Hong Kong File Photo: VCG

The World Bank issued $350 million in insurance-linked securities (ILS) in the form of Chile Catastrophe Bond in the Hong Kong Special Administrative Region (HKSAR) on Tuesday, marking the inaugural listing of ILS in Hong Kong and its fourth ILS issuance overall, as the city continues leveraging its role as the "super connector" between the Chinese mainland and the world to attract global investors. 

The Chile Catastrophe Bond, which is also the largest of its kind for a single country led by the World Bank, offers protection against losses related to earthquake risks in Chile over the next three years. 

The $350 million catastrophe bond is part of a $630 million aggregate earthquake risk coverage transaction for Chile that also includes $280 million of catastrophe swaps. 

Hong Kong Financial Secretary Paul Chan said on Tuesday the move is a testament to Hong Kong's position as an international financial center and the vibrant development of the Hong Kong insurance industry, according to a statement on the website of the HKSAR government. 

"The catastrophe bond targets a niche market and only professional investors are able to access it. So the successful listing underscores the global influence of Hong Kong's financial markets and the diverse products offered by its vibrant capital market," Liu Guohong, director of the Department of Finance and Modern Industries at China Development Institute in Shenzhen, Guangdong Province, told the Global Times on Tuesday. 

"The decision by a prominent international body like the World Bank is a milestone in the city's journey of striving to become a vibrant ILS hub, while enhancing public awareness of how alternative risk transfer tools could supplement underwriting capacity to increase financial inclusiveness and close protection gaps," Chairman of the Hong Kong Insurance Authority (IA) Stephen Yiu was quoted as saying in the statement.

A ceremony was held at Hong Kong Exchanges and Clearing on Tuesday with the presence of representatives from the World Bank, the HKSAR government and the IA.  

According to a press release on Tuesday, Vice President and Treasurer of the World Bank Jorge Familiar said that the financial institution is "proud to have partnered with HKIA and the Hong Kong Stock Exchange on this transaction that was very well-received by both the capital markets and the reinsurance market."

It also demonstrated Hong Kong's unique bridging role, as the city has sought to be a facilitator in the national "dual circulation" strategy through enhancing connectivity with the Chinese mainland and the international markets, Hong Kong financial officials said. 

Liu predicted that professional investors as well as state-backed funds in the mainland will participate in the bond purchase. 

In 2021, Hong Kong implemented a bespoke and streamlined regulatory regime and launched a pilot grant program, which paved the way for ILS issuance and listing. 

Chan said that the HKSAR government is committed to supporting the Hong Kong insurance sector in offering a greater variety of comprehensive products and solutions to "assist our country and global market players for better management of relevant risks."

The city's role as a global financial hub and an asset "safe haven" has been in the global limelight in recent days, amid a snowballing confidence collapse toward Western banking and financial systems after turmoil involving Credit Suisse, Silicon Valley Bank and other US banks.

Hong Kong on Friday announced measures to attract wealthy family offices to set up in the financial hub. It is hoped that through various measures, at least 200 family offices will be attracted to Hong Kong by 2025, media reports said, citing Hong Kong Secretary for Financial Services and the Treasury Christopher Hui.

Global Times