Hong Kong’s reinsurance industry expanded quickly last year thanks to a new rule introduced by the Chinese insurance watchdog which helped local firms gain an edge over their international rivals, according to experts.
The total gross premium of all reinsurance companies in Hong Kong rose 9.1 per cent to HK$10 billion (US$1.27 billion) in the first nine months of the year, according to data from the Insurance Authority.
Peak Reinsurance, a Hong Kong based company which does business worldwide, saw its China related business rise by almost a third in 2018, according to co-founder and chief executive Franz-Josef Hahn.
“Our strong growth in the reinsurance business was due to the preferential treatment of certain Hong Kong based reinsurers by the mainland insurance regulator last year,” he said in an interview.
The China Banking and Insurance Regulatory Commission (CBIRC) agreed in July to give preferential treatment to Hong Kong based reinsurers including Peak Re, Transatlantic Re, Taiping Re, SCOR and others.
This took the form of a new rule stipulating that when a mainland insurance company sells its policies to any of these Hong Kong reinsurers, the capital requirement for that mainland firm will be lower than if it had re-insured through an international company.
Reinsurance companies buy policies from direct insurance companies to share their risks.
“This CBIRC rule is perfect for the reinsurance industry in Hong Kong. It gives strong support to the Hong Kong based reinsurers to compete with the international reinsurers. This will benefit Hong Kong as an international reinsurance centre,” Hahn said.
“This will also benefit mainland insurance companies as it will allow the Hong Kong based reinsurers to help them diversify their risks.”
Peak Re is a home-grown re-insurer founded in 2012. It is 86.9 per cent owned by Shanghai conglomerate Fosun International and 13.1 per cent by US-headquartered Prudential Financial. Its premiums exceeded US$1 billion in 2017 and shareholder funds reached over US$900 million at the end of 2017.
“Hong Kong is an ideal location to act as a reinsurance hub for Chinese and Asian companies because it is close to all the countries in Asia including mainland China, while it also has a big pool of talent who have knowledge and who understand the local culture,” said Hahn, a 28-year veteran of Hong Kong’s reinsurance industry.
The government is keen to promote the city as an insurance hub. The Insurance Authority in December launched a platform to help Hong Kong’s international insurance companies capture business opportunities arising from “Belt and Road Initiative” projects, including coverage ranging from political risk to terrorism.
Insurance Authority chief executive Clement Cheung Wan-ching told the Post the CBIRC’s preferential capital treatment for Hong Kong reinsurers brings benefits to both the mainland and Hong Kong insurance markets.
“It provides support to mainland insurers in risk diversification, as the Hong Kong insurance market can help them handle difficult risks that need to be re-insured offshore due to capacity and expertise considerations,” Cheung said.
It allows the Hong Kong based reinsurers to support mainland insurance companies in paying the huge sums of compensation related to losses incurred by catastrophic events such as earthquakes and flooding.
“It helps the development of Hong Kong into a regional reinsurance hub, because it makes Hong Kong a better choice compared with other overseas reinsurance markets because of the lower capital charge,” Cheung said.