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11 October, 2017
On 16 May 2017, the Hong Kong government announced that the then Office of Commissioner of Insurance had entered into the Equivalence Assessment Framework Agreement on Solvency Regulatory Regime (the Agreement) with the China Insurance Regulatory Commission (CIRC) on the same day in Beijing to enable both regulators to conduct equivalence assessment on the insurance solvency regulatory regimes of the mainland and Hong Kong.
The objective of the equivalent assessment is to achieve mutual equivalence recognition of the solvency regulatory regimes and provide regulatory convenience over supervision of the insurance industry on both sides to avoid regulatory overlap. It is expected that it will bring opportunities for the insurance industry in China and Hong Kong and promote cross-border business, such as promoting cross-border reinsurance between China and Hong Kong. The goal is to complete the equivalence assessment within four years.
Insurance Authority imposes insurance premium levy
Effective 1 January 2018, the Insurance Authority will start collecting a premium levy from policyholders, except for certain policies (such as reinsurance and captive) that are exempt by law. The rate will start at 0.04% of the insurance premium per policy year and increase gradually to 0.1%. The amount of the levy imposed on each policy will be subject to a cap. The levy will be collected from the policyholders through insurers.
Insurers should inform their policyholders of the levy arrangement through various channels (for example, through anniversary statements). At the same time, insurers are allowed to "shoulder" the levy for their policyholders. Under the law, a policyholder who fails to pay the levy as required may be subject to a penalty of up to HKD 5,000, and the outstanding levy will become as a civil debt due to the Insurance Authority.
Financial Institutions (Resolution) Ordinance takes effect
The Financial Institutions (Resolution) Ordinance (Cap. 628) (the Ordinance) came into operation on 7 July 2017. The Ordinance establishes a cross-financial sector resolution regime that is designed to meet the international standards set by the Financial Stability Board. It will strengthen the resilience of Hong Kong’s financial system and enhance Hong Kong’s premier position as an international financial center.
Under the Ordinance, the Monetary Authority, the Insurance Authority and the Securities and Futures Commission are the resolution authorities under their respective purview. They are vested with a range of necessary powers to effect orderly resolution of non-viable systemically important financial institutions in Hong Kong, such as risks posed by the non-viability of the Hong Kong financial system can be mitigated while losses are imposed on the institution’s shareholders and creditors, thereby minimizing risks posed to public funds.
An insurance sector entity, which falls under the Ordinance, includes (i) an authorized insurer that is a global systemically important insurer as published by the Financial Stability Board; or (ii) a financial institution designated by the Financial Secretary as a within-scope financial institution for which the Insurance Authority is designated as the resolution authority under the Ordinance. So far, the Financial Secretary has not yet designated any financial institution as a within scope financial institution under (ii).
Guidelines on fit and proper criteria issued
In June 2017, the Insurance Authority issued the revised GL4 based on the list of matters set out in section 14A of the Insurance Ordinance, which the Insurance Authority should take into account when determining whether a person is fit and proper. The GL4 sets out the minimum standard of suitability requirements that are applicable to controllers, directors, key persons in control functions and appointed actuaries of an insurer.
For further information, please contact:
Milton W. M. Cheng, Partner, Baker & McKenzie
milton.cheng@bakermckenzie.com
