(Source: Economic Daily)
Source: Economic Daily
PICC Property and Casualty Company Limited (hereinafter "PICC P&C") successfully issued US$1200 million in sidecar insurance-linked securities (ILS) in Hong Kong to provide reinsurance coverage for its onshore offshore wind power insurance portfolio. This marks the first sidecar ILS issuance in the Hong Kong market, further strengthening Hong Kong's risk management capabilities. The successful offering underscores significant progress in risk transfer and alternative capital utilization within Hong Kong's insurance and capital markets, supported by national initiatives, and reinforces Hong Kong's position as a global center for risk management.
"Sidecar" is a typical structure of insurance-linked securities (ILS). Through issuing such securities, an insurer cedes insurance risk to a specially established special purpose insurer via proportional reinsurance. The sidecar vehicle then raises claim payment funds by issuing equity or debt-type securities and deposits these funds into a trust account invested in low-risk, highly liquid assets to ensure timely claim payments. In this case, the issuer PICC Property & Casualty issued "sidecar" notes through Great Wall Reinsurance Limited. The returns and losses of the sidecar ILS are linked to the gains and losses of the proportional reinsurance contract. Its issuance structure reflects the distinctive features of insurers sharing benefits with capital market investors, sharing risks, and offering flexible entry and exit—hence the vivid term "sidecar."
Previously issued insurance-linked securities (ILS) in the Hong Kong market have all been structured as catastrophe bonds. Under this structure, investors receive periodic coupon payments and principal repayment at maturity, but may incur partial or total loss of principal if a predefined catastrophic event occurs. This sidecar issuance expands the trading structures and business scenarios for ILS in Hong Kong. To date, 7 catastrophe bonds have been issued in Hong Kong. With this new sidecar product, total issuance volume has reached approximately 63 billion HKD.
Currently, the catastrophe protection gap in the Asia-Pacific region reaches 88%. With traditional reinsurance capacity constrained, insurance-linked securities (ILS) can help bridge this gap. China's 15th Five-Year Plan prioritizes strengthening the national catastrophe risk protection system and risk-sharing mechanisms. In 2025, the National Financial Regulatory Administration issued a notice supporting eligible domestic insurers to issue "sidecar" ILS on the Hong Kong market.
Hong Kong's first five-year plan proposes fully leveraging the comparative advantages of international insurance, reinsurance, and capital markets to promote the coordinated development of traditional insurance and non-traditional risk management tools. The Hong Kong SAR Government launched a pilot grant scheme for insurance-linked securities (ILS) in 2021 and extended it through 2028. The scheme provides grants of up to 100% of upfront costs for each eligible ILS transaction. Open to both onshore and offshore sponsors, the program covers all risk types and regions. The 2026 Chief Executive's Policy Address announced that the Hong Kong SAR Government and the Insurance Authority will continue to promote ILS, narrow coverage gaps for catastrophic and other specific risks, and review investor restrictions to activate the ILS fund trading market. The Insurance Authority also stated it will amend regulations to introduce "protected cell companies," enabling more flexible captive insurers to mitigate risk and further reduce the cost of issuing ILS.
A catastrophe bond issued by the World Bank in Hong Kong and backed by Jamaica triggered full payout at the end of 2025 after Jamaica was struck by a hurricane, demonstrating the critical role of insurance-linked securities (ILS) in post-disaster recovery. Today, catastrophe bonds, sidecar ILS, and captive insurance together offer Chinese companies going global diversified pathways to disperse and manage risk. The growing risk management needs of mainland enterprises expanding overseas will further drive richer risk management scenarios, underscoring Hong Kong's dynamic potential as an international risk management hub. (Economic Daily reporter Liu Liang)
