Hong Kong’s Insurance Authority Announces Details of the Pilot Insurance-linked Securities Grant Scheme

On 3 May 2021, the Insurance Authority (IA) issued a press release announcing the details of the two-year Pilot Insurance-linked Securities Grant Scheme (Grant Scheme) with the aim to attract and incentivise insurers and sponsors to issue insurance-linked securities (ILS) in Hong Kong. 

The Grant Scheme, proposed in the 2021-22 Budget, is in line with the new regulatory scheme for Special Purpose Insurers (SPI) enumerated under the Insurance (Amendment) Ordinance 2020. Please refer to our previous Legal Update regarding the ILS scheme in Hong Kong.

The IA has only announced the eligibility criteria of the Grant Scheme, which is summarized as follows: 

• Eligible applicants: Both onshore and offshore issuers and sponsors are eligible.
• Eligible issuance: The issuance must take place in Hong Kong, with an issuance size of at least HKD 250 million (or the equivalent in foreign currency), and at least 20% of the upfront issuance costs must be incurred by Hong Kong-based service providers. 
• Sum of grants: Depending on the maturity of the concerned ILS, the sum of grants would be different:
  
  • The lesser of HKD 12 million or 100% of total upfront costs if maturity is three years or more;
  • The lesser of HKD 6 million or 50% of total upfront costs if maturity is between one year and three years

The IA expects applicants to consult the IA on the application for the Grant Scheme during the early stage of the ILS issuance process, and to apply for the Grant Scheme through a specified application form upon request. The form is to be submitted along with supporting documents within six months of the date of issuance of the ILS. The IA will give priority to first-time issuers and sponsors, as well as issuances lodged with and cleared by the Central Moneymarkets Unit operated by the Hong Kong Monetary Authority.

The Grant Scheme is an important step in the development of Hong Kong as an ILS hub in the region. This will be seen as a positive development as financial incentives are a key consideration for market participants in selecting Hong Kong as a domicile for the issuance of ILS. The Grant Scheme matches its competitor in Singapore - the Monetary Authority of Singapore's ILS Grant Scheme - in terms of the amount of grant (HKD 12 million vs. SGD 2 million) so there is some equivalence in terms of financial incentives (Singapore also offers preferential tax treatment to special purpose vehicles). What will also weigh heavily in choosing Hong Kong as a domicile is the application process, which is in the process of being developed. It is expected that the IA will announce further details in due course. 

The IA’s press release can be assessed here.