The Hong Kong Government has gazetted two insurance amendment Bills relating to insurance linked securities (ILS) and direct regulatory powers over the holding companies of multinational insurance groups. The Bills were gazetted last Friday.

The Hong Kong Insurance Authority (IA) says that it welcomes the introduction of the amendment bills to strengthen the territory’s position as a global risk management centre and regional insurance hub.

The first Bill provides for a streamlined regulatory framework for the issuance of insurance-linked securities (ILS) through the formation of special purpose insurers (SPIs). ILS are alternative risk-management tools for transferring insurance risk to the capital markets, thus increasing the capacity of the insurance market and providing institutional investors with additional options for diversification.

Hong Kong Insurance Authority Chairman, Dr. Moses Cheng noted that the Chinese central government had announced last November its support for mainland China insurers to issue catastrophe bonds in Hong Kong.

He said, “The proposed legislative amendments will pave way for Hong Kong to become the preferred domicile for ILS, in particular catastrophe bonds. This will facilitate insurers to better capture business opportunities, and more importantly, extend the capacity of the insurance industry; thus enhancing its sustainable development.”

The Bill also seeks to expand the scope of insurable risks of captive insurers set up in Hong Kong, helping the industry capitalise on business opportunities arising from the Belt & Road Initiative.

The second Bill is to consolidate a clear and firm legal basis for the IA to carry out effective and efficient group-wide supervision and ensure that the insurance regulatory system in Hong Kong will continue to be conducive to the maintenance of strong, well-capitalised, well-managed insurance groups.

“Using a principle based, outcome-focused approach, the new framework will put Hong Kong on a par with international standards and practices, thus strengthening its competitiveness in the global insurance market and reinforcing its position as a regional insurance hub,” said Dr Cheng.

The IA is currently the group-wide supervisor for three multinational insurance groups: AIA Group, FWD Group and the Prudential plc Group.

Both Bills will be introduced into the Legislative Council for first reading on 25 March.

Industry Response

The Hong Kong Federation of Insurers (HKFI) also issued a statement, welcoming the introduction of the two amendment Bills.

HKFI chairman Praveen Daswani said, “In this trying time, the introduction of the Bills is of paramount importance in supporting the sustainable and healthy growth as well as propelling further development of the industry.”

UK insurer Prudential plc says too that it welcomes the Bill to enhance the framework for the regulation and supervision of insurance groups in Hong Kong. It says that since taking over as group supervisor for Prudential in October 2019, the IA has engaged Prudential and the wider insurance industry in Hong Kong on the development of a new group-wide oversight framework.

Prudential Group Chief Executive Mike Wells, said, “This will be a comprehensive, robust regulatory regime aligned with global best practice.”