HK’s new capital regime to strengthen enterprise risk management

It is prompting (re)insurers to adjust their business and investment strategies.

Hong Kong’s new risk-based capital (HKRBC) regulatory framework, introduced on 1 July, is expected to enhance enterprise risk management (ERM) among (re)insurers, according to AM Best. 

The new framework replaces the previous ordinance-based regime and introduces three pillars: quantitative requirements, qualitative requirements, and disclosure requirements.

Christie Lee, senior director at AM Best, noted that the solvency ratio under the HKRBC framework is about half of what it was under the legacy system. 

The change is prompting (re)insurers to adjust their business and investment strategies to improve capital efficiency. The enhanced disclosure requirements aim to improve transparency across the industry, though smaller insurers may face increased management costs.

The Hong Kong Insurance Authority (HKIA) has also implemented group-wide supervision (GWS) standards for designated insurance holding companies (DIHCs), covering ERM, corporate governance, and capital requirements. 

Under the GWS framework, the HKIA has regulatory authority over DIHCs, including compliance with capital standards and the ability to take disciplinary action.

Unlike the previous regime, the new system considers asset, counterparty, and underwriting risks. Insurers are now required to submit quarterly disclosures and provide audited annual reports.