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Financial Arrangements


The International Association of Insurance Supervisors requires that insurance regulators should be financially and operationally independent of the Government and the industry.

The costs for establishing and operating the Insurance Authority (IA) in its initial years are being covered by government funding. In the long run, the IA has to be financially independent and recover its operating costs through the collection of premium levies payable by policy holders and fees payable by insurance companies, intermediaries and users for specific services.


Levies on insurance premium

Under the Insurance Ordinance, with effect from 1 January 2018, levies for insurance premiums are payable by policy holders to the IA through their insurance companies. To reduce the impact on policy holders and to allow time for adaptation, an incremental approach has been adopted. As stipulated in the law, the levy rate started at 0.04% of insurance premiums and will be adjusted gradually until it reaches 0.1%, subject to a levy cap.

Scope of the levy

Except for certain policies exempted from the levy by law1, levies are payable along with premium payments by policy holders of all life insurance policies and general insurance policies (such as travel, motor, property or household insurance).

Levy rates and cap

The levy is being introduced in four phases. In Phase 1, which took effect on 1 January 2018, the levy rate was set at 0.04% of the insurance premium per policy year. The rate will increase gradually until it reaches 0.1%.

There is a cap on the levy payable. For life insurance policies with single or annualised premiums at or above $100,000, or general insurance policies with annual premiums at or above $5 million, policy holders need to pay only the levy cap (Table 1).
 

Table 1:
  Phase 1 Phase 2 Phase  3 Phase 4
  1 Jan 2018
to
31 Mar 2019
1 Apr 2019
to
31 Mar 2020
1 Apr 2020
to
31 Mar 2021
From 1 Apr 2021
onwards
Levy rate
(calculated as a percentage
of the annual premium)
0.04% 0.06% 0.085% 0.1%
Levy cap
Life insurance2 $40 $60 $85 $100
General insurance $2,000 $3,000 $4,250 $5,000

1 Exemptions from the levy include reinsurance business, policies underwritten by authorized captive insurers, and marine, aviation and goods-in-transit insurance.

2 Group life insurance policies with medical protection offered by employers are subject to the levy cap for general insurance policies.


Illustrative examples

Example 1:

Ms. A bought a property insurance policy with an inception date3 of 1 April 2018. Her monthly premium is $1,000. The total levy payable from April 2019 to March 2020 will be  $7.2:

The levy payable is the lower of:

  • $1,000 x 12 x 0.06% = $7.2 ; or
  • the $3,000 cap for general insurance policies.

3“Inception date” means the date on which the first premium under the contract becomes payable.


Example 2:

Mr. B bought a life insurance policy with an inception date of 1 April 2018. His annual premium is $150,000. When making his payment for the annual premium payable on 1 April 2019, the levy payable for his policy will be $60:

The levy payable is the lower of:

  • $150,000 x 0.06% = $90; or
  • the $60 cap for life insurance policies.

Example 3:

Company C plans to buy a nine-month property insurance policy in April 2019 for immediate inception. The single premium payable is $6,000,000. The levy payable for this policy will be $3,000:

The levy payable is the lower of:

  • $6,000,000 x 0.06% = $3,600; or
  • the $3,000 cap for general insurance policies
    (Note: According to the Insurance (Levy) Order, the levy cap is not affected by the contract period of a policy lasts less than one year.)

Example 4:

Mr D’s life insurance policy has an inception date of 1 January 2018. The policy requires him to pay a premium of $300,000 every 18 months. Along with the premium payable in 1 July 2019, the levy payable for his policy will be $90.

The levy payable is the lower of:

  • $300,000 x 0.06% = $180; or
  • the $90 (i.e.$60 x 18/12 months) cap for life insurance policies
    (Note: According to the Insurance (Levy) Order, for policies with a scheduled premium payable once in more than a year, a pro-rated cap is applied, i.e. contract period of a policy (number of months) divided by 12.)

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Leaflet


Authorization and annual fees

The Insurance Companies (Authorization and Annual Fees) (Amendment) Regulation 2017 has come into operation since 26 June 2017.  For details on ascertainment of variable fee and the payment requirement, please refer to the attached Note on Annual Authorization Fee.


Insurers register’s prescribed fee

The Insurance Companies (Register of Insurers) (Prescribed Fee) (Amendment) Regulation 2017 has come into operation since 26 June 2017.  Please refer to the table attached on matter in respect of which fee must be paid and its respective amount