The Hong Kong Insurance Authority (HKIA) has achieved a consensus with its mainland counterpart, the China Banking and Insurance Regulatory Commission (CBIRC), that the CBIRC will provide preferential treatment to Hong Kong reinsurers by reducing the reinsurance credit risk requirement under China's Risk-Oriented Solvency System (C-ROSS) for mainland insurers that use Hong Kong reinsurers authorised by the HKIA.(1) This preferential treatment will see Hong Kong reinsurers prioritised over other offshore reinsurers in the placing of reinsurance. This new arrangement is expected to increase Hong Kong's standing as a risk management hub in Asia and attract new investment capital to Hong Kong.
The preferential treatment is based on the Equivalence Assessment Framework Agreement on Solvency Regulatory Regime signed in May 2017 by the former China Insurance Regulatory Commission and the former Office of the Commissioner of Insurance, in which the two insurance regulators agreed to carry out an equivalence assessment regarding their respective solvency regulatory regimes.
Hong Kong reinsurers were previously grouped with other offshore reinsurers under C-ROSS. This decreased the attractiveness of Hong Kong as a reinsurance hub for mainland insurers, as the assigned baseline risk charge factor for credit exposure was significantly higher than that of onshore mainland reinsurers. Once the new arrangement has been implemented, Hong Kong reinsurers will be subject to lower charges in general. Chen Wenhui, vice chair of the CBIRC, has explained that "the preferential factor under C-ROSS will be applicable to high-quality Hong Kong reinsurers, which will foster the development of the reinsurance business in Hong Kong". According to John Leung, chief executive of the HKIA, "the preferential treatment will also help sharpen the competitive edge of the Hong Kong insurance industry and strengthen Hong Kong's position as a reinsurance hub in Asia".
Hong Kong reinsurers with good underwriting capabilities, strong balance sheets and close relationships with both brokers and cedents are likely to benefit significantly from this new arrangement, which should improve Hong Kong's credentials as an Asian reinsurance hub with particularly strong ties to the mainland insurance market as a whole.
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(1) HKIA Press Release, "Insurance Authority and China Banking and Insurance Regulatory Commission implement preferential treatment to promote the development of Hong Kong reinsurance industry", dated 17 July 2018.
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