b'ILS and Convergence Markets ILS Developments in Asia On September 4, 2020, the Insurance Authority At the 2020 Asian Insurance Forum in December(IA) published for consultation a set of draft 2020, Carrie Lam, the Chief Executive of the HKSARInsurance (Special Purpose Business) Rules (the Government, reiterated her vision to transformRules) proposed to be made under the new Hong Kong into a regional insurance hub andsection 129A of the Insurance Ordinance (Cap. 41) global risk management center. An integral part ofto provide for restrictions on the sale of ILS. The that vision entails the implementation of an ILSRules define eligible ILS investors, the minimum regime, which is slated for the first half of 2021.investment size for ILS and the offences and penal-Since the Policy Address in 2018 and the 2019-2020ties for contravention of the rules. Briefly, eligible Budget Speech by the Financial Secretary, theILS investors include authorized financial institu-Government is keen on Hong Kong establishingtions, reinsurer and insurers, governments, central itself as a venue for issuance of ILS securities, inbanks, authorized exchange companies and certain particular, catastrophe bonds. In this respect, Hongcollective investment schemes. Responding to Kong is uniquely placed to assist Mainland insurerssubmissions during the consultation process, the IA with offloading their risks into the capital marketagreed to a lower minimum investment size of through the issuance of catastrophe bonds. Making$250,000 compared to the $1 million originally Hong Kong a more conducive domicile for ILS willproposed and this is welcomed. The Rules will be also facilitate capturing such opportunities else- introduced into the Legislative Council for negative where in Asia. vetting in the first quarter of 2021 and are expected to come into operation in tandem with From a legislative perspective, the Insurancethe Insurance (Amendment) Ordinance 2020.(Amendment) Bill 2020 was passed by theIt is expected the Government will also develop Legislative Council on July 17, 2020. In effect, theincentives (such as providing a subsidy for issuance Bill is provides for a new regime under thefees) to promote the ILS regime. Singapore, for Insurance Ordinance (Cap. 41) (IO) to enable theexample, has a cost subsidy scheme for eligible ILS issuance of ILS by special purpose insurers. The Billsecurities as well as a related tax relief plan reflects a simplified regulatory regime under thewhereby income generated from the trading of the IO, which is to be applauded as stringent regula- special purpose vehicle would be tax exempt until tory requirements to ILS business will risk hindering2023. So far, the Government has not announced the development of ILS in Hong Kong, putting it atany incentives although the current 50% concession a competitive disadvantage to jurisdictions likein the profits tax rate for reinsurance business gives Bermuda and Singapore (please refer to furthersome insight as to how they will approach the issue.commentary in our Legal Update, Hong Kong on the Verge of Launching an ILS Regime).50 GLOBAL INSURANCE INDUSTRY|YEAR IN REVIEW 2020'