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.