Policy initiatives in 2021 aimed at promoting Hong Kong as an attractive hub for international trade were centred around the four pillars of captive insurance, insurance-linked securities (ILS), marine and specialty risk insurance, and reinsurance, according to the Insurance Authority’s (IA) annual report.
The IA’s report, subtitled ‘Embracing the New Normal’, outlines the engagement of the Authority with the Government and Legislative Council in formulating policy and legislative changes, notably expanding the scope of insurable risks by Hong Kong-based captive insurers in March 2021.
This legislative amendment was designed to further consolidate the role of captive insurers as an intra-group risk management centre, as well as to reinforce Hong Kong’s position as a preferred domicile for captives by state-owned enterprises from Mainland China, multinational conglomerates and local corporations.
The report explains: “Hong Kong’s proximity to Mainland China and its role as an international financial centre within national boundaries make it an ideal captive domicile for Mainland Chinese enterprises with overseas projects.”
In addition, the IA notes the formation of the Hong Kong Specialty Risks Consortium to help match supply and demand in the specialty risks area. The consortium complements the IA’s captive initiatives and its goal to develop Hong Kong as a global risk management centre and regional insurance and reinsurance hub.
The consortium pools risk owners that have exposure to specialty risks in their overseas projects with service providers such as insurers, reinsurers and brokers that offer risk management and re/insurance solutions.
This makes it more convenient for risk owners, such as captive insurers, to use Hong Kong as a risk management hub for offshore risks.
In addition, the annual report highlights the substantial growth in the global issuance of ILS as a result of the increase in natural catastrophe events linked to climate change and urbanisation.
Hong Kong issued its first ILS catastrophe bond in October of last year to Greater Bay Re.
According to the IA, Hong Kong is in a strong position to become a preferred ILS domicile owing to its status as an international financial centre with free flow of capital, a sophisticated capital market with abundant liquidity, robust legal system, and human talent in insurance and financial services.
Discussing market developments beyond 2021, the report says: “The IA’s market development roadmap seeks to drive forward sustainable growth in the insurance industry by catapulting Hong Kong into a global risk management centre and regional reinsurance and insurance hub.”
This includes supporting strategies such as the Belt and Road Initiative, as well as the development of the Guangdong-Hong Kong-Macao Greater Bay Area.
IA chairman Moses Chang comments: “With explicit endorsement given by the central government and the Pilot ILS Grant Scheme, the IA is making positive strides in delivering the first catastrophe bond and nurturing internal capacity to explore other common forms of ILS.
“Hampered by travel restrictions, the impetus on promoting Hong Kong as a preferred captive domicile has been sustained by way of virtual seminars, while the consortium presents a convenient channel to match up risk owners in Mainland China with service providers around the world,” Chang concludes.
