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This week Hong Kong’s Insurance Authority (IA) launched a six-week public consultation on the draft Insurance (Valuation and Capital) Rules (Cap.41R) and the draft Insurance (Submission of Statements, Reports and Information) Rules (Cap.41S), tying in with the implementation of the Risk-Based Capital (RBC) regime.
The draft Insurance (Valuation and Capital) Rules set out the capital adequacy requirements and prescribe the valuation of assets and liabilities of insurers under the RBC regime.
The changes, along with the more robust regime, could provide additional clarity and certainty for investors.
"Insurers will need quantitative processes to undertake calculations and forecasts in order to manage their portfolio in unpredictable capital markets.”
The IA’s press release on the consultation of the draft Insurance (Submission of Statements, Reports and Information) Rules also stipulated the types of returns, as well as frequency and manner of submission to the IA.
The RBC changes have been welcomed by players in the industry. According to an update from law firm Kennedys when the act was passed, “the new RBC regime will require large-scale changes to how organisations operate their risk management functions”.
“Ruby Yang, CEO of Conning Asia-Pacific, said that insurers will need new quantitative processes and tools to undertake sophisticated calculations and forecasts in order to manage their portfolio in unpredictable capital markets,” said Kennedys in its Hong Kong Regulatory Insurance Update.
Pwc Hong Kong said that, “similar to requirements globally (e.g. Solvency II and IAIS Insurance Capital Standards [ICS]), HK RBC is a three-pillar approach.” It will cover:
The IA’s statement continued to list the benefits that the RBC changes will have for Asia’s financial hub.
“The Insurance (Amendment) Bill 2023 was passed by the Legislative Council in July this year, which provides the legal framework for the implementation of the RBC regime in Hong Kong,” it said. “The RBC regime does not only strengthen the financial soundness of insurers and put Hong Kong on a par with international standards, but also incentivises better asset-liability matching and cultivation of robust risk management culture of insurers.”
“Most insurance markets in Asia follow some form of RBC regime,” said Millman in its Life Insurance Capital Regimes in Asia report in August this year. It added that now that Hong Kong was moving to its new system, India, Vietnam, and Brunei were remaining markets that still used older systems similar to EU Solvency I platforms.
Malaysia was also changing its RBC requirements.
The target effective date of the RBC regime in Hong Kong is expected to be sometime in 2024.
The consultation paper is now available on the IA website.
