Lion Rock Re is just the beginning for Hong Kong

In January 2020, Peak Re announced the renewal of its Lion Rock Re II sidecar with an upsized volume of $77 million. This followed the successful launch of our first transaction, Lion Rock Re I, which was subscribed by world-class investors with a volume of $75 million a year before.

When we started the renewal in autumn 2019, market conditions were more difficult than in the previous year, as investors were dealing with the impact from the previous year’s loss events and trapped collateral.

Despite the market conditions, our unique selection and allocation of risks to Lion Rock Re paid off. The portfolio of risks included in Lion Rock Re provides investors with the opportunity to invest in a broad spectrum of high-quality risks, underwritten by Peak Re.

The portfolio has our unique bias to Asian and emerging market risks that investors would otherwise have limited access to. This gives Lion Rock Re a distinct diversification benefit for the book of business of its investors. They also benefit from the strong returns that are inherent in Lion Rock Re’s portfolio.

Investors express confidence in the risks included in Lion Rock Re, and are impressed with our strong underwriting and analytical capabilities. Lion Rock Re is renowned for its state-of-the-art analytical technology in underwriting and risk management, and its expertise and track record underwriting risks in Asia in particular.

It is still far less common to see emerging Asia and China risks transferred to the capital market than for Florida tropical cyclone risks, for example, but large amounts of data on Chinese natural catastrophe risks are available and help to quantify exposures. In the past year Peak Re has invited investors to its premises on a number of occasions, and shared the data necessary to assess and digest the underlying risks of Lion Rock Re.

Poised for growth in Asia

Lion Rock Re provides Peak Re with additional financial flexibility, and as such, is an integral part of our growth strategy. The sidecar allows us to continue our drive towards modernising reinsurance, bringing more communities under the umbrella of protection that re/insurance provides.

Ever since our founding in late 2012, we have continuously expanded our operations. As the only privately-owned global reinsurer based in Hong Kong, we generate about 60 percent of our business from Asia. Hong Kong has a unique status of equivalence with mainland Chinese reinsurers, and this regulatory ease gives us access to the mainland’s insurance business.

Going forward we still see tremendous market opportunities, as yet untapped in China and emerging Asia. Across the region, 150 million people are elevated into the middle class every year, creating an ongoing need for increased risk capacity. This will continue for decades to come. However, to seize these opportunities, we need the flexibility to tap different pockets of capital, depending on the phase of the cycle. That includes insurance-linked securities (ILS): it will be impossible to address the current and future insurance protection gap without new sources of capital.

Hong Kong has the ambition to become the ILS hub of Asia. It is already a key hub for mainland businesses to issue debt and equities. Hong Kong’s capital markets are both mature and diversified, making it an ideal platform for mainland re/insurers to issue ILS products to international investors. At $4 trillion, Hong Kong’s stock market is the third largest in Asia, behind Tokyo and Shanghai, and the sixth largest in the world.

Given the depth and breadth of its capital markets, and its strong financial and economic ties with the mainland of China, Hong Kong is well positioned to achieve this goal.

The launch of Lion Rock Re—Asia’s first sidecar transaction—was a milestone for the reinsurance market in Hong Kong. The confidence that investors demonstrated with the renewal of Lion Rock Re II proves that Hong Kong can be a hub for ILS investors.

As a Hong Kong based reinsurer, Peak Re obviously has a vested interest in helping Hong Kong to achieve its goal. We are keen to support and play a key role in working with the Hong Kong Federation of Insurers and the Insurance Authority in promoting and driving the ILS ambitions of Hong Kong.