China's National Financial Regulatory Administration has issued a notice setting out arrangements for China-incorporated insurance companies to issue insurance-linked securities in the Hong Kong market, adding support for “sidecar” structures as a channel to diversify catastrophe insurance risk and strengthen insurers’ catastrophe risk management. The notice builds on earlier regulatory support for mainland insurers issuing catastrophe bonds in Hong Kong and is intended to expand the catastrophe risk management toolkit and create a multi-layered risk dispersion network. Under a sidecar insurance-linked securities structure, an insurer transfers insurance risk to a dedicated Special Purpose Insurer (SPI) through proportional reinsurance; the SPI raises claim-paying funds by issuing equity or debt securities, with proceeds placed in a trust account and invested in low-risk, highly liquid assets to enable timely claims payments. The regulator also frames sidecars as a complement to limited traditional reinsurance capacity for catastrophe risk, a mechanism to smooth insurers’ volatility by sharing risk with capital markets, and a new Hong Kong investment product with low correlation to traditional financial assets and triggers typically linked to natural disasters.
China Banking and Insurance Regulatory Commission 2025-10-28
China's National Financial Regulatory Administration supports mainland insurers issuing sidecar insurance-linked securities in Hong Kong
China's National Financial Regulatory Administration now permits China-incorporated insurers to issue insurance-linked securities in Hong Kong, including "sidecar" structures. This aims to diversify catastrophe insurance risk and improve insurers' catastrophe risk management. Sidecars allow risk transfer to a Special Purpose Insurer, raising funds through securities issuance, offering a new investment product with low correlation to traditional assets.