In light of the current regulatory landscape and the increasing demand for indexed universal life (IUL) insurance products from the high-net-worth customers, the Insurance Authority and the Hong Kong Monetary Authority issued a joint circular that is expected to bring greater certainty on launching IUL products exclusively targeting professional investors, as it clarifies the application of insurance regulatory framework in relation to product design, governance and sales process.
According to a report by Bloomberg the product – which has part of its cash value component tracking a benchmark index performance – has gained traction in the US, Bermuda and Singapore, while previously being unavailable in Hong Kong due to regulation and risk concerns.
The joint circular issued by the Insurance Authority and the Hong Kong Monetary Authority said if such policies are only offered and sold to high-net-worth customers, who are defined as professional investors, then “there is room to offset or amend the application of certain requirements” without compromising investor protection.
Like traditional universal life insurance products, IUL products offer life insurance with a cash value component and flexibility for policy holders in terms of premium payment. However, unlike typical traditional universal life insurance products, all or part of the cash value component of IUL products are linked to the performance of a financial index or indices (e.g. a stock market index).
According to Bloomberg report Hong Kong is pushing hard to develop its HKD31tn (S$5.3tn) wealth management business, as it seeks new drivers for the economy. The government proposed tax breaks and investment immigration schemes, competing against other financial hubs such as Singapore.