As economic growth in Asia continues and new markets develop,
the types and magnitude of risk exposure for enterprises
(particularly those involved in aviation, energy and construction)
increases. Transnational corporations are, therefore, looking to
develop alternative insurance structures to bridge the gaps in and
reduce the costs associated with the normal insurance market.
Forming a corporation's own captive insurer is one such
The Hong Kong government hopes that enterprises (particularly
large scale Chinese corporations) now considering setting up
their own captive insurers will look to Hong Kong as an
alternative to the Singapore market.
Over the past decade, Singapore has largely dominated the
captive insurance and reinsurance market in Asia by offering
tax exemptions for qualifying income derived from insuring and
reinsuring offshore risks. In a bid to combat Singapore's
dominance and attract more enterprises (particularly
China's large corporations) to form their captive insurers
in Hong Kong, the Financial Secretary of Hong Kong (Financial
Secretary), in his 2013/14 budget speech on 27 February 2013,
proposed to extend the concessionary profits tax rate for
offshore reinsurance currently enjoyed by reinsurers (being 50% of
the normal profits tax rate in Hong Kong) to the offshore
insurance business of captive insurers.
In addition to the Financial Secretary's proposal, there are
a number of regulatory concessions already available in Hong
Kong to captive insurers,
lower minimum capital requirements
lower solvency requirements
an exemption from the requirement to maintain assets in Hong
the valuation of assets and liabilities on the basis of
Generally Accepted Accounting Principles and not in accordance
with the Insurance Companies (General Business) (Valuation)
Taken together, these radical new, and the more established,
concessions are giving considerable food for thought to the
more substantial and sophisticated companies currently
exploring ways of rationalising their insurance structures and
achieving potentially significant costs savings.
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