As insurance-linked securities (ILS) continues to gain momentum in Hong Kong, Stephen Yiu, JP Chairman of the Hong Kong Insurance Authority (IA) believes that the market is a “blue ocean” for Hong Kong’s insurance brokers, and an opportunity not to be missed.Yiu, speaking at the CIB Annual Conference, explained that increasingly frequent and severe natural catastrophic events have led to substantial economic losses globally, with Asia suffering the highest protection gap.“According to reports published by different reinsurers, about 40% of the global estimated economic losses from natural catastrophes were insured.The figure did not look too worrying on the surface.

However, when we look at Asia alone, the coverage ratio dropped drastically to 15%, i.e.the protection gap amounts to 85%.More importantly, the natural catastrophe protection gap in our home country exceeded 90% in the past decade,” Yiu explained.

He continued: “Is there a way to reduce our climate-related exposures? Insurance-linked Securities (ILS) have emerged as a promising alternative risk transfer tool.Leveraging our status as an international financial centre and our cultural and geographical proximity to Mainland China, Hong Kong has made significant strides in developing the ILS market.” Since launching its ILS regulatory regime in 2021, Hong Kong has hosted nearly US$800 million in catastrophe bond issuance, with issuers like the World Bank and Peak Re raising a total of US $800 million from deals either issued there or listed on the local exchange.that the government of Hong Kong is weighing additional incentives to attract more catastrophe bond issuers and investors, aimed at promoting the city as a global hub for alternative risk transfer.

It’s also worth referring back to our article in which we covered the news that , which could be another driver for more ILS activity there.“The increasing number of catastrophe bond issuances, underpinned by a broader spectrum of natural perils, underscores the vast potential of ILS market,” Yiu added.“Looking ahead, the IA will continue to forge a holistic ILS ecosystem that embraces data harvesting, catastrophe modelling, product design, investor education and talent development.

“By tapping into the largely underserved natural catastrophe risk pool in Asia-Pacific in general and the Mainland China in particular, Hong Kong, boasting both a sophisticated insurance sector and one of the strongest capital markets in Asia, is uniquely positioned to evolve into a prominent ILS domicile in the region.It is a blue ocean that our insurance brokers could not afford to miss.” Yiu concluded: “On top of our continuous efforts to engage prospective sponsors for new issuances, we also endeavour to explore facilitative policies on the demand side, with a view to building a more robust ILS investment and trading market.”.All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance can be accessed online.

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