Insurance Ordinance amendments would create a risk-based capital regime aligned with international standards.

By Simon Hawkins and Adrian Fong

On 6 April 2023, the Hong Kong government introduced the Insurance (Amendment) Bill 2023 into the Legislative Council to amend the Insurance Ordinance (Cap. 41, Laws of Hong Kong) (IO) and implement a risk-based capital (RBC) regime for insurers in Hong Kong.

Hong Kong long-term and general business insurers are subject to a rule-based capital adequacy regime, meaning that an insurer’s capital adequacy is based on its solvency margin (which is linked to the amount of premium income or level of insurance liabilities). The existing regime does not take into account factors related to the business and risk management practices of an individual insurer, such as the products offered or the investments made. The prescribed rules on asset and liability valuation also lack consistency in certain areas.

The amendments to the IO aim to align Hong Kong’s insurance regime with the standards set out in the Insurance Core Principles (ICP) published by the International Association of Insurance Supervisors. The Hong Kong Insurance Authority (IA) has already conducted multiple rounds of consultation with the industry to understand and assess how the changes would impact insurers.

Under the RBC regime, an insurer’s required capital levels would take into account its risk profile and risk management practices. The RBC regime aims to allow more well-managed insurers to benefit from lower capital requirements, while requiring higher-risk insurers to hold more capital to protect policy holders.

These changes follow qualitative revisions already made to the insurance regulatory framework in 2020 which required insurers to comply with higher corporate governance and risk management standards, particularly around implementing an enterprise risk management framework and conducting own risk and solvency assessments (ORSA).

Key Proposals

The amendment proposes the following key changes to the IO:

  • The IA would have the power to publish detailed subsidiary legislation establishing solvency control levels and valuation methodologies to determine how capital requirements are to be met. These rules would introduce two new solvency control levels that insurers would need to comply with: “Prescribed Capital Amount” and “Minimum Capital Amount”. These solvency control levels are intended to provide an early-warning mechanism about the financial condition of an insurer, and enable the IA to take proportionate responses to restore an insurer to a proper financial position if these levels are breached. In line with the ICP, the Prescribed Capital Amount would be the solvency control level which, if breached by an insurer, would trigger the IA’s power to require the insurer to submit a restoration plan. Breach of the Minimum Capital Amount solvency control level (to be set at a lower threshold than the Prescribed Capital Amount) would allow the IA to invoke even stronger powers, including to require the insurer to submit and undertake a short-term financial scheme to return the insurer to a proper financial footing.
  • The IA would have additional power to require insurers to provide information on their business and financial condition, including the ability to mandate insurers to engage skilled persons to submit reports on specified matters. Similar powers have been given to regulators in other jurisdictions, such as the United Kingdom.
  • Transitional arrangements, expected to be implemented through subsidiary legislation, may be the subject of further public consultation in the future, so that insurers can progressively comply with the new capital and disclosure requirements.
  • The IA would have the power to designate insurers that carry on a majority of their insurance business in and from Hong Kong as “designated insurers”. Such designated insurers would need to comply with requirements like those imposed on Hong Kong-incorporated insurers, