The first catastrophe bond to be issued from Hong Kong has already been completed, at $ 30 million Greater Bay Re Ltd. (Series 2021-1) cat bond is released on behalf of sponsoring reinsurer China Re.
The transaction was actually completed in September, but it only came to light this morning, as we understand it was traded relatively privately by Aon, with only a handful of bond funds from specialist cats or investors aware of the deal.
The Greater Bay Re Ltd. cat bond was issued as a zero coupon deal and only gives your sponsor one year of retro reinsurance protection that we understand.
China Re is a state-owned reinsurer in China, so it is notable that the first issuance from Hong Kong is from the company.
China Re had previously sponsored an also relatively small Panda Re Ltd. (Series 2015-1) cat bond in 2015, to ensure reinsurance protection against earthquake risk in China.
Greater Bay Re Limited has issued a single $ 30 million tranche of Series 2021-1 cat bond notes, which were structured as zero coupon notes and sold to a small group of cat bond investors, as we understand it.
Aon Securities acted as sole structuring agent and bookrunner for this issue.
The $ 30 million in notes will provide China Re with a one-year source of retro reinsurance protection against certain losses from Chinese typhoons, on an indemnity trigger basis. Coverage includes the Greater Bay region and other areas of high typhoon exposure, as we understand it.
The notes are expected to mature in October 2022, we are told.
Being of a zero coupon nature, the $ 30 million notes issued by Greater Bay Re were priced at 96.96 par, we are told, which would imply a coupon equivalent to approximately 3.04%.
This is a notable achievement for Hong Kong, which succeeded in bringing its first cat bond to market in the same year that its regulatory regime for insurance-linked securities (ILS) was completed.
Clement Cheung, Executive Director of the Hong Kong Insurance Authority, commented: “This decision by a leading state reinsurer not only exemplifies Hong Kong’s potential and attractiveness as an emerging ILS hub, but also demonstrates our crucial role as a global risk management center.
“Taking full advantage of the explicit support provided by the Central Government, we will intensify efforts to nurture a vibrant ILS ecosystem, playing our role in increasing underwriting capacities, improving financial resilience and reducing protection gaps.” .
The Hong Kong Insurance Authority also said that ILS and cat bonds are “an effective tool to mitigate the risks posed by natural disasters,” adding that volatile financial markets also “stoke the appetite among institutional investors for products. that have a lower correlation with business cycles. “
China Re, as a sponsor of the Greater Bay Re cat bond, will have benefited from reduced issuance costs under Hong Kong ILS Grant Pilot Program.
The South China Morning Post reported that Zhang Renjiang, CEO of China Property & Casualty Reinsurance commented on the broadcast: “The metropolitan area of the bay is among the worst affected areas in the country, with many typhoons and heavy rains. Having the proper insurance arrangements in place to manage the risks in these natural catastrophes is of the utmost importance to safeguard the development of the Bay Area.
“The first issuance of a catastrophe bond in Hong Kong is a major step forward in promoting the development of the Greater Bay Area.”