Peak Re said the concept behind the Hong Kong and China insurance regulators’ agreement to mutually recognise both market’s solvency regimes is very positive step for Hong Kong and one which the Asian reinsurer believes will open up fresh opportunities for forging new alliances for its underwriting of Chinese business.
The reinsurer’s Deputy Head of Underwriting, Andrew Mak, said the firm is hoping to capitalise on the upcoming changes to “attract those additional capital flows in the market to do Chinese reinsurance business out of Hong Kong.”
“For Peak Re, we would certainly like to have more engagement with the market to apply our expertise.”
Hong Kong and China are working towards establishing closer re/insurance ties, freeing Hong Kong reinsurers to underwrite Mainland Chinese business, and offering Chinese insurers more options for reinsurance and risk diversification.
In May this year the two regimes signed an agreement to this end, and Hong Kong based Peak Re said the goal is for the equivalence assessment to be completed within four years.
To achieve regulatory equivalence Hong Kong is working to adopt its Solvency II-style risk based capital regulatory framework to mainland China’s Risk Oriented Solvency System (C-ROSS).
Peak Re’s underwriting deputy head believes this will have positive repercussions for the Hong Kong/Chinese re/insurance industry and international re/insurers who all stand to benefit from better business links in the region.
“When you look at where the majority of the growth in the future is coming from, it’s China,” said Mak.
“Becoming a reinsurer in China is not easy so a lot of companies are exploring alliances and there’s a lot of Chinese capital in search of diversification.
“It’s still the case that China only has one dominant reinsurance company. For a market that size, they need more reinsurers to be working there.”
With the Chinese economy growing at a staggering rate, and vast infrastructure projects underway in inland China and across the region as the Belt and Road project develops, the need for insurance is outpacing economic growth.
This means the current inward-looking, protectionist Chinese regulatory environment could cripple the country’s development, if Chinese insurers don’t have sufficient access to diverse flows of capital.
As such the Chinese government has recognised the need for greater reinsurance resources and sophistication of the Chinese industry’s market, and is turning to the well-developed Hong Kong finance sector to enhance its risk diversification – a step that could send Hong Kong’s reinsurance business capacity flying through the roof in coming years.
Peak Re’s Mak explained; “All insurance companies in China are becoming very sophisticated in the way they buy reinsurance.”
“Other than the conventional treaty arrangements, I’m sure that in the future there will be other instruments that can be arranged in Hong Kong.”
China is hoping that in setting up Hong Kong as a reinsurance hub, it will have a regional interface for expansion of its re/insurance industry into the international market.
For global re/insurers, who have until now been largely cut off from the lion’s share of Chinese business, the million dollar question will be whether the Hong Kong hub becomes a two-way street, offering opportunities for firms to align with Hong Kong reinsurers to supply the growing Chinese market demand.