In March 2017, the Hong Kong Financial Services Department Council (FSDC) issued a report entitled “Turning Crisis into Opportunities: Hong Kong as an Insurance Hub with Development Focuses on Reinsurance, Marine and Captive”. The FSDC seeks to highlight some of the challenges facing Hong Kong in terms of keen competition from markets such as Singapore and the need to stem the flow of business away from Hong Kong. It also addresses the need to nurture and foster talent within the industry in order to secure future growth.
The FSDC advocates, amongst other matters, the following changes:
- Under the China Risk Orientated Solvency System (C-ROSS) which was implemented in 2016, Hong Kong is classified as “off-shore”. Under that regime, higher capital charges are imposed upon PRC insurers who cede risks to “off-shore” reinsurers. FSDC proposes that in order to stimulate business in the Hong Kong reinsurance market, Hong Kong reinsurers should be re-classified as “on-shore”. The geographical proximity of Hong Kong lends itself to being “a natural platform” for the reinsurance of PRC business as well as that of Japan, South Korea and Taiwan.
- Further tax incentives and concessions should be offered by the Hong Kong Government together with the need to accelerate Double Taxation Agreements with key countries.
- The FSDC acknowledges the potential and/or future role of Insurance-Linked Securities (ILC) in the Hong Kong market. These products are, at present, under-developed in Hong Kong.
The FSDC focuses on the need to maximise opportunities given that Hong Kong is a leading international maritime hub with a world class transportation and logistics network and infrastructure. It recommends the following:
- Closer collaboration between the FSDC and the Hong Kong Maritime Port Board in setting up and promoting business initiatives between Hong Kong insurers and ship owners with a view to developing marine insurance.
- The China Insurance Regulatory Commission should confer preferential/special status upon Hong Kong insurers.
- Tax incentives and/or tax exemptions should be offered to Hong Kong insurers and brokers who underwrite and place marine risks respectively in Hong Kong.
This is a highly under-developed market in Hong Kong. The aim is to establish a captive domicile in Hong Kong by 2020, for 5 - 20 captives to be licensed each year and for 50 authorised to operate by 2025. The FSDC further invites the Insurance Authority to play a more active role in promoting a captive market in Hong Kong, for example, by offering more incentives and concessions, whether tax or otherwise.
Training and education within the industry
The FSDC highlights the need to attract and foster talent within the industry and to promote technical expertise. It urges the Government and industry bodies to set up educational funds, provide industry-related courses at a tertiary level and provide enhanced continuing education programmes.
The Insurance Authority is due to take over the Office of Commissioner’s role on 26 June 2017. The FSDC report addresses concerns which are already recognised within the industry and it remains to be seen the extent to which these recommendations will be followed through by the new regulatory body.