A new AM Best report suggests that proposed changes to how the Hong Kong Insurance Authority (HKIA) assesses non-life insurers’ capital requirements, particularly for natural catastrophes, man-made risks, and offshore reinsurance business, could strengthen Hong Kong’s position as a global hub for reinsurance and risk management.
According to the rating agency, Hong Kong’s direct non-life market remains highly fragmented and competitive.
Growth in the segment has been subdued, remaining in the low-to-mid single digits over the past five years, as economic headwinds and the broader slowdown in mainland China continue to weigh on performance.
However, AM Best now views recent regulatory developments more positively. The agency said that changes outlined in a newly released HKIA consultation paper are credit positive for Hong Kong’s non-life market.
“Domestic insurers would stand to benefit from improved capital efficiency with the potential to grow offshore business outside of Hong Kong’s competitive local market,” the rating agency added.
As part of the proposed reforms, the HKIA has reportedly suggested scaling back several prescribed natural catastrophe risk factors, while also allowing for greater diversification benefits across certain markets in the Greater China region.
In addition, eligible Hong Kong insurers, or designated insurers that are part of a non-Hong Kong insurance group, may apply to exclude offshore non-life reinsurance business from their prescribed capital calculations.
“By better aligning capital standards with local market characteristics and maintaining international prudential benchmarks, the HKIA is trying to balance the non-life segment’s sustainable development with policyholder protection,” James Chan, director, AM Best, explained.
Christie Lee, senior director, AM Best, added, “As a result, we view the proposed solvency framework adjustments as a catalyst for insurers, especially for domestic direct insurers who are equipped with strong capitalisation, robust underwriting know-how, or favourable parental support, to pursue growth opportunities outside the local market.”
