Hong Kong plans to entice catastrophe bond issuers and investors by offering incentives, aiming to establish itself as a leading hub for such financial instruments.
Hong Kong is bolstering its position as a key player in climate risk management by offering incentives to encourage more issuers and investors to participate in catastrophe bonds. The government aims to leverage these financial instruments to mitigate the growing risks posed by climate change.
Clement Lau Chung-kin, executive director of policy and legislation at the Insurance Authority, asserts that Hong Kong is an ideal location for catastrophe bond issuance due to its capital resources, financial infrastructure, and skilled professionals. He believes that strengthening the Cat bond market in Hong Kong will lead to the city becoming a leading center for innovative climate risk management in Asia.
Catastrophe bonds, also known as Cat bonds, are insurance-linked securities used by insurers to transfer extreme risks to bond investors. These investors typically include pension funds, sovereign investors, family offices, and other wealth managers. Since 2021, when the government introduced its Cat bond regulatory regime, seven deals have been completed locally, raising a combined total of US$800 million. Issuers of these bonds have included the World Bank and Peak Reinsurance (Peak Re).
In April 2023, Peak Re issued its second Cat bond, raising US$50 million to cover earthquake and typhoon risks in Japan, China, and India. This was followed by a US$150 million issuance in June 2022 to cover typhoon risks in Japan. The Hong Kong-based insurer's activities underscore the market's increasing maturity and growing confidence in catastrophe bonds as a risk-transfer tool.
To further stimulate the market, the government has extended its Pilot Insurance-Linked Securities (ILS) Grant Scheme to 2028. This scheme provides subsidies to issuers of ILS and supports the growth of Hong Kong-based service providers related to catastrophe bonds. The government's backing aims to reinforce Hong Kong's position as a leading center for innovative climate risk management and sustainable finance in Asia.
Regional insurance reforms driven by rising climate losses and reinsurance costs have encouraged regulators to support alternative risk transfer solutions, including catastrophe bonds. This favorable regulatory environment further enhances the attractiveness of Hong Kong as a hub for insurers looking to engage with catastrophe bonds as part of their climate risk management strategy.
Hong Kong's robust financial ecosystem and strategic location create a natural advantage for mobilizing capital for climate resilience efforts. The integration of climate finance with broader sustainability goals, such as the emerging blue economy, helps expand investor interest in innovative financial products addressing environmental risks.
In essence, the Hong Kong government is actively promoting catastrophe bonds through a dedicated ILS framework, financial subsidies, and international collaboration platforms, fostering a growing market that is gaining traction with insurers and investors alike. This coordinated approach bolsters Hong Kong’s role as an innovative hub for climate risk finance in Asia.
[1] Insurance Authority. (2023, April 1). Hong Kong Insurance-Linked Securities (ILS) market progresses with World Bank catastrophe bond. Retrieved from https://www.ia.org.hk/en/news–publications/news/hong-kong-ilsmarket-progresses-with-world-bank-catastrophe-bond [2] Insurance Authority. (2023, April 1). Peak Re Issues Second Catastrophe Bond of 2023 to Provide Coverage Against Typhoon and Earthquake Risks in Japan, China, and India. Retrieved from https://www.ia.org.hk/en/news–publications/news/peak-re-issues-second-catastrophe-bond-of-2023-to-provide-coverage-against-typhoon-and-earthquake-risks-in-japan-china-and-india [3] Willis Towers Watson. (2025, May 12). Cat Bond Market Q1 2025. Retrieved from https://www.willistowerswatson.com/en/insights/2025/05/cat-bond-market-q1-2025 [4] National Development and Reform Commission. (2024, February 13). 14th Five-Year Plan for Climate Change Adaptation and Response. Retrieved from https://en.ndrc.gov.cn/newsrelease/202402/t20240227_1450506.html [5] Hong Kong Special Administrative Region Government. (2023, November 4). Blue Economy Development Strategy. Retrieved from https://www.gov.hk/en/topic/blueeconomy/documents/blue-economy-development-strategy-2023.pdf
- The growing success of catastrophe bonds in Hong Kong, as demonstrated by significant issuances from insurers like Peak Re, portrays the environmental-science field as an integral part of its financial sector, potentially influencing other sectors, such as business and finance, to adopt sustainable practices.
- Leveraging the Pilot Insurance-Linked Securities (ILS) Grant Scheme, Hong Kong aims to bolster its position as a leading center for both climate risk management and sustainable finance in Asia, attracting investments from a variety of players like pension funds, sovereign investors, and wealth managers in the realm of environmental-science, business, and finance.
