Reinsurance / Specialty
To strengthen Hong Kong's role as a global risk management center and regional insurance and reinsurance hub, the Insurance Authority ("IA") sets out to enhance the breadth and depth of our insurance industry. Reinsurance and specialty insurance, which include marine insurance and captives, are crucial elements for the comprehensive development of the insurance industry and Hong Kong as a super-connector in the Belt and Road Initiative ("BRI"). Thus, measures such as tax relief and regulatory facilitation have been put in place to foster the promotion of reinsurance, the development of marine and specialty insurance, and the establishment of captive insurers.
You may see the above recording (in Mandarin only) from the Captive Forum 2020 to Mainland enterprises held on 27 October 2020 for information.
Reinsurance
Alongside with ample business opportunities, BRI investments can give rise to significant risks. They often involve major projects in operating environments that the project sponsors are not familiar with. This adds to the risks faced by the project's physical and non-physical assets. Reinsurance can add value by using risk management as the common language to connect project sponsors, insurers and financiers while serving their respective interests. In the BRI risks underwritten by Mainland insurers, the IA sees an opportunity to promote the use of reinsurance coverage to transfer and diversify those offshore risks, by providing capital efficient access to global risk management and underwriting expertise.
The agreement and extension of preferential treatment granted by the China Banking and Insurance Regulatory Commission ("CBIRC") under the China Risk Oriented Solvency System ("C-ROSS") has encouraged Mainland insurers to give priority to qualified Hong Kong professional reinsurers when they consider ceding business offshore, thereby strengthening the competitiveness of qualified Hong Kong professional reinsurers when participating in BRI projects.
On top of the preferential treatment above, the reinsurance business of onshore and offshore risks by professional reinsurers authorized in Hong Kong enjoys a 50% concession in the profits tax rate.
Protection and Indemnity ("P&I") Insurance
Hong Kong, as one of the international maritime centers and the fourth-largest ship registry, is the gateway to China, where seven of the world's top 10 container ports are located. China also has the world's second largest commercial fleet by value.
Capitalizing on the strength of Hong Kong's maritime industry and to enhance its position as an international maritime center, the IA is working to expand the inward reinsurance market from Mainland China and overseas, while looking to attract new marine insurers to operate in Hong Kong. The IA has exempted marine insurers from certain regulatory requirements, and actively organizes events such as the P&I Forum and keeps a close dialogue with various marine insurance stakeholders.
Captive Insurance
With its traditional strength in investment and trade, Hong Kong is ideally positioned to provide insurance, reinsurance and risk management services for outbound investments from the Mainland. As such, Hong Kong is an ideal domicile for captives to manage the risks of their parent companies' overseas assets.
Besides the 50% concession in the profits tax rate on insurance business of onshore and offshore risks for captive insurers, various regulatory facilitation measures are also in place to incentivize corporates to establish their captives in Hong Kong, most noticeably on the reduced minimum capital, reduced solvency margin requirements, exemption from the requirement for maintaining assets in Hong Kong to match local liabilities and exemption from the requirement for valuing assets and liabilities in accordance with the statutory basis.
You may see the above recording (in Mandarin only) from the Captive Forum 2020 to Mainland enterprises held on 27 October 2020 for information.
Insurance-linked securities ("ILS")
ILS are risk management tools that allow insurers and reinsurers to seek alternative capital by offloading risks to the capital markets through securitisation. Given a rising trend of catastrophic events caused by climate change and urbanisation, the global issuance of ILS has grown substantially in recent years but currently the risk exposure of such ILS is mainly confined to the United States and Europe. It is necessary to make Hong Kong a more conducive domicile for ILS to capture potential business opportunities expected to arise in Asia.
The Insurance (Amendment) Bill 2020 was passed by the Legislative Council on 17 July 2020 and commenced operation on 29 March 2021. The amendments provide for a legislative framework for the authorization of Special Purpose Insurers for the purpose of ILS issuance and Rules to restrict the sale of ILS to eligible, essentially qualified institutional investors. To encourage market development, a two-year Pilot ILS Grant Scheme was announced by the Financial Secretary1 in February 2021 to attract insurance enterprises and other organisations to issue ILS in Hong Kong. Please click here for the Press Release. The objective is that over time this will help establish a self-sustaining ecosystem of ILS business activity in Hong Kong, and thereby building a firm foundation for the future development of ILS in Hong Kong.
These initiatives would maintain Hong Kong's competitiveness as a global risk management center and regional insurance hub, and enable the insurance industry to capitalise on the new business opportunities arising from the Guangdong-Hong Kong-Macao Greater Bay Area development and offshore investments of Chinese enterprises.
1The scheme was announced in the 2021-22 Budget.
You may see the above recording (in Mandarin only) from the Captive Forum 2020 to Mainland enterprises held on 27 October 2020 for information.