Hong Kong: New Corporate Governance Standards For Authorised Insurers To Ring In The New Year

Last Updated: 9 January 2017
Article by Tow Lu Lim and Sara S.M. Or
Most Read Contributor in Hong Kong, December 2017

2017 brings a new and modernised set of corporate governance standards to authorised insurers in Hong Kong. The revised edition of the Office of the Commissioner of Insurance (OCI)'s Guidance Note on the Corporate Governance of Authorised Insurers ("Revised GN10"), which sets out the minimum standards of corporate governance expected of authorised insurers, came into effect on 1 January 2017, retiring the original Guidance Note.

Modelled upon the Insurance Core Principles of the International Association of Insurance Supervisors, the Revised GN10 seeks to raise corporate governance standards of insurers in Hong Kong. It requires insurers to more clearly define responsibilities within senior management and control functions as well as the implementation effective risk management and internal controls ensuring stronger checks and balances.

What's New?

The following highlights some key changes:


The Board must comprise of a suitable number of directors that enables it to carry out its functions effectively and efficiently. The Revised GN10 provides that there should be a minimum of five directors (for small authorised insurers, the minimum number of directors should be three). It is also mandated that the Board should have sufficient knowledge and relevant experience of insurance business to guide the authorised insurer and oversee its activities effectively. As such, the Revised GN10 provides that at least one-third of the directors should possess such knowledge and experience.

Further, the Revised GN10 provides that more rigorous standards are now expected of individuals filling the role of independent non-executive directors

(INED). Where previously only the insurer's controllers or associates of the insurer's controller or director were considered to be not sufficiently independent to become an INED, directors or controllers of a corporation having significant financial interests with the insurer are now unlikely to meet the criteria under the Revised GN10. Nor is an individual who has been an employee with the insurer within the last three years likely to be accepted as an INED (whereas previously only current employees were excluded).

To maintain checks and balances against the influence of management and controllers, the Revised GN10 also sets out the requirement that a minimum of one-third of the Board should be made up of INEDs, up from the previous one-fifth ratio required. However, one INED would be sufficient for small insurers with a smaller board of less than five directors.

Other than expertise in finance and investment, the Revised GN10 advises that the Board be made up of a greater diversity of expertise that may also include areas such as underwriting, claims and actuarial as well.


The roles and responsibilities of the Board have been fleshed out in the Revised GN10. It specifies that the pivotal role of the Board in setting the strategic plan and policy of the insurer requires the Board to take into account the long term financial soundness of the insurer, the legitimate interests of its stakeholders and fair treatment of policy holders.

Furthermore, greater accountability is now expected of the Board, which is tasked with the express responsibilities of managing risks appropriately and establish clear and transparent internal policies.

They include:

  • setting an appropriate risk appetite and strategy for the insurer;
  • providing appropriate risk management and internal control systems;
  • providing a reliable and transparent financial
  • reporting system;
  • establishing adequate policies and procedures for the appointment of external auditors; and
  • promoting transparency on governance overall with timely disclosure of accurate and useful information to the public and within the company.


While ultimate responsibility lies with the Board as a whole, activities or tasks can be delegated to designated committees within the Board, provided it is done in a clear and well-defined manner, with appropriate allocation of powers and effective monitoring from the Board. To avoid undue concentration of powers in a director, the Revised GN10 suggests rotation of membership.

The Revised GN10 requires that save for small insurers, a Risk Committee be set up in addition to the mandatory Audit Committee and any other optional specialised committees that are established to assist in its work. Guidance on how each optional committee, including committees for investment, nomination, remuneration, underwriting, claims settlement, and reinsurance, should operate is also set out in the Revised GN10. Insurers may set up committees with combined functions as long as it does not compromise the integrity or effectiveness of the functions.

The remuneration committee should include INEDs and should be chaired by an INED; while the nomination committee should comprise of at least one INED.

An insurer that is part of a group of companies may rely on group committees, including a group risk committee and a group audit committee, so long as they abide by the principles set out in the Revised GN10 and take into account of the insurer's matters.


The Revised GN10 confirms that the minimum of four board meetings expected to be held annually as set out in the Old GN10, should be held at approximately quarterly intervals. At least two of these meetings should be participated by the directors.

Where required, the Revised GN10 allows board meetings to be held over electronic means such as telephone or video conferencing.


The Revised GN10 deems it important for directors to avoid actual, potential and perceived conflicts of interest. If such conflict is inevitable, there should be clear and well-defined procedures in place to effectively manage them, through for example, disclosure to the Board, abstention and prior approval of the Board or shareholders.

Specific provisions on the fiduciary duties and general duties of care and skill each individual director owes to the insurer have been set out to include:

  • to act in good faith, honestly and reasonably;
  • to exercise due care and diligence;
  • to act in the best interests of both the insurer and policy holders;
  • to exercise independent judgment and maintain objectivity in the decision making; and
  • to not use his position to gain undue personal advantage or cause any detriment to the insurer.

