactively promoting the development of insurance-linked securities by establishing a dedicated regulatory regime and launching a pilot grant scheme.“To date, we have facilitated the issuance of six catastrophe bonds in Hong Kong, with issuance amount totalling over $5.8 billion.“The industry responded favourably to the pilot scheme, and we will extend it for three years.” The $5.8 billion figure is the Hong Kong dollar equivalent.

The actual amount of catastrophe bonds either issued or listed in Hong Kong, since it launched its ILS regulatory regime and the ILS Grant scheme back in 2021, totals US $747.5 million of cat bond notes.With US $247.5 million of that total actually issued using Hong Kong domiciled and regulated special purpose reinsurance vehicle (SPRV) structures, while the remaining $500 million came from the two World Bank cat bonds that listed their notes on the Hong Kong Exchange.The Insurance Authority (IA) of Hong Kong welcomed the announcement of the ILS Grant Scheme extension.

Stephen Yiu, Chairman of the IA, commented, “Since the launch of the Pilot Insurance-linked Securities (“ILS”) Grant Scheme in 2021, six catastrophe bonds have been issued in Hong Kong, spurring development of alternative risk transfer solutions and enhancing our competitiveness as a global risk management hub.“Further extension of the grant scheme for three years will allow the IA to continue its efforts in building a vibrant ILS ecosystem.” It’s good to see Hong Kong set to continue its efforts to build out a domestic market for catastrophe bonds and insurance-linked securities (ILS).As ever, we’d suggest every country with a developed financial market that supports securitisation should provide an option for the insurance and reinsurance industry to domicile ILS structures in their home location.

However, attracting overseas business is not easy, while competing with established cat bond and ILS domiciles is also challenging, given the dominance of locations such as Bermuda.Having the option available is important though and we’re pleased to see Hong Kong persist.The question is, how long can a grant be offered as a sweetener and what happens when that goes away, as it inevitably must? There is also a question of whether grants are the best way to attract new ILS business.

Or whether making issuance cheaper and more efficient, through the use of technology and modernisation of securities practices, while also offering sophisticated trading tools for secondary markets, could be alternative ideas to make a domicile more attractive to catastrophe bond and ILS sponsors and investors..All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.Our can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.