Hong Kong to become reinsurance hub for mainland China: Peak Re
Hong Kong is on the path to becoming a dedicated hub for mainland China’s reinsurance needs, Peak Re said in its July Peak Times issue.
The opportunity to expand comes after Hong Kong’s insurance regulator signed an agreement with its Chinese counterpart to develop mutual recognition of the solvency regimes in the two markets.
The agreement could mark the first step towards developing an integrated insurance and reinsurance market between the two places, with Hong Kong ultimately being recognised as an onshore jurisdiction for regulatory purposes. This may, however, still be a few years away from being realised, with some potential pitfalls along the way, Peak Re admitted.
“While certain details are relatively vague at this moment in time, the high-level concept behind the agreement is very positive for Hong Kong,” says Andrew Mak, deputy head of underwriting at Peak Re.
At present, the Office of the Commissioner of Insurance in Hong Kong and the China Insurance Regulatory Commission (CIRC) on the mainland are developing their own risk-based solvency regulatory regimes. Under the Equivalence Assessment Framework Agreement on Solvency Regulatory Regime, supervision of the insurance industry in both jurisdictions would be harmonised, thereby avoiding regulatory overlap and facilitating cooperation.
“The mutual equivalence recognition of the solvency regulatory regimes between the two places will promote the development of the insurance industry on both sides and encourage cross-border business,” said John Leung, the commissioner of insurance in Hong Kong.
“Before the completion of assessment, both sides agreed on a transitional regulatory arrangement which recognises the solvency regime of each other as the same or similar to that of another. We will then discuss with the CIRC on the specific measures under the transitional arrangement.”
The goal is to complete the equivalence assessment within four years, by which time Hong Kong will have adopted its Solvency II-style risk based capital regulatory framework, bringing it in line with the mainland’s China Risk Oriented Solvency System (C-ROSS). Chen Wenhui, vice-chairman of CIRC, has said that mutual equivalence recognition will “strengthen the cooperation between the two insurance sectors and enhance the regulatory efficiency and market effectiveness of both places”.
Mak noted that “when you look at where the majority of the growth in the future is coming from, it’s China.”
While most reinsurers in Hong Kong currently enjoy sufficient access to mainland business, there are hurdles to broadening and deepening their operations at a pace commensurate with Chinese growth and the evolving needs of its economy.
“Becoming a reinsurer in China is not easy,” Mak said. “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.”
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