An insurance-linked securities deal totaling US$12 million, or roughly HK$94 million, has allowed the "sidecar," a tool not exactly new in international insurance markets, to break ground among onshore insurance institutions for the first time.
PICC Property and Casualty Company Limited recently successfully issued a "sidecar" insurance-linked security in Hong Kong, according to PICC P&C. This issuance marks the first "sidecar"-structured insurance-linked securities offering in the Hong Kong market and the first such issuance by an onshore insurance institution. Industry participants say the "sidecar" is an effective securitization tool for diversifying insurance risks such as catastrophe risk, and its market prospects are broad as China's catastrophe insurance system continues to improve.
Onshore Insurer's "Sidecar" Issuance Breaks Ground
It is understood that PICC P&C's "sidecar" issuance provides reinsurance protection for its offshore wind power insurance business. According to information from the Hong Kong government news website, the total issuance size of this "sidecar" security was US$12 million, equivalent to about HK$94 million. A senior executive at a property and casualty insurer told reporters that the reason offshore wind power became the first underlying asset is closely related to its risk characteristics. Offshore wind power projects have large single-project investment scale, concentrated single-point risk exposure, and often face catastrophe threats such as typhoons. Issuing a "sidecar" can use proportional reinsurance to transfer risk to the capital market and effectively supplement reinsurance capacity.
PICC P&C stated that this issuance introduced China's offshore wind power insurance risk to the international capital market, enhanced international investors' understanding of China's green energy insurance business, and expanded risk diversification channels for insurance services supporting green energy development.
The sidecar is a typical structure of insurance-linked securities. A team led by Zhao Yang, associate professor at the Nankai University-Nankai-Taikang Institute of Insurance and Actuarial Science, wrote in the sixth issue of "Insurance Theory and Practice" in 2025 to introduce the specific structure and operating model of the "sidecar": an insurance company (the sponsor) issues a "sidecar" to cede insurance risk to a specially established special purpose insurer (SPI) through proportional reinsurance. The SPI raises funds for claims by issuing equity or debt securities, and deposits the funds in a trust account, investing in low-risk, highly liquid assets to pay claims in a timely manner. At the same time, investors such as private equity funds and hedge funds in the capital market establish a holding company that holds all shares of the main entity. A service provider is responsible for daily operations and management.
According to PICC P&C, in this issuance the company acted as sponsor and issued sidecar notes through Hong Kong special purpose insurer Great Wall Re Limited. The returns and losses of the "sidecar" insurance-linked securities are linked to the profit and loss of the proportional reinsurance contract. Its issuance structure embodies the core features of insurance companies and capital market investors sharing returns, bearing risks together, and being able to flexibly load and unload, which is why it is vividly called a "sidecar."
The Zhao Yang team said that generally, if no catastrophe event triggers a payout during the life of the "sidecar" security (generally no more than three years), the trust account funds will be returned to investors, who receive dividends or bond interest plus principal, after which the main entity and holding company can be dissolved. If a catastrophe event occurs and reaches the trigger level, the trust account funds will be used to pay insurance losses, and investors may lose principal and returns.
In October 2025, the National Financial Regulatory Administration issued the "Notice on Matters Concerning Onshore Insurance Companies Issuing Relevant Insurance-Linked Securities in the Hong Kong Market," supporting onshore insurance companies that are willing to issue "sidecar" insurance-linked securities in the Hong Kong market. It complements catastrophe bonds, which diversify risk through excess-of-loss reinsurance, and provides a new tool for Chinese insurance companies to expand risk diversification channels and enhance underwriting capacity.
PICC P&C stated that this issuance allowed the company to further explore a new model of obtaining proportional reinsurance protection through the international capital market, improve the dual-pillar risk diversification system of "reinsurance + insurance risk securitization," and accumulate practical experience for enhancing catastrophe insurance underwriting capacity and serving the construction of the country's multi-tiered catastrophe risk protection system.
