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Core Viewpoint - The article discusses the recent regulatory support from the Financial Regulatory Administration for domestic insurance companies to issue "sidecar" insurance-linked securities (ILS) in the Hong Kong market, enhancing the existing ILS framework and providing new risk management tools for catastrophe risk [2][3][4]. Group 1: Regulatory Support and Framework - The Financial Regulatory Administration issued a notification supporting domestic insurance companies in issuing "sidecar" ILS in Hong Kong, following the introduction of catastrophe bonds in 2021 [2][3]. - The notification aims to enrich the catastrophe risk management tools available to insurance companies and to build a multi-layered catastrophe risk dispersion network [3][4]. - "Sidecar" ILS allows insurance companies to transfer catastrophe risks from natural disasters or public health emergencies to specially established Special Purpose Insurers (SPI) [3][4]. Group 2: Benefits of "Sidecar" ILS - The introduction of "sidecar" ILS is expected to improve China's catastrophe risk protection system by providing additional coverage from the Hong Kong capital market, complementing traditional reinsurance [4]. - It enhances the financial stability of insurance companies by allowing them to share catastrophe risks with the capital market, thus smoothing operational volatility [4]. - "Sidecar" ILS offers a new investment product for the Hong Kong market, with low correlation to traditional financial assets, making it less affected by economic cycles [4]. Group 3: Comparison with Catastrophe Bonds - "Sidecar" ILS and catastrophe bonds are both forms of ILS but differ in their risk layers; catastrophe bonds typically cover higher-level losses, while "sidecar" ILS addresses lower-level losses [5][6]. - The issuance process for "sidecar" ILS is more flexible and quicker compared to catastrophe bonds, which are more standardized and complex [7]. - "Sidecar" ILS is considered higher risk and higher return due to its association with the operational performance of the reinsurance companies, while catastrophe bonds are simpler and more transparent [7]. Group 4: Industry Response and Future Outlook - Several leading insurance companies are preparing to issue "sidecar" ILS following the regulatory guidance provided in the notification [6][8]. - The Financial Regulatory Administration plans to monitor the implementation of the notification and continue supporting insurance companies in issuing "sidecar" ILS to enhance catastrophe risk management [8].