Assume XYZ insurance company plans to expand its medical insurance business in Hong Kong,

possibly by offering the products qualified under VHIS. However, XYZ Insurance Company is

concerned about little historical underwriting experience with medical insurance, especially for

an ageing population in Hong Kong. XYZ insurance company would like to transfer the risk

associated with unexpected risk in medical expenses to the capital market.

Design a risk transfer solution using catastrophe bond. Be specific about all transactions

among XYZ insurance company, its reinsurer, and the capital market investors.

Assume that the capital market investors are concerned about the opaqueness of the

indemnity$-$based trigger adopted in a catastrophe bond transaction. What are the possible

remedies for that?

What are the requirements for the reinsurer $($i$.$e$.,$ Special Purpose Vehicle$)$ that are set up in

Hong Kong to complete the above catastrophe bond transaction?