Proposed reforms to how the Hong Kong Insurance Authority (HKIA) evaluates required capital for non-life insurers are seen as strengthening the city's standing as a global hub for reinsurance and risk management, according to a new report by global credit rating agency AM Best.
The proposed changes, outlined in a recent Hong Kong Insurance Authority (HKIA) consultation paper, build on the implementation of Hong Kong’s Risk-Based Capital (RBC) regime on 1 July 2024 and focus on refining how insurers assess capital requirements related to natural catastrophes, man-made risks, and offshore reinsurance business. These are key areas that influence both financial resilience and competitiveness.
AM Best views these proposed adjustments as credit positive for Hong Kong’s non-life insurance sector, with a key benefit being improved capital efficiency for local insurers. Insurers could gain greater flexibility to expand beyond Hong Kong’s highly competitive domestic market and grow their offshore business portfolios, thanks to the optimisation of how capital is allocated against risk.
A central element of the proposal involves scaling back certain prescribed risk factors for natural catastrophes. This adjustment acknowledges that existing requirements may be overly conservative relative to actual exposure levels. In addition, the HKIA is considering allowing greater diversification benefits across markets within the Greater China region. This means, according to AM Best, that insurers operating across multiple geographies could receive more favourable capital treatment, reflecting the risk-reducing effects of geographic spread.
Another key proposal addresses offshore reinsurance. Eligible Hong Kong insurers—or designated insurers that are part of international insurance groups—may be permitted to exclude offshore non-life reinsurance business from their prescribed capital calculations. This change could make Hong Kong a more attractive destination for global and regional reinsurance firms seeking to establish overseas operations, due to the reduction in regulatory capital burdens.
AM Best Director James Chan said, “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.”
AM Best concludes that the proposed refinements reflect Hong Kong’s continued ambition to strengthen its role in the global insurance ecosystem. Once implemented, the new rules could reinforce the city’s appeal as a strategic hub for risk transfer, particularly at a time when insurers worldwide are navigating increasingly complex catastrophe and geopolitical risk landscapes.