Hong Kong’s insurance industry has taken a step towards higher international standards with the passage of a bill that will implement a legal framework for a risk-based capital regime (RBC), according to several players in the market.
The 246-paged Insurance (Amendment) Bill 2023 was passed by Hong Kong’s legislative council earlier last month, in a move that was welcomed by the Insurance Authority (IA).
Several insurance industry players came out in support of the new bill.
Lei Yu, CEO for North Asia and regional head of distribution at QBE Asia told Health & Protection: “We welcome the new risk-based capital (RBC) requirements for the insurance industry in Hong Kong.
“As the past few years have shown, during extended periods of heightened market volatility and uncertainty, Hong Kong insurers must be adequately prepared to manage greater levels of financial risk than we have seen in past decades.
“The new RBC requirements guarantee that Hong Kong-based insurers hold appropriate levels of capital and solvency relative to their exposures.
“As such, they will bolster their risk management capabilities, and accordingly maintain sufficient capital to meet their customer obligations.
“In doing so, they will enable the region’s insurance industry to be more robust, and further support Hong Kong’s position as one of the world’s leading insurance centres.”
Pacific Prime was largely in agreement.
Stephen Ho, chief marketing officer from Pacific Prime in Hong Kong told Health & Protection: “This new regulation will create some challenges for the insurer in the short term to comply with the regulation, but it should be a positive direction to bring Hong Kong insurance industry one step closer to the international standards.
“For health insurance, I believe the insurers have enough utilisation and claims data for actuaries and underwriters to price their products accurately, so I don’t expect to see any drastic changes in terms of pricing.
“Long term this might need quantitative processes for the financial model analysis so this might be an additional overhead cost for operating in Hong Kong.”
The Insurance Authority (IA) believed the bill would improve security of insurers in Hong Kong.
“The RBC regime can enhance the financial soundness of insurers and is crucial for consolidating Hong Kong’s position as an international financial centre,” an IA spokesperson said.
“We are pleased that the bill has gained staunch support by members of the legislative council, and will continue to work closely with the insurance industry to ensure a smooth transition to the RBC regime,” it said.
The IA will start the preparatory work on drafting detailed requirements of the RBC regime to be followed by public consultation on subsidiary legislation. The RBC regime is targeted for implementation in 2024.
KPMG also gave the development its support.
“The proposed amendments are a milestone in the Insurance Authority’s efforts to make the insurance sector in Hong Kong resilient and risk-based,” KPMG said.
“The proposed RBC regime is expected to encourage insurance companies to underwrite appropriate risk and manage those risks efficiently.
“Insurers with a robust risk management framework will be the clear winners as the new regime becomes effective.”
The bill also introduces several other important changes including designation, disclosure and reporting, appointed actuary requirements, and the requirement for fund separations.
