Hong Kong’s insurance industry regulator says its priorities this year will focus mainly on promoting various general insurance business lines and regulating the life insurance sector.
The promotion of general business segments mostly covers marine insurance, captive insurance and insurance-linked securities.
As for marine insurance, the Insurance Authority (IA) last week authorized the Swedish Club to conduct marine insurance business, bringing to 10 the total number of international protection and indemnity (P&I) clubs authorized to undertake marine insurance business in or from the special administrative region.
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The IA is expected to discuss ways of developing business in the SAR with P&I clubs on the Chinese mainland.
“With the nation having the world’s largest fleet in terms of gross tonnage, accounting for 17 percent of the total global fleet, it will spur tremendous demand for supporting services like marine insurance and financing related to port operation,” said Clement Cheung Wan-ching, IA chief executive officer.
As more international P&I clubs operate in Hong Kong, it will attract professionals in marine insurance to the city, and create more job opportunities for local talent, he said.
Regarding captive insurance, there are now four captive insurers operating in Hong Kong that are subsidiaries of mainland State-owned enterprises (SOEs). In Singapore, there are about 100 captive insurance companies that are mainly subsidiaries of Australian enterprises.
A captive insurance company is a wholly-owned subsidiary insurer formed to meet the specific insurance needs of its parent company or related entities.
“We expect a few more captive insurers to be set up in Hong Kong this year. Our business approach will focus mainly on serving the risk mitigation needs of mainland SOEs, which is different from the Singaporean approach of focusing on overseas companies,” said Ocean Chiu Wai-yeung, IA general business associate director.
According to Chiu, there have been six insurance-linked securities issuances in Hong Kong so far, compared to 30 issuances, mainly by US companies, in Singapore. In the future, the IA will concentrate on attracting mainland and Asian issuers to issue such financial instruments in Hong Kong.
Insurance-linked securities (ILS), which are also known as catastrophe bonds, are high-yield debt instruments designed to raise money for insurance companies in the event of a natural disaster. Investors can receive an interest rate over the life of the bond that is greater than that of most fixed-income securities. But, when a special event triggers a payout, the rights of investors to interest and the principal are either deferred or completely forgiven.
“We have to build up the ecosystem, comprising capital and talent, to nurture the general insurance business lines of marine, captive and ILS so that these general insurance business lines will not be diverted to either Singapore or Europe,” said IA Chairman Stephen Yiu Kin-wah.
Another work priority in the general insurance business segment is that the IA will launch an industry consultation to review the health insurance sector this year, hoping that practical recommendations could be implemented next year or in 2027.
“The review will deal mainly with whether policyholders can get fair treatment, whether the development of the health insurance business can be sustainable, and whether health insurance can play its proper role in a society to alleviate pressure on the public healthcare system,” Cheung said.
Yiu said Hong Kong’s health insurance service providers will have to rethink their business models, based on either raising premiums for customers that make claims, or keeping them the same in the event of no claims.
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In the life insurance sector, the IA will implement a new measure in July, requiring life insurance companies to cap the illustration rate of potential investment returns of participatory life insurance policies, to prevent customers from being misled in the sales process if there is no such cap on the illustration rate. The cap rate is set at six percent for Hong Kong dollar-denominated life policies, and the ratio is set at 6.5 percent for life policies denominated in other currencies.
The IA also hopes to discuss proposals to revamp the commission payout structure for participatory life insurance policies with insurance industry players this year to better safeguard customers’ interests.
