Beijing urging insurers to sell Hong Kong cat bonds

Investment vehicle can help diversify insurers’ exposure to losses, regulator says

Beijing urging insurers to sell Hong Kong cat bonds

Insurance News

By Gabriel Olano

The China Banking and Insurance Regulatory Commission (CBIRC) is encouraging mainland P&C insurers to sell catastrophe bonds in Hong Kong to raise funds.

In a notice issued by the regulator, it said that Chinese insurers and reinsurers may form special-purpose entities in Hong Kong to facilitate fundraising through sales of these bonds, Reuters reported.

According to the regulator, the bonds can help diversify insurers’ losses caused by catastrophes such as earthquakes, typhoons and flooding.

In the summer, severe flooding devastated the populous Henan province and alerted the Chinse government to the need to improve insurance protection against natural disasters. This led the CBIRC to issue guidance to increase insurers’ investment in natural disasters, including widening their product offerings and raising public awareness on the need for natural disaster insurance as part of the national emergency response.

This is especially important, with economic losses from natural disasters spiking by 251% over a 20-year period, from 1998 to 2017, according to a study by the United Nations International Strategy for Disaster Reduction (UNISDR).

The study found that China was the country that is the second-most affected by natural disasters, after the US and ahead of Japan, India and Puerto Rico.

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