LONDON (Reuters) – China's fledgling insurance and reinsurance market cannot meet the soaring costs of natural disasters, but has the data and modeling capability to offload the risk to the private market via insurance-linked securities (ILS) solutions.
China is currently the third largest non-life market in Asia behind South Korea and Japan, but could soon eclipse those countries and the U.S. in its need for natural catastrophe insurance cover by 2050, said AIR Worldwide, one of a panel of catastrophe risk modeling firms addressing an audience of ILS clients and investors in London on Wednesday.
ILS are increasingly popular instruments such as catastrophe bonds that give investors an income in exchange for promising to pay some claims if a natural catastrophe occurs.
The panel said earthquake insurance could be bundled up into catastrophe bond form and sold to capital market investors. Instead of an individual Chinese insurer or reinsurer selling the cat bond notes, or “sponsoring” the bond, it could be done under a government initiative.
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