Great Wall Re catastrophe bond issued in Hong Kong for PICC P&C

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Hong Kong now has its third catastrophe bond, after Chinese domestic insurer PICC Property and Casualty Company Limited sponsored a $32.5 million Great Wall Re Limited deal, to provide it with earthquake reinsurance in China.

We reported earlier this week that the third catastrophe bond transaction to be issued out of Hong Kong was in the pipeline.

Now, late in the year, this issuance has come to light, adding $32.5 million to the annual tally for the catastrophe bond market and a welcome diversification opportunity for cat bond funds and investors.

It is a debut catastrophe bond for Chinese insurer PICC Property and Casualty Company Limited (PICC P&C), becoming the latest domestic market player to leverage the use of Hong Kong’s ILS regulatory regime to access the capital markets for reinsurance.

As a result, this is the third catastrophe bond issuance to be domiciled in and issued out of the Hong Kong market.

PICC P&C set up Great Wall Re Limited as a special purpose insurer (SPI) domiciled and registered in Hong Kong.

Great Wall Re Limited has issued a single tranche of notes totalling $32.5 million and these notes have been sold to insurance-linked securities (ILS) investors, with the proceeds used to collateralize a reinsurance agreement between the SPI and PICC P&C.

The Great Wall Re cat bond, through this reinsurance agreement, will provide PICC P&C with $32.5 million of fully collateralized reinsurance protection against losses from earthquakes in China running across a three-year term.

We are told that the Great Wall Re cat bond utilises an indemnity trigger and provides its protection to PICC P&C on a per-occurrence basis.

The issuance of this cat bond also qualified for Hong Kong’s Pilot ILS Grant Scheme, which offers to support up to HK $12 million towards the issuance cost of a transaction.

It’s the first cat bond issued out of Hong Kong for a primary insurer, so the first to provide reinsurance instead of retrocession, with the previous sponsors having been China Re and Peak Re.

PICC P&C hailed it as “an important measure to build a dual-pillar risk diversification system of reinsurance and insurance risk securitization.”

Also calling the Great Wall Re cat bond “a milestone of great significance” for the insurer as it continues to build out its risk management capabilities.

The insurer also said the cat bond provides “a powerful supplement to the existing catastrophe reinsurance arrangements,” that it has in place, while allowing it to diversify its risks into the capital markets.

PICC P&C said it intends to “continue to explore the role of catastrophe bonds in catastrophe risk management” as it looks to disperse its risks to manage its exposures.

The Insurance Authority of Hong Kong also hailed the third cat bond issuance.

” “The arrival of a second ILS issued in Hong Kong by major Mainland insurance groups reinforces our crucial role as a risk management centre, serving unique needs of the country while offering full and open access by the rest of the world. As efforts are stepped up to increase the number and variety of ILS issuances, a vibrant ecosystem comprising key players on the value chain will soon take shape in Hong Kong,” explained Mr Clement Cheung, Chief Executive Officer of the IA.

“The IA will sustain collaboration with industry stakeholders to realise different goals set out in the Development Roadmap for the Insurance Sector in Hong Kong and elevate our global competitiveness as an international finance centre,” Cheung added.

It’s good to see this third successful Hong Kong domiciled catastrophe bond come to market and for it to bring the first primary insurer to utilise the capital markets for reinsurance risk transfer in this way.

You can read all about the Great Wall Re Limited catastrophe bond deal in Artemis’ extensive Deal Directory.

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