On the other hand, insurance-linked securities previously issued in the Hong Kong market were all catastrophe bond structures. This "sidecar" issuance enriched the transaction structures and business scenarios of Hong Kong's insurance-linked securities market. Christopher Hui, Secretary for Financial Services and the Treasury of Hong Kong, said this issuance marks important progress by Hong Kong's insurance industry and capital market in risk transfer and alternative capital deployment with national support, while further enhancing the market's ability to respond to catastrophes and other specialized risks.
How It Differs from Catastrophe Bonds and Reinsurance
China frequently experiences major disaster events such as floods, typhoons, and earthquakes. Under climate change, catastrophe risk governance is becoming increasingly important. Against this background, China has paid great attention to the high-quality development of its catastrophe insurance system. The Zhao Yang team said in the above article that catastrophe risk transfer is a key component of the catastrophe insurance system. Although reinsurance is the most widely used catastrophe risk transfer tool at home and abroad, in recent years innovative catastrophe risk transfer tools typified by catastrophe bonds and "reinsurance sidecars" have developed rapidly, transferring catastrophe risk borne by the insurance industry to the capital market, which has stronger risk-bearing capacity, and solving the failure of catastrophe risk transfer caused by underwriting cycle alternation and insufficient capital capacity in the reinsurance market.
The Zhao Yang team analyzed that compared with catastrophe reinsurance, which is an on-balance-sheet business, both "sidecars" and catastrophe bonds are off-balance-sheet businesses of the sponsor, do not affect the balance sheet and capital structure, and have no counterparty credit risk because funds are fully collateralized; both adopt multi-period structures, alleviating the market risk brought by the underwriting cycle (soft/hard market) faced by most one-year catastrophe reinsurance contracts; in addition, catastrophe reinsurance relies on the insurance mechanism and capital sources are concentrated within the industry, while the capital of "sidecars" and catastrophe bonds comes from the broader capital market.
Regarding the difference between "sidecars" and catastrophe bonds, the senior property and casualty insurance company executive analyzed that catastrophe bonds are often in the form of excess-of-loss reinsurance risk, bearing high-layer loss risk, and are relatively standardized; "sidecars" are mainly in the form of proportional reinsurance risk, can look through to the underlying assets and share risk, have obvious non-standard attributes, and have long claims and tail effects, but relatively higher returns.
Over the past few years, China's insurance industry has begun building a multi-tiered catastrophe risk transfer system through issuing catastrophe bonds. Data from the Zhao Yang team show that in 2015 China Re P&C issued the first catastrophe bond in Bermuda. From 2021 to 2024, several insurers issued catastrophe bonds in Hong Kong, raising nearly US$100 million in total.
Relatively speaking, onshore Chinese insurers' "sidecar" issuance has just broken ground, but the international market is already sizable. The Zhao Yang team said that according to incomplete statistics, from 2005 to June 30, 2024, a total of 230 "reinsurance sidecars" were established globally, providing more than US$55 billion in risk capital to the insurance industry, including US$32.1 billion in property risk capital, US$13.3 billion in life risk capital, and US$10.5 billion in other risk capital.
The Zhao Yang team said that using "reinsurance sidecars" for catastrophe risk transfer has very obvious advantages, such as relatively flexible structure, more diversified financing methods and funding sources, the ability to transfer multiple catastrophe risks at the same time, and no basis risk or market risk. However, its operating structure is relatively complex, and it lacks a secondary trading market. Also, due to its innovative nature, there is still some uncertainty in relevant laws and regulations and at the regulatory level, and it has certain limitations compared with catastrophe reinsurance and catastrophe bonds.
Nevertheless, against the backdrop of policy support in China, the continuous development of the catastrophe protection system, and accumulated practical experience in catastrophe risk securitization, both the Zhao Yang team and the above-mentioned property and casualty insurance company executive are optimistic about the future development prospects of "sidecars" in China. The Zhao Yang team further suggested that to promote the sound development of "sidecars" in China, dedicated operating and management measures could be formulated; in addition, sidecars are complex financial products and could be limited to professional investors with sufficient professional knowledge and high risk tolerance; at the same time, sidecars do not involve primary insurance business, so excessively strict capital adequacy requirements for primary insurance companies do not apply. Regulators could regard them as reinsurers, build a corresponding solvency framework, and pay attention to coordination with international regulatory standards.
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