b'ILS AND CONVERGENCE MARKETSby valuation in connection with a loss eventILS Developments in Hong Kongpending receipt of claims data.The Hong Kong Governments Legislative Council Until recently, the issues around valuationspassed the Insurance (Amendment) Bill 2020 on following a loss event had been addressed byJuly 17, 2020, targeting a full introduction of the means of conventional hedge fund technologyILS regulatory regime by the end of 2020 or early used for illiquid or hard-to-value investments.2021. In his 2021-2022 budget speech, Hong Affected investments were placed in sideKongs Financial Secretary, Mr. Paul Chan, made pockets, excluding them from the general netreference to the Hong Kong Government and asset value pool on which investor redemptionInsurance Authoritys (IA) work on an ILS proceeds and performance-based sponsorregulatory and tax framework, with a goal of compensation are calculated and excludingbringing ILS business to Hong Kong.incoming investors from participating in profits and losses on these investments. This practiceCompared to Singapore, Hong Kongs ILS market is eliminated the need to value the side pocketedstill in its early stages. In Singapore, the provision assets. The loss events of 2017 and 2018 broughtof financial support to sponsors to offset issuance valuation following a loss event into sharp focus.costs has proved to be an attractive option and Investors have particular concerns around thebrought some sponsors to the country for fact that investments were often not markedcatastrophe bond issuances. Hong Kong has down before being side pocketed, and infollowed a similar approach with the launch of the response sponsors began to explore alternativestwo-year Pilot ILS Grant Scheme (ILS Grant to side pockets, often establishing reserves inScheme) to attract sponsors to Hong Kong.excess of GAAP reserves rather than removingOn May 3, 2021, the IA published details of the ILS the entire investment from the asset pool. ThisGrant Scheme which enables sponsors to and this addresses investor concerns and also allows for asought to attract interest. The ILS Grant Scheme more precisely calibrated response to the losswill cover the upfront costs of an eligible ILS event, which may not always affect the entireissuance depending on the maturity of the ILS investment. The SBAI in May of 2021 produced aconcerned. It provides the lesser of HK$12 million Toolbox Memo in the series on ILS funds addressing side pockets.56|Global Insurance Industry Year in Review 2021'