Australia: Insurance regulation in Hong Kong

  1. The regulator

The Insurance Authority (IA), head of the Office of the Commissioner of Insurance (OCI) administers the Insurance Companies Ordinance (ICO) which has provisions governing the regulation of insurers and insurance intermediaries (agents and brokers) in Hong Kong.

An insurer must be authorized by the IA before it carries on insurance business in or from Hong Kong. Insurance brokers must be authorized by the IA or admitted as members of self-regulatory organisations approved by the IA. At present, all insurance brokers in Hong Kong are members of either one of the two broker bodies, namely, the Hong Kong Confederation of Insurance Brokers (HKCIB) and the Professional Insurance Brokers Association (PIBA). The Insurance Agents Registration Board (IARB) established under the Hong Kong Federation of Insurers is responsible for registering insurance agents.

Draft legislation to establish an Independent Insurance Authority (IIA) was issued for consultation on 26 October 2012. Under the proposed legislative changes the IIA will replace the OCI and a new statutory licensing regime for insurance intermediaries (replacing the existing self-regulatory regime) will be introduced. The conclusions to a public consultation, which ended in early 2013, were published in June 2013. The Government is in the process of finalising the enabling legislation subject to completion of the legislative process, the new regime is expected to be in place in 2015.

  1. Subsidiary/Branch

Both Hong Kong incorporated entities (including subsidiaries of foreign insurers) and branches of foreign insurers are permitted to conduct insurance business in or from Hong Kong if they satisfy the relevant requirements.

A foreign insurer wishing to open a branch is required to satisfy the IA that it: (a) is a company incorporated in a country where there is comprehensive company law and insurance law (b) is an insurer under effective supervision by the relevant authority(ies) of its home country and (c) is a well established insurer with international experience and of undoubted financial standing.

  1. FDI restrictions


  1. Change of control approvals

Prior approval of the IA must be obtained prior to any change to persons who are entitled to exercise or control the exercise of more than 15 per cent shareholding or voting power of an insurer (directly or indirectly).

The managing director, chief executive and shareholder controllers (as described above) of the insurer must be approved by the IA as "fit and proper".

An insurance broker must obtain the confirmation of the IA, or either the HKCIB or PIBA before confirming the appointment of its chief executive. An insurance agent must obtain the confirmation of the IARB before confirming the appointment of its responsible officer.

  1. Minimum capital

HK$10 million – non-life and life insurers.

HK$20 million – composite insurers and insurers writing statutory classes.

HK$2 million – captive insurers.

Foreign branches have no capital deposit requirement, but must maintain assets in Hong Kong equal to 80 per cent of net liabilities and applicable solvency margin.

HK$7.75 = US$1.00 as at 1 January 2014

  1. Risk based capital

No. However, an insurer must maintain an excess of assets over liabilities of not less than a required solvency margin:

  • Non-life : the greater of
    • 1/5 of relevant premium income up to HK$200 million Tel + 1/10 of the amount by which the relevant premium income exceeds HK$200 million or
    • 1/5 of relevant outstanding claims up to HK$200 million Tel + 1/10 of the amount by which the relevant outstanding claims exceed HK$200 million, subject to a minimum of HK$10 million (HK$20 million for certain statutory classes).
  • Life : the greater of
    • HK$2 million or
    • generally 4 per cent of mathematical reserves + 0.3 per cent of capital at risk.
  1. Group supervision

No. The IA has expressed an interest in being part of a transitional regime for third country equivalence under Solvency II. Equivalence requires Group supervision.

  1. Policyholder protection

There is currently no compensation scheme for life insurance policies and other types of non-life insurance policies. The consultation process for the establishment of a policyholder protection fund (PPF) for direct non-life (other than motor vehicle and employees' compensation claims which are covered by existing schemes (described below)) and life insurance policies concluded on 30 January 2012. Subject to completion of the legislative process, the PPF is expected to be set up in 2013-2014 at the earliest.

However, there are two insolvency funds to protect the interests of policyholders or claimants (a) the Insolvency Fund operated by the Motor Insurers' Bureau of Hong Kong is available for meeting claims for bodily injuries or death arising from motor accidents on an insurer's insolvency; and (b) the Employees Compensation Insurer Insolvency Scheme operated by the Employees Compensation Insurer Insolvency Bureau which is available for meeting employees' compensation claims on an insurer's insolvency.

Policyholders have priority in the distribution of an Insurer's assets in the event of insolvency.

  1. Portfolio transfers

Yes. The transferor or transferee insurer may apply to Court to approve a scheme for the transfer of the whole or part of a life portfolio. The transfer of non-life business portfolios must be with approval of the IA, upon application of the transferor. Notification by Gazette/newspaper advertisement is required as a minimum. The IA and policyholders may object to the transfer, but the Court/the IA has ultimate discretion to approve the scheme.

  1. Outsourcing

An authorised insurer must notify the IA at least 3 months before entering into or significantly varying any material outsourcing arrangement in respect of its Hong Kong business. Essential issues to consider when outsourcing include (but are not limited to) having an outsourcing policy, agreement with the service provider and conducting a risk assessment. The IA must be satisfied that all essential issues have been properly addressed. Within 30 days of entering into the outsourcing arrangement, further details must be submitted to the IA together with a copy of the outsourcing agreement.

*as at 1 January 2014

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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