b'ILS and Convergence Markets bond issuance to benefit a municipal utility as wellAggregate triggers continued to dominate catas-as being the first parametric-triggered bondtrophe bonds, representing more than half of all providing protection for wildfire. transactions outstanding at year-end 2020. With The PRC and Hong Kong governments havethese triggers, losses from multiple events are continued to emphasize the importance of theaggregated (typically over a 12-month period) to insurance sector for Hong Kongs developmentdetermine whether the specified attachment level plan in upcoming years. Hong Kongs Chiefhas been exceeded. This demonstrates one of the Executive commented at the Asian Insuranceways in which the catastrophe bond market has Forum held in Hong Kong in December 2019 thatcome closer to the traditional reinsurance market it is the Hong Kong governments goal to intro- (where aggregate protection is more common). duce relevant legislative amendments to its2020 saw the entry into the market of new spon-Legislative Council in early 2020 to enable thesors, catastrophe bonds covering new perils and issuance of ILS, including catastrophe bonds. Inthe availability of new jurisdictions for ILS issu-March 2020, the Government of Hong Kongances. Despite significant catastrophe losses in introduced the Insurance (Amendment) Bill 2020recent years, the continued growth and evolution of to amend its insurance regulation to allow for ILSthe market demonstrates its importance in provid-such as catastrophe bonds to be issued, whiching claims-paying resources and flexible solutions was passed in July 2020. The Legislative Councilto sponsoring insurance companies.has said it is targeting a full introduction of the new ILS regulatory regime by early 2021. Some ofSidecars and Managed Fundsthe new initiatives include tax concessions forIn 2020, sidecars remained an important mecha-specialty insurance and reinsurance companiesnism for providing additional collateralized capacity and the development of the ILS legislation andto the reinsurance market, while allowing sponsors regulatory regime. We expect that there will beto participate in a targeted fashion in the property many further developments in the use of Hongcasualty market. Several reinsurers extended their Kong-domiciled vehicles for ILS transactions in existing programs, including AXIS Capital, Liberty the coming years.Mutual, Munich Re, Peak Re and Hannover Re, Indemnity triggers (which calculate payouts basedwhich collectively raised over $3 billion through on the actual losses of the ceding company) weresidecar issuances in 2020. used in a majority of transactions in 2020, repre- Sidecars are privately negotiated transactions that senting approximately 65.9% of all outstandingcan be flexibly tailored to meet the sponsoring issuances at year-end. Index transactions (usingreinsurance companys needs. They can be struc-information from PCS and PERILS) were the nexttured as market-facing vehicles (in which the sidecar largest trigger-type, representing approximatelydirectly enters into retrocession agreements with 21.5% of outstanding transactions at year end.third-party reinsurers, with underwriting and man-Parametric triggers (which are based on measurableagement typically being performed by the physical phenomena, such as wind speed or earth- sponsoring reinsurance company), and side-by-side quake magnitude), at 3.9% of outstandingvehicles (in which the sidecar enters into a retroces-transactions, represented the third-largest categorysion agreement with the sponsoring reinsurance of trigger type. The remainder consisted of multiplecompany, taking a quota share of a specified portfo-triggers or bespoke arrangements.lio of risks of such company). 48 GLOBAL INSURANCE INDUSTRY|YEAR IN REVIEW 2020'