Directors, particularly those with other directorships, are expected to dedicate sufficient time and attention in carrying out their duties, including attending Board meetings.


The Revised GN 10 sets out a new section of provisions regarding senior management which includes the chief executive.

Senior management is expressed to be held accountable for the carrying out of the insurer's day-to-day operations and implementation of systems and controls in accordance to the business strategies, policies and procedures set out by the Board.

Individuals appointed to senior management should be authorised by the Board, with their roles and responsibilities clearly set out and formally documented. An appropriate reporting line between senior management and the Board should also be established, with adequate controls systems in place to allow the Board to assess their performance against the objectives set out.

The two roles of chief executive and the chairman would not be assumed by the same person, and an appointed actuary cannot assume either role.


The Revised GN10 also introduces the concept of "key persons in control functions", who are defined by Insurance Companies (Amendment) Ordinance (Amendment Ordinance) and the Revised GN10, as individuals responsible for control functions, namely in the areas of actuarial, financial control, internal audit, compliance, risk management and intermediary management (and other functions the Financial Secretary specifies by notice). Appointment of such key persons are mandated by the Amendment Ordinance to require approved by the Independent Insurance Authority, the insurance industry regulator set to replace the OCI this year.

Strengthening of risk management and internal controls system of insurers is a core area of amendment in the Revised GN10, and control functions play a big role in providing additional checks and balances and supporting the Board with its oversight duties. Appropriate authority and independence are therefore to be given to each control function, with adequate reporting lines to the Board set up appropriately to prevent conflict of interests.


The Revised GN10 introduces a new section of provisions requiring a prudent and effective written remuneration policy to be established for not only general directors and senior management, but also INEDs, key persons in control functions and employees authorised to make decisions on material risks (such as those authorised to decide on underwriting or investment activities). The policy should not induce them to take inappropriate or excessive risks and should demonstrate a clear relationship between performance and remuneration. For INEDs in particular, remuneration should be set at a level that does not compromise their independence.

Best practices for remuneration, including setting up a remuneration structure comprising of both fixed and variable components, measuring performance and making severance payments, are also detailed.


Directors are expected to review the performance of the Board at least once a year to address any inadequacies and implement appropriate measures for improvement. They should also review its committees annually to ensure that the delegated responsibilities are being carried out effectively.


The Revised GN10 highlights fair treatment of customers as an important concept to incorporate into the insurer's business culture, strategies and internal controls, and for which the board is ultimately responsible. It provides more elaborate guidance on providing policy information to customers and handling their complaints.


The Revised GN10 also incorporates new sections on:

  • Proper Books and Records – insurers should properly record all of its transactions such that they can be sufficiently exhibited and explained to the insurance regulator and implement adequate documentation to demonstrate compliance of regulations and guidelines.
  • Cyber Security – insurers should put in place policies and procedures to fend against cyber security threats, including designing response plans and mitigation measure should there be a breach.
  • Business Continuity Planning – insurers are required to plan against plausible disruptions to its business by taking precautionary measures or designing and maintaining business continuity plans (BCP) that allow it to continue and restore business activities when disruptive events take place. If an insurer needs to activate its BCP, it must notify the regulator promptly with detailed information of the identified disruptions, actions taken, potential impacts and the recovery target timeline, and is expected to continue submitting progress reports until business resumes to normal.

Certain Provisions To Take Effect on a Later Date

To allow time for transition, the more substantive changes requiring a minimum number of INED on the Board, establishment of a Risk Committee, as well as requirements on remuneration matters will not take effect until 1 January 2018.

Insurers are also given more time to establish clear and adequate policies concerning key persons in control functions, as the requirements of the Revised GN10 will only take place when s13AE of the Amendment Ordinance comes into operation upon further notice from the Financial Services and the Treasury Bureau.


With the rising of the bar for corporate standards, insurers will have to put corporate governance as a key priority. The crux of the changes in the newly enforced GN10 requires new systems and policies to be established and existing ones closely reviewed to ascertain if they meet the more stringent criteria.

The legal and compliance divisions of insurers are likely to be heavily involved in designing and implementing their business strategies and operations. The changes will as such increase the compliance burden for insurers in Hong Kong and this will result in recruitment of more resources and engagement of external service providers.

While there will be some pain for insurers, the introduction of Revised GN10 is a step in the right direction. It will bring Hong Kong in line with standards of corporate governance already expected of insurers internationally and it clearly sets out what exactly is expected of insurers doing business in Hong Kong. The increase regulatory requirements on insurers is similar to what the banking industry is experiencing and there is more change on the horizon for insurers in Hong Kong.

Interestingly, the Revised GN10 also seeks to introduce the concept of fair treatment of customers into the insurer's business philosophy. This gives rise to questions whether insurers should reconsider the application of stringent policy terms and conditions (for example, breach of warranty and conditions precedent to liability clauses) that exists in certain policies.

Originally published on 6 January 2017

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2016. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement

    Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of www.mondaq.com

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at enquiries@mondaq.com.

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions