Hong Kong Regulatory Insurance Update April 2023

In this April 2023 edition of Regulatory Insurance Update, the Hong Kong Corporate & Commercial Team provide the latest updates relating to the law and regulations, developments, and news in the insurance industry in Hong Kong.

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Date: 6 April 2023

The Insurance (Amendment) Bill 2023 (“Amendment Bill”) was published on 6 April 2023.  This provides the legislative framework for the implementation of the new Risk-based Capital (“RBC”) regime[1] for Hong Kong authorised insurers. It aims to encourage authorised insurers in Hong Kong (“insurers”) to heighten their risk management and strengthen their financial soundness, thereby improving market stability and putting Hong Kong on a par with other main insurance jurisdictions who have largely already adopted RBC regimes.

The Amendment Bill seeks to amend the Insurance Ordinance (Cap. 41) (“IO”) to:

  • facilitate the implementation of the RBC regime for insurers;
  • provide the legal basis to implement Pillar 1 and Pillar 3 requirements[2] under that regime;
  • to align the requirements imposed on foreign-incorporated insurers who carry on the majority of their insurance business in Hong Kong (by the IA specifying such an insurer as a “designated insurer”) with insurers incorporated in Hong Kong;
  • require insurers to publicly disclose their statutory solvency position (under rules which the IA has yet to publish);
  • adjust the requirements and restrictions with respect to management directors, chief executives, directors, key persons in control functions and actuaries of authorised insurers (providing, amongst other things for general insurers to have an approved actuary and file actuarial reports);
  • introduce a distinction between majority (50%>) and minority (15% up to 50%) shareholder controllers of an insurer and the requirement to obtain IA approval for a minority controller to become a majority controller; and
  • revamp the requirements in relation to the separate funds and accounts than an insurer must maintain and the assets that general insurers must maintain in Hong Kong.

Potentially the most far reaching change made by the Amendment Bill is to permit the IA to exercise certain of its key regulatory powers if it is of the opinion that this is “desirable for mitigating or controlling the risks posed to or by the business of the insurer”.  This substantially widens the existing grounds on which it can exercise those intervention powers.  The Amendment Bill also gives the IA the new express power to require an insurer to provide the IA with a report “in respect of any matter that relates to an authorised insurer”, to specify the form of that report, the way by which it is to be provided, the skills of the person who is to prepare it and to appoint and pay such a person itself (and require the insurer to reimburse it for those fees and related expenses).

It is expected that Hong Kong’s RBC regime and these new provisions will come into effect at some time in 2024.

[1] The Insurance Authority (“IA”) has based the RBC regime on three overarching principles, namely:

  • compliance with the relevant Insurance Core Principles issued by the International Association of Insurance Supervisors;
  • meeting the needs and ensuring the competitiveness of the insurance industry; and
  • strengthening the resilience of insurance industry for the protection of policyholders.

[2] The RBC regime requires insurers to maintain capital that is commensurate with the risks they take up and such requirement comprises three pillars:

  • Pillar 1 on quantitative assessment;
  • Pillar 2 on corporate governance; and
  • Pillar 3 on disclosure requirements.

Link to IA press release

Link to Government press release

Link to the Insurance (Amendment) Bill 2023

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Date: 3 April 2023

Export credit insurer breaks new ground

Date: 4 April 2023

HKECIC and Hang Seng deliver first green export credit insurance

Date: 5 April 2023

The Hong Kong Export Credit Insurance Corporation (“HKECIC”), in cooperation with Hang Seng Bank, has launched its first innovative green export credit insurance as a new environmental, social and governance (“ESG”) initiative to promote green exports through provision of a premium discount to eligible companies.

Leo Paper Group procures and adopts raw materials certified by the Forestry Stewardship Council and strives for low-carbon emissions in production. Hang Seng Bank has delivered a green receivables financing solution for Leo Paper Group, with an export credit insurance provided by the HKECIC offering better export credit insurance protection and lower premium expenses. The HKECIC believes the premium discount will help alleviate insurance expense for export trade to facilitate carbon reduction and other environmental visions.

Mr. Donald Lam, Head of Commercial Banking at Hang Seng Bank, notes that this ground-breaking financing arrangement:

  • is an example of how innovation and collaboration can help to drive improved environmental performance in the business community; and
  • shows their support for customers that are seeking to operate and grow their businesses in line with good ESG principles.

Link to the Hang Seng Bank press release

Link to the Standard news article

Link to Insurance Asia news article

Date: 27 April 2023 

Mr. Peter Gregoire (Head of Market Conduct & General Counsel), Mr. Alan Wu (Senior Manager of Market Conduct) and Ms. Maria Tsui (Head of Enforcement) of the IA, gave a presentation at the ICG Seminar 2023.

The speakers gave an overview of the three pillars of market conduct regulation:

  • Pillar 1 – Licensing;
  • Pillar 2 - Conduct Supervision (insurers); and
  • Pillar 3 - Enforcement & Discipline.

The presentation focused on the control measures that a Hong Kong insurer’s intermediary management control function is expected to establish and administer. The following six basic areas were covered:

  • Checking process during onboarding of persons being appointed as insurance intermediaries;
  • Compliance with CPD requirements;
  • Premium collection;
  • Limiting the risk of carrying on cross border sales activities in other jurisdictions in contravention of the law of those jurisdictions (e.g. Mainland China);
  • Limiting the risk of claim disputes due to material non-disclosure / misrepresentation in sales process; and
  • Avoiding the risk of issues relating to cooling off.

Lastly, the presentation touched on the IA’s enforcement approach and disciplinary process and then highlighted recent disciplinary actions.

Link to the ICG seminar presentation