Consultation conclusions on the Insurance (Special Purpose Business) Rules

19 January 2021

The Insurance Authority (IA) today (19 January 2021) published the consultation conclusions on the draft Insurance (Special Purpose Business) Rules (the SPB Rules) in respect of restrictions on the sale of insurance-linked securities (ILS) issued in Hong Kong.

While ILS are useful and effective risk management tools enabling insurers and reinsurers to offload insured risks to the capital markets by way of securitisation, they are unsuitable for ordinary retail investors. The draft SPB Rules imposes restrictions on the sale of ILS, which include spelling out the scope of eligible ILS investors, a minimum investment sum, and the penalties for contraventions of sales restrictions.

Respondents of the public consultation were generally supportive of the draft SPB Rules, while arguing for a lower minimum investment sum to facilitate market development, maintain liquidity in the secondary market and make Hong Kong a competitive ILS domicile. After due consideration, the IA proposes to pitch the threshold to US$250,000, with a view to achieving a balance between market facilitation and investor protection.

The SPB Rules will be tabled at the Legislative Council for negative vetting and are expected to come into operation together with the Insurance (Amendment) Ordinance 2020¹ in end-March 2021.

Ends

Note:

¹The Insurance (Amendment) Ordinance 2020 provides for a bespoke, streamlined regulatory framework for the issuance of ILS in Hong Kong through the formation of special purpose insurers. The relevant bill was passed by the Legislative Council in July 2020.