Analysts at Moody’s believe the Hong Kong SAR’s Insurance Authority (IA) implementation of groupwide supervision (GWS) will help to improve insurance groups’ governance and capital management framework.
The use of GWS will help to strengthen insurance groups’ capital and risk management, enhance their public disclosure and reduce the scope for regulatory arbitrage, the rating agency said.
Moody’s expects IA to designate insurance holding companies as designated insurance holding companies (DIHC) following GWS implementation.
Three insurance groups are currently appointed by IA as group supervisors, namely AIA Group Limited, Prudential Public Limited Company, and FWD Group and FWD Life Insurance Company (Bermuda) Limited.
Furthermore, GWS provides clear definitions of the criteria and eligibility of capital resources or financial instruments that qualify for capital tiers for supervised insurance groups.
This, along with favorable financing costs, should provide strong incentives for most insurance groups to issue Tier 1 limited financial instruments or Tier 2 financial instruments, Moody’ said.
“The three pillars of Hong Kong’s GWS framework will help to improve the solvency capital, risk and governance, as well as disclosure standards of insurance groups,” explained Frank Yuen, a Moody’s Vice President and Senior Analyst.
“We expect transition risks to be limited because most insurance groups have maintained solid capital positions and/or observed similar requirements before GWS implementation.”
