ComplianceOne Insurance Newsletter – Jan 2025

The topics discussed in this monthly newsletter are as follows:

1. Hong Kong Solidifies Insurance-linked Security Leadership with First Multi-Peril Catastrophe Bond

2. Insurance Sector Pivots to Silver Economy as Population Ages

3. Key highlights of provisional business Q1–Q3 2024 Statistics

4. Revision of the Mainland China Visitors Definition

5. SFC bans Chan Ka Him for life for insurance fraud

IA News Updates

1. Hong Kong Solidifies Insurance-linked Security Leadership with First Multi-Peril Catastrophe Bond

The IA announced the successful issuance of a catastrophe bond by Taiping Reinsurance Company Limited through its special purpose insurer, Silk Road Re Limited. This bond marks a milestone as the first insurance-linked security (“ILS”) in Hong Kong covering multiple perils and triggers, offering three-year protection against named storms in the United States and earthquakes in Mainland China from 1 January 2025.

Key Highlights:

This is the sixth ILS issuance in Hong Kong since the launch of the city’s dedicated regulatory framework and pilot grant scheme in 2021.
Total ILS transactions in Hong Kong now stand at US$748 million (HK$5.86 billion), reflecting robust growth in the region’s insurance-linked securities market.

SIGNIFICANCE:

The bond highlights Hong Kong’s evolution into a versatile ILS hub capable of structuring complex, multi-jurisdictional risk solutions. By covering both U.S. and Mainland China perils, it demonstrates the city’s ability to attract global investors while supporting regional resilience against climate-related risks.

Note: ILS are different from Investment-Linked Assurance Schemes (“ILAS”);

ILS: Financial instruments linked to insurance events like natural disasters, transferring risk to capital markets;
ILAS: Life insurance policies combining investment and insurance, focused on long-term savings and retirement planning.

2. Insurance Sector Pivots to Silver Economy as Population Ages

The IA spearheaded a critical dialogue on the role of insurance in harnessing opportunities within the silver economy at the Asian Financial Forum (“AFF”).

Titled “Navigating the Silver Economy: Insurance Sector Opportunities in an Aging Society,” the panel convened industry leaders and academics to address challenges and innovations in serving aging populations, both locally and across the Greater Bay Area (“GBA”).

Key Highlights:

Demographic Shifts: Explored Hong Kong’s rapidly aging population and the growing demand for tailored insurance solutions.
Protection Gaps: Identified unmet needs in elderly healthcare, retirement planning, and long-term care coverage.
Cross-Border Potential: Emphasized opportunities for Hong Kong insurers to collaborate with GBA partners to deliver integrated services.
Education & Literacy: Stressed the need to boost public understanding of retirement planning and insurance products.

SIGNIFICANCE:

With over 20% of Hong Kong’s population projected to be aged 65+ by 2030, the panel underscored the urgency for insurers to develop products that address longevity risks, chronic care, and income security. The discussion also highlighted Hong Kong’s strategic role in leveraging GBA integration to create region-wide solutions.

For more details, please refer to AFF full programme here.

3. Key highlights of provisional business Q1–Q3 2024 Statistics

The IA’s released the provisional business statistics for the first three quarters of 2024, which highlights trends of long-term business, general business, and regulatory shifts critical for insurance licensees.

Mainland Visitor Business: Adapt to Shifting Dynamics: While premiums from Mainland visitors remain significant (27.6% of new individual life business), the IA’s focus on monitoring this segment signals stricter enforcement of unlicensed referral practices. Recent discussions indicate a zero-tolerance stance on:

(i) Unlicensed cross-border referrals (e.g. unlicensed Mainland agents/brokers directing clients to Hong Kong insurers); and

(ii) non-compliant commission-sharing arrangements with unregulated third parties.

For more details of unlicensed referral, please refer to circular issued by IA on 22 May 2024.

Regulatory Overhaul: Prepare for RBC Changes: The Risk-based Capital (“RBC”) regime, effective 1 July 2024, introduces new reporting standards. Insurers now report by financial year instead of calendar year, and offshore general insurance metrics are now included. Historical comparisons may be unreliable—verify data context with partners.

For more details of RBC regime, please refer to here.

Semi-Annual Reporting: Starting Q1 2025, the IA will publish Mainland visitor business statistics semi-annually due to seasonal fluctuations.
Long-Term Business Growth: New policy premiums for long-term business (excluding retirement schemes) reached $169.6 billion, up 15.7%.
General Business Performance: Gross and net premiums for general business in the first three quarters of 2024 were $75 billion and $51.7 billion.

For additional summary of the provisional statistics, please refer to the Annex and Market & Industry Statistics published by IA.

SIGNIFICANCE:

As the insurance landscape evolves, licensees must stay agile and informed. Adapting to the shifting dynamics of Mainland visitor business is crucial, especially with the IA's stricter enforcement on unlicensed referral practices. Aligning product offerings with Mainland visitor preferences and ensuring compliance with the new RBC regime will help licensees effectively navigate these regulatory changes.

Market News

4. Revision of the Mainland China Visitors Definition

The IA proposed to revise the official definition of Mainland China Visitors (“MCV”) to exclude individuals under related talent schemes (e.g. Top Talent Pass Scheme) to prevent data inflation and improve data accuracy and address risks tied to visitors’ limited familiarity with local insurance regulations.

MCV Definition proposal

Current MCV Definition: Mainland residents entering Hong Kong with a Double Entry Permit or Chinese passport.
Proposed MCV Definition: Specific talent schemes participants may no longer be classified as MCV.

Additionally, the IA will explore the possibility of collecting data on new policies from different regions. Considering the seasonal travel patterns of Mainland visitors, the related business statistics will be published semi-annually instead of quarterly starting from Q1 2025.

Participating Business Reforms

The IA has proposed three major changes to enhance transparency and consumer protection:

Cap on Commission Rates: An annual review of maximum illustration rates, divided into HKD and non-HKD policy categories.
Commission Ratio Comparison Platform: A public platform to compare insurers' actual vs. projected dividend payouts.
Referral Compensation Review: An overhaul of unlicensed referrer’s commission structures.

The above-mentioned will be reviewed and announced by IA within the year, with the cap on commission rates expected to be implemented first.

SIGNIFICANCE:

Reviewing the definition of Mainland visitors aims to prevent data inflation and improve consumer protection and risk management. The reforms in participating business practices will enhance transparency and ensure fair treatment of consumers. Licensed insurance companies and brokers need to adjust the business strategies promptly to comply with the new regulations and maintain client trust.

Enforcement News

5. SFC bans Chan Ka Him for life for insurance fraud

The SFC has permanently banned Mr. Chan Ka Him, a former insurance specialist at Standard Chartered Bank (Hong Kong) Limited, from re-entering the industry following his criminal convictions for insurance fraud.

Case Details:

Between January and March 2019, Chan assisted two clients in taking out insurance policies.
Between August and September 2019, Chan induced one client to transfer US$52,300 and another client to transfer over HK$420,000 to a bank account connected to him, under the pretense that these transfers were for premium payments.
Chan attempted to cancel the clients’ insurance policies by falsely representing to the insurer that the clients wished to do so.

SIGNIFICANCE:

Chan was sentenced to 20 months’ imprisonment by the District Court on 2 February 2024 after being convicted of three counts of fraud and one count of attempted fraud. For more details, please refer to Judgment – DCCC 1157/2022

The SFC considers that Chan is not fit and proper to be a regulated person due to his criminal convictions.

[End of ComplianceOne Insurance Newsletter –January 2025]

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The Newsletter is for general information purpose only and is not intended to constitute legal or other professional advice.

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