Requirements on Captive Insurers

In Hong Kong, a captive insurer is legally defined under the Insurance Ordinance (Cap. 41) as an insurer which carries on general insurance business only and its 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 risks of the companies within the same groupings of companies to which the captive insurer belongs. “Group of companies” is defined in section 2 of the Companies Ordinance (Cap. 622) to “mean any two or more bodies corporate one of which is the holding company of the other or others”.

With the enactment of the Insurance Companies (Amendment) Ordinance 1997 on 1 May 1997, concessions are in place in the regulatory framework to provide incentives for multinational conglomerates to establish their captive insurers in Hong Kong.

Salient regulatory concessions to a captive insurer are highlighted as follows:

Item

General Business Insurer

Captive Insurer

Minimum Capital Requirement:

HK$10 million

HK$2 million

Solvency Margin:

The greatest of:

a.	generally 20% of the relevant premium income; or
b.	generally 20% of the relevant claims outstanding; or
c.	HK$10 million

The greatest of:

a.	5% of the net premium income; or
b.	5% of the net claims outstanding; or
c.	HK$2 million

Requirement for Assets in Hong Kong:

To maintain assets in Hong Kong of an amount not less than 80% of its Hong Kong liabilities plus solvency margin

Exempted

Valuation Rules:

Assets and liabilities to be valued on statutory basis as prescribed by Valuation Rules

Assets and liabilities to be valued on the basis of Generally Accepted Accounting Principles

To attract more local and foreign enterprises to form captives in Hong Kong, there is a tax concession for captive insurers. They can enjoy a 50% reduction in the profits tax on their insurance business of offshore risks commencing from the year of assessment 2013/14 onwards.