Hong Kong insurance industry’s new capital rules will lift risk management standards as uncertainty grips capital markets
- Hong Kong lawmakers earlier this month enacted new legislation that will introduce a risk-based capital regime for insurers next year
- The new rules protect insurance companies from uncertain market conditions, Conning Asia-Pacific CEO says
Hong Kong’s new capital requirements for insurance companies lay down onerous conditions for local insurers, but these new regulations will also improve risk management and strengthen the city’s status as an international insurance hub, according to industry players.
The new law ensures that insurers maintain appropriate capital and solvency levels based on their risk exposure and by adopting such a risk-based mechanism authorities aim at promoting financial soundness in the industry.
Under the new regime, insurers will need to inject additional capital based on the level of risk posed by the tenor and nature of their products, with the shorter term products and simple claims demanding less capital and longer term policies with guaranteed payments requiring higher capital backup. This replaces the current capital requirements standards which are more rule-based.
“The new capital requirement is indeed a big change, and every insurance company is busy figuring out how to deal with the new change,” said Ruby Yang, CEO of Conning Asia-Pacific, an asset management company focused on serving insurance companies in the region.
“It will ensure insurance companies have sufficient capital to pay their customers regardless of the market conditions. It will allow insurance companies to better cope with uncertainties and in turn it will help Hong Kong to strengthen its role as an international insurance centre.”
Hong Kong can get ahead of London, Singapore as global insurance hub
Conning Asia-Pacific is part of the US asset management firm Conning which oversees over US$200 billion. The firm invests on behalf of insurance companies and also provides them with sophisticated investment management tools.
“Because of very unpredictable capital markets, insurance companies need sophisticated calculations and forecasts to manage their portfolio. There is no way for any firm to do it manually, as they did before,” she said. “They need tools and quantitative processes to help them with the analysis.”
Manulife Financial Asia chairman Damien Green, who is also a member of the Financial Services Development Council, a government promotional body, said the new requirement will bring Hong Kong in line with international standards.
“Many overseas markets, particularly those in Europe, have adopted risk-based capital requirements,” Green said.
“This new risk-based capital regime will place Hong Kong at the forefront of global financial markets, benefiting both the long-term development of the city’s insurance industry and its customers,” he said. “This is a crucial step in consolidating Hong Kong’s position as an international financial and risk management centre.”
Besides the new capital requirements, Conning’s Yang said her firm has seen strong demand from insurance companies from India, Singapore, Australia and mainland China in the past few months after the border between Hong Kong and China reopened.
“The opportunities in the Greater Bay Area, as well as the many projects in the Belt and Road Initiatives, have increased the need for various insurance coverage. Hong Kong is an ideal location to provide this insurance coverage,” Yang said.
Beijing-born Yang, who moved to Hong Kong in 2010, is confident Hong Kong Chief Executive John Lee Ka-chiu’s goal of developing the city into an international insurance centre will be achieved.
Yang has over 20 years of experience in the financial industry and joined Conning in 2017 to head its China business before being promoted to her current role in March this year. She has also worked at BlackRock Asset Management, ICBC International, Citibank and Sumitomo Mitsui Banking Corporation.
“We are optimistic about business opportunities and expect business activities in the second half of this year to better the pre-Covid levels,” Yang said.
“Hong Kong’s free flow of capital, ideal geographic location, globally-recognised legal system and abundant talent pool, will attract more international insurance companies keen to grow their business in this part of the world.”
