In Hong Kong, a captive insurer is legally defined under section 2(7) of the Insurance Ordinance (Cap. 41). A captive insurer is a company ("relevant company") which is authorized to carry on general insurance business only and such business—
(i) does not relate to any liabilities or risks in respect of which persons are required by any Ordinance to be insured; and
(ii) is restricted to the insurance and reinsurance of—
(A) risks of the bodies corporate within the relevant company's corporate group to which the relevant company belongs;
(B) the proportional share of risks of another body corporate to which the relevant company, or a first tier member in the relevant company's corporate group, is exposed directly; and
(C) any other risks of which the relevant company, or a first tier member in the relevant company's corporate group, has control, oversight or management or is otherwise sufficiently connected.
The salient regulatory concessions available to a captive insurer are highlighted as follows:
| Item | General Business Insurer | Captive Insurer |
|---|---|---|
|
Capital Requirements: |
Insurance (Valuation and Capital) Rules (Cap. 41R) prescribes a risk-based capital regime. In the determination of prescribed capital amount, market risk, life insurance risk, general insurance risk, counterparty default and other risk, and operational risks are included. The capital base must also be no less than HK$20 million. |
Insurance (Marine Insurers and Captive Insurers) Rules (Cap. 41U) prescribe a dedicated capital regime for captive insurers. In the determination of prescribed capital amount, a simple calculation method based on its net premium or relevant claims outstanding is used. The capital base must also be no less than HK$2 million. |
|
Requirement for Assets in Hong Kong: |
Non-HK insurers (other than designated insurers) are required to maintain assets in Hong Kong in respect of its general insurance business with onshore risk |
Exempted |
|
Key persons in control function: |
Prior approval by the Insurance Authority is required, before an insurer appoints a key person in control function |
Captive insurer is only required to notify the Insurance Authority after the appointment |
|
Certifying actuary: |
Insurer is required to appoint certifying actuary, unless exempted under rule 3 of Insurance (Exemption to Appointment of Actuary) Rules (Cap. 41Q) |
Exempted |
|
GL10: Guideline on the Corporate Governance of Authorized Insurers |
Compliance with this guideline is required |
Captive insurers are encouraged to adopt this Guideline as appropriate. |
|
GL20: Guideline on Cybersecurity |
Compliance with this guideline is required |
Exempted |
|
GL21: Guideline on Enterprise Risk Management |
Compliance with this guideline is required |
Exempted |
Eligible authorized captive insurers in Hong Kong may benefit from a concessionary profits tax rate of 8.25% (i.e. 50% of the 16.5% corporate profits tax rate) on qualifying profits from their authorized captive insurance business.
Under the international tax reform spearheaded by the Organisation for Economic Co-operation and Development (“OECD”) on base erosion and profit shifting (commonly known as BEPS 2.0), the actual tax benefits available may vary depending on the overall effective tax rate in Hong Kong applicable to the captive insurer’s multinational enterprise (MNE) group. Please refer to the Hong Kong Inland Revenue Department’s guidance and obtain professional tax advice as appropriate.