Hong Kong IA Proposes New Capital Rules for Insurance Groups

Source: Regulation Asia Manesh Samtani, Regulation Asia 2020-08-25

The rules set out capital, regulatory reporting and public disclosure requirements that apply to insurance groups where the holding company is incorporated in Hong Kong.

The IA (Insurance Authority) has issued a consultation paper on new group capital rules that will apply to insurance groups where the holding company for the group is incorporated in Hong Kong.

Currently, the functions and powers of the IA focus on “solo” regulation, meaning that it is assigned powers only to regulate companies as single entities carrying on insurance business in or from Hong Kong. However, many authorised insurers are subsidiary companies within a wider group of companies which also have insurance subsidiaries in other jurisdictions.

Under the international standards set by the IAIS (International Association of Insurance Supervisors), insurance regulators are required to not just regulate insurers on a ‘solo’ basis; rather, they should co-operate and co-ordinate with each other to ensure insurance groups are regulated on a ‘group-wide’ basis.

To date, the UK, Australia, Bermuda and Singapore have implemented group-wide regulation for insurance.

At present, Hong Kong’s IA regulates three international insurance groups using an indirect approach based on existing powers to regulate insurers on a ‘solo’ basis. It does not, however, have direct regulatory powers at the holding company level, despite them being incorporated in Hong Kong.

Accordingly, the IA proposes to make legislative amendments and its regulations to enable it to carry out effective and direct group-wide supervision in line with IAIS standards, by extending certain powers the IA has over authorised insurers to Hong Kong-incorporated holding companies of an insurance group.

The proposed group capital rules, which form part of the legislative amendments, will require designated insurance holding companies to ensure the insurance group’s tier 1 capital exceeds the Group Minimum Capital Requirement (GMCR), and that the sum of tier 1 and tier 2 group capital exceeds the Group Prescribed Capital Requirement (GPCR) – subject to group supervision by the IA.

GMCR is formulated as the sum of the minimum capital requirements applicable to each of the members in the insurance group, whereas GPCR represents the sum of prescribed capital requirements.

The rules also specify that the IA may determine the resources and financial instruments that are eligible capital resources, and set out reporting (to the IA) and minimum disclosure (to the public) requirements for designated insurance holding companies.

The new rules will apply to insurance holding companies which are designated by the IA as being subject to the new supervisory framework for multinational insurance groups (enacted in July 2020) – known as the GWS (Group-Wide Supervision) framework.

The consultation paper, available here, is open to feedback using this feedback template until 30 September 2020.

The proposed changes are intended to tie in with the implementation of the GWS framework – tentatively in the first quarter of 2021.

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Hong Kong IA Proposes New Capital Rules for Insurance Groups

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