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Posted in Asia, China and Hong Kong, Market developments

The future of Hong Kong’s insurance industry – New focus on reinsurance and captives?

The Hong Kong Financial Services Development Council, an advisory body to the government, has recently released a report on the Hong Kong insurance sector. Its key recommendations are:

  • Boosting the Hong Kong reinsurance market, including by negotiating preferential treatment for Hong Kong reinsurers under C-ROSS, China’s risk-based capital regime, and by extending tax incentives for offshore reinsurance to life reinsurance and to direct insurers conducting reinsurance business.
  • Turning Hong Kong into a leading marine insurance market, including by negotiating preferential treatment for Hong Kong insurers under C-ROSS, creating tax incentives for marine insurance and marketing Hong Kong as a marine insurance hub.
  • Establishing Hong Kong as a leading domicile for captives through regulatory guidance on captive management and operations, proactive support by the insurance regulator and enhanced marketing. The development of the Hong Kong captive industry has been a focus for some time. Significant regulatory and tax concessions for captives have been in place for a number of years, and in 2012 the Chinese central government encouraged Mainland companies to set up their captive insurers in Hong Kong. However, despite those measures, only three captives have been established in Hong Kong to date. As the report correctly identifies, a critical mass will typically have to be reached in order for a jurisdiction to become a hub for captives. It is doubtful whether that critical mass can be achieved in Hong Kong without the Chinese government taking active steps to promote Hong Kong as a captive hub.

Some proposals put forward in the report are more realistic than others. With regard to the treatment under C-ROSS, it is doubtful whether the Chinese government will be willing to weaken the preferential treatment it currently accords to domestic Mainland Chinese insurers by granting a special status to Hong Kong, a mature market where most large international insurers and reinsurers are present. Tax incentives, on the other hand, would be consistent with the approach taken in other jurisdictions and easier to implement if they have the support of the Hong Kong government.

The development of the Hong Kong captive industry has been a focus for some time. Significant regulatory and tax concessions for captives have been in place for a number of years, and in 2012 the Chinese central government encouraged Mainland companies to set up their captive insurers in Hong Kong. However, despite those measures, only three captives have been established in Hong Kong to date.  As the report correctly identifies, a critical mass will typically have to be reached in order for a jurisdiction to become a hub for captives.  It is doubtful whether that critical mass can be achieved in Hong Kong without the Chinese government taking active steps to promote Hong Kong as a captive hub.