Hong Kong reduces minimum ILS investment size to US $250k

Hong Kong reduces minimum ILS investment size to US $250k

Following an assessment period, Hong Kongs brand-new insurance-linked securities (ILS) rules have actually been changed to decrease the minimum investment size needed in an issuance down from United States $1 million to United States $250,000, while guidance on what constitutes a qualified financier has likewise been tightened.The Government of Hong Kong continues to proceed apace on bringing insurance-linked securities (ILS) business, such as disaster bonds and collateralised reinsurance arrangements, to the Special Administrative Region.
As we described recently, the Government revealed its plans for an ILS grant plan that will cover around US $1.6 countless costs for sponsors and companies.
While the Hong Kong Insurance Authority (IA) said that it hopes the ILS regulative routine will be fully-ready for use this year which a first ILS or cat bond would be released in 2021.
An assessment procedure was introduced in 2015 in which the government sought guidance on the meaning of eligible ILS financier, as well as what the minimum investment size for an ILS or cat bond ought to be.
The consultation process led to some modifications to the ILS guidelines, which we report for you here.
On qualified financiers, the updated ILS guidelines, Hong Kongs Insurance (Special Purpose Business) Rules, now expand on the definition of the sort of investors eligible to designate capital to ILS, catastrophe bonds and collateralized reinsurance under the brand-new ILS regulatory program.
This expansion clarifies that ILS are considered unsuitable to regular retail investors and so funds targeting the basic public, such as Mandatory Provident Funds, funds signed up under the Occupational Retirement Schemes Ordinance, and cumulative or retail mutual fund under the Securities and Futures Ordinance will not be considered qualified ILS investors anymore.
The initial draft ILS guidelines were not as explicit in their phrasings around the eligible financier definition, but these updates bring them into line with other domiciles.
On the minimum investment size permitted into an ILS or disaster bond released in Hong Kong, the figure has been brought down into line with the global ILS market.
Notes from disaster bonds and some other ILS or collateralised reinsurance structures have typically been provided in United States $250,000 increments.
Hong Kongs draft ILS guidelines had pegged the minimum at United States $1 million, but this has actually now been lowered and brought into line with the international ILS market requirement of United States $250,000.
The Insurance Authority (IA) of Hong Kong described that the adjustment will be helpful for market development, while still offering some defense against unqualified financiers accessing issuances.
The IA remains focused on avoiding the repackaging of ILS released in Hong Kong into other types that might then allow them to be sold to retail investors.

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