Hong Kong Set to Implement Group-Wide Supervision for Insurance

Newly gazetted subsidiary legislation will allow the Insurance Authority to set capital, regulatory reporting and public disclosure requirements for insurance groups.

Hong Kong’s government has gazetted subsidiary legislation to commence direct group-wide supervision over insurance groups on 29 March 2021.

The subsidiary legislation extends certain powers the IA (Insurance Authority) has over authorised insurers to Hong Kong-incorporated holding companies of an insurance group, in line with international standards set by the IAIS (International Association of Insurance Supervisors).

At present, Hong Kong’s IA regulates three international insurance groups – AIA Group Limited, Prudential Plc and FWD Limited – using an indirect approach based on existing powers to regulate insurers on a ‘solo’ basis.

The legislation will grant the IA regulatory powers at the holding company level for the purposes of setting requirements in relation to capital, regulatory reporting and public disclosure.

The gazettal of the subsidiary legislation follows an August 2020 consultation by the IA on group capital rules that will apply to insurance groups where the holding company for the group is incorporated in Hong Kong.

The group capital rules will require insurance holding companies designated as being subject to the GWS (Group-Wide Supervision) framework to ensure the insurance group’s tier 1 and tier 2 capital exceed minimum requirements.

The rules also specify that the IA may determine the resources and financial instruments that are considered eligible capital resources, and set out reporting and minimum disclosure requirements.

The IA has released its consultation conclusions on the insurance group capital rules, available here.

The subsidiary legislation will be tabled before the Legislative Council for negative vetting on 6 January 2021, following which the GWS framework will take effect on 29 March 2021.

“The implementation of the GWS framework will help align Hong Kong’s insurance regulatory regime with international standards and practices,” said an FSTB (Financial Services and the Treasury Bureau) spokesman in a government statement.

“It is a testament of the government’s commitment to reinforce Hong Kong’s status as an international financial centre and establish Hong Kong as a preferred base for large insurance groups in Asia Pacific.”

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

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