Hong Kong will become a “world class and leading captive domicile by 2020 with the aim of over five to 10 captives licensed per year and 50 total captives by 2025,” according to the Hong Kong Financial Services Department Council (FSDC).
The report, Turning Crisis into Opportunities: Hong Kong as an Insurance Hub with Development Focuses on Reinsurance, Marine and Captive, suggested that this is a realistic goal given the number of organisations in Mainland China and the surrounding regions that have the size, scale, risk profile and relevant growth plans to utilise captives.
According to the FSDC, Hong Kong should be an attractive domicile for offshore captives from Greater China around the region, as well as an attractive onshore domicile for Hong Kong-based corporates.
With an increasing amount of international exposure in Mainland China, the FSDC suggested that there is a market for companies with a desire to maintain a captive’s risk exposure in renminbi “to eliminate the risks of currency exchange rate fluctuations”.
The report stated: “Hong Kong is already the preferred offshore platform for many mainland companies (many of these companies are already listed on the Hong Kong stock exchange) and is seen as a gateway between Mainland China and the rest of the world. Hong Kong already has a mature and sizeable insurance industry with scope for an influx of expertise in captive management if and when necessary.”
The report revealed that Hong Kong has been slow to promote the use of captives due to a lack of regulatory promotion, lack of incentives to compete with international domiciles and, to a certain degree, a lack of understanding from the financial and corporate sectors of the benefits of, and uses for, captives.
It suggested that the likes of Singapore and Labuan have been working on all of the above for longer, and are now established hubs. However, the success of those regions highlights the potential that Hong Kong has within Greater China, according to the FSDC.
For Hong Kong to become a similarly established hub, the domicile will need to educate CEOs, c-suite and risk managers on the benefits and uses of captives.
The report said: “The general lack of risk management experience and knowledge in this area is a key issue for boards and companies. This is why we recommend the Independent Insurance Authority takes some ownership to fill the information gap Hong Kong and Mainland Chinese corporates face when it comes to knowledge about captive insurance companies.”
Laura Cha, chairman of the FSDC, said: "The recent departure and downsizing of the Hong Kong offices of various international insurance and reinsurance companies highlights the need for Hong Kong to further develop our insurance and reinsurance industry. Further departures are likely in the near future if action is not taken.”
"Hong Kong has all the necessary ingredients to be a leading insurance and reinsurance hub in Asia. Hong Kong insurers and reinsurers have played a critical role in supporting Mainland Chinese companies to transfer and manage their risks, particularly as they expand into new territories, specifically in the regions in the Belt and Road Initiative.”
“Mainland Chinese companies and insurers will be able to take advantage of the benefits in terms of efficiency, best practices, language and ease of doing business by transacting reinsurance in Hong Kong."