New capital rules to protect HK insurance industry from uncertainty

New capital rules to protect HK insurance industry from uncertainty – experts | Insurance Business Asia

Insurance News

New capital rules to protect HK insurance industry from uncertainty – experts

The new law ensures that insurers maintain appropriate capital and solvency levels based on their risk exposure

Insurance News

By
Kenneth Araullo

A new bill providing the legislative framework for Hong Kong to introduce a risk-based capital (RBC) regime for the insurance industry has been hailed by industry experts.

The new regulations, according to these experts, will improve risk management and strengthen the city-state’s status as an international insurance hub.

According to a report from the SCMP, the new bill ensures that insurers should maintain appropriate capital and solvency levels based on their risk exposure. The bill aims to promote financial soundness in the industry.

This RBC regime means that insurers will need to inject additional capital based on the level of risk posed by the nature of their products. Shorter term offerings and simple claims demand less capital, while longer term policies with guaranteed payments now require higher capital backup. This is vastly different from the current capital requirements standards which operate more on rules.

Asset management firm Conning Asia-Pacific CEO Ruby Yang said that the new capital requirement is a big change and that every insurer is busy figuring out how to deal with the new regime.

“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,” Yang said.

Yang added that insurers also need sophisticated calculations and forecasts to manage their portfolio because of very unpredictable capital markets.

“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 said that the new RBC requirement should 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. This is a crucial step in consolidating Hong Kong’s position as an international financial and risk management centre.”

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