CBIRC issues notice on Cat bonds

The China Banking and Insurance Regulatory Commission recently issued a notice on catastrophe bonds by domestic insurance companies in the Hong Kong Market in order to support willing domestic insurance companies.The issuance was made with the aim of stabilizing the cost of catastrophe risk diversification, forming a multi-level catastrophe risk sharing mechanism, and supporting the construction of Hong Kong’s financial center.

The notice focuses on five aspects: the first is to clarify that the scope of application of catastrophe bonds is to transfer the catastrophe risk loss caused by natural disasters such as earthquakes, typhoons, floods, and public health emergencies; the second is to clarify special purpose insurance company (SPI) should be approved by the Hong Kong insurance regulatory agency and has a sound protection mechanism for ceding insurance companies; third, it is clear that SPI can be used as a special insurance company to register for reinsurance and accept catastrophe risks from insurance companies, and is exempt from rating, capital, solvency and other related regulatory requirements; fourth is to clarify that insurance companies should strictly abide by relevant domestic and Hong Kong laws, strengthen legal and credit risk management and control, and ensure that catastrophe bond issuance is legal, compliant and safe; fifth is to clarify insurance companies Information reporting requirements for issuance of catastrophe bonds.

In the next step, the China Banking and Insurance Regulatory Commission will continue to track the implementation of the notice to ensure that the company conducts catastrophe bond issuance in compliance with laws and regulations, and strive to build a multi-level catastrophe risk diversification mechanism.