Domestic insurance institutions have for the first time ventured into "sidecar" insurance-linked securities. On October 14, it was learned that PICC Property and Casualty Company Limited recently successfully issued "sidecar" insurance-linked securities in Hong Kong, with a total amount of USD 12 million (equivalent to approximately HKD 94 million), providing reinsurance protection for PICC P&C's offshore wind power insurance business. This is the first "sidecar" structure insurance-linked securities issuance in the Hong Kong market, and also the first "sidecar" insurance-linked securities issued by a domestic insurance institution.
What is a "sidecar" structure insurance-linked security?
A "sidecar" structure insurance-linked security is one in which an insurance company cedes insurance risk to a specially established Special Purpose Insurer (SPI) through proportional reinsurance. The SPI raises funds for claims payment by issuing equity or debt-type securities, and deposits the funds into a trust account, investing in low-risk, highly liquid assets to pay claims in a timely manner.
The core arrangement of this instrument is that the insurance company transfers designated catastrophe risks to an SPI established specifically for this purpose through proportional reinsurance, and the SPI then raises funds from the capital market by issuing equity-type or debt-type securities, thereby forming a connection between risk and capital. This design enables "sidecar" insurance-linked securities to open up additional sources of underwriting capacity without fundamentally changing the original insurance business framework.
Domestic insurance institutions venturing into "sidecar" insurance-linked securities marks this innovative instrument's official transition from policy preparation to market practice. In October 2025, the National Financial Regulatory Administration issued a notice on matters concerning domestic insurance companies issuing insurance-linked securities in the Hong Kong market, supporting willing domestic insurance companies to issue "sidecar" insurance-linked securities in Hong Kong.
It is understood that in this issuance, PICC P&C acted as the sponsor, issuing sidecar notes through Hong Kong special purpose insurer Great Wall Re Limited to provide risk protection for PICC P&C's offshore wind power insurance business. Offshore wind power, as an important component of green energy, has developed rapidly in China in recent years, but its insurance subject matter features single large amounts, concentrated risk, and sensitivity to natural disasters, making insurance and reinsurance demand relatively prominent.
PICC P&C stated that this issuance introduced Chinese 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. In fact, this issuance is also the first "sidecar" structure insurance-linked securities issuance in the Hong Kong market.
Cheung Wan Ching, Executive Director of the Hong Kong Insurance Authority, said: "With the policy support of the National Financial Regulatory Administration, this insurance-linked securities issuance fully demonstrates our commitment and determination to promote Hong Kong's development as a global risk management center. The Hong Kong Insurance Authority will also continue to advance the introduction of 'protected cell companies' as an insurance-linked securities issuance structure, and review the existing definition of qualified insurance-linked securities investors to make the trading market more vibrant."
Xie Yuantao, Dean of the School of Insurance at the University of International Business and Economics, analyzed that the first issuance of "sidecar" insurance-linked securities by a domestic insurance institution marks the expansion of China's insurance risk securitization toward more flexible structures, opening up a channel of "mainland risk—Hong Kong SPV (Special Purpose Vehicle)—international capital."
From catastrophe bonds to "sidecar" insurance-linked securities
In the past, China's insurance industry mainly relied on reinsurance to diversify catastrophe risks, but reinsurance capacity is limited, concentration is constrained, single subject matter and cumulative risks are difficult to diversify, pricing cycles lag, and customization costs are high. For large, concentrated, tail risks such as typhoons, earthquakes, and floods, reinsurance alone cannot fully meet demand. In the past two years, catastrophe risk diversification channels have continued to expand.
Previously, regulators also issued a notice on matters concerning domestic insurance companies issuing catastrophe bonds in the Hong Kong market, allowing insurance companies to issue catastrophe bonds in Hong Kong through special purpose insurers to transfer catastrophe risk losses from natural disaster events such as earthquakes, typhoons, and floods, or public health emergencies. Although "sidecar" insurance-linked securities and catastrophe bonds belong to the same category, they differ fundamentally in risk transfer logic, return generation mechanisms, and product structure characteristics.
Industry experts said that the structural design of "sidecar" insurance-linked securities is typically highly aligned with its underlying proportional reinsurance contract, with relatively standardized processes. Since it does not necessarily involve public listing and issuance, its establishment and issuance cycle tends to be shorter, and the public information disclosure obligations it must fulfill are more focused and simplified. Catastrophe bonds, because they often involve listing on stock exchanges or issuance to a broader public investor base, need to meet stricter regulatory disclosure requirements and complete complex model validation and rating processes.
The core value of "sidecar" insurance-linked securities goes beyond simple risk hedging. It is more of a dynamic capital management tool that can flexibly and rapidly expand underwriting capacity for specific business lines without directly raising equity capital, and optimize its own solvency capital occupation. For investors, "sidecar" insurance-linked securities provide an alternative asset class with extremely low correlation to traditional stock and bond markets, with returns rooted in insurance underwriting profits, which is particularly scarce in the global low-interest-rate environment.
Xie Yuantao pointed out that from the perspective of catastrophe risk governance, this "sidecar" insurance-linked securities issuance proves that "insurance + capital markets" can share catastrophe and concentrated risks in a layered manner, providing a replicable template for typhoon, earthquake, flood, and new energy risks; it promotes the construction of data, models, SPVs, regulatory and investor ecosystems, and enhances the insurability of catastrophe risks.
"More insurance companies will follow suit in the future, but the advancement path will show a layered and gradual characteristic. Large insurance companies and institutions with larger risk exposures in new energy and catastrophe areas are expected to take the lead in testing the waters, while smaller and medium-sized institutions will participate more through platforms, with the overall pace being gradual," Xie Yuantao predicted.
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