Hong Kong Insurance Authority's proposed changes to insurers' capital calculations will likely reduce capital requirements for some carriers, says Fitch Ratings.
However, the agency expects the impact on its rated insurers to be credit neutral, as it primarily relies on its Prism Global model for assessing capital adequacy. Fitch notes that insurers may respond to the risk-based capital regime changes by adjusting investment allocations, business mix, and risk management practices.
Hong Kong's proposed risk-based capital regime amendments under the Insurance Rules include preferential capital treatment for eligible infrastructure investments, mirroring approaches in markets like South Korea. The reduced capital charges aim to encourage life insurers to invest in Hong Kong and mainland China infrastructure projects, with diversification benefits between infrastructure equity and other equities providing additional incentives.
While infrastructure assets' long-term horizons match life insurers' liability duration, investment decisions will hinge on individual insurers' risk appetite, strategy, portfolio size and liquidity needs. Currently, Fitch-rated local insurers hold minimal infrastructure exposure.
The amendments also address stablecoins and crypto assets, though Fitch expects limited practical impact. Despite crypto's growing popularity, insurers will likely remain cautious given high volatility and zero dividend yield. Since crypto assets currently hold zero capital value and face a proposed 100% stress test, any recognition benefit would be largely offset.
International insurers with multi-region exposure should benefit from recalibrated natural catastrophe risk capital. Enhanced diversification mechanisms will reduce requirements based on geographic mix, while insurers may use their own estimated gross 1-in-200-year annual aggregate loss as the exposure base when coverage limits aren't specified, subject to justification.
The proposed changes also recognise that indexed universal life products sold to professional investors carry different risk profiles than traditional unit-linked business (class C). Unlike unit-linked products where policyholders select investments and insurers bear minimal risk, indexed universal life gives insurers greater asset-liability management discretion, making matching adjustment mechanisms more appropriate for capital calculations.
The Insurance Authority launched public consultation on 11 February 2026, following its review of the risk-based capital regime introduced in July 2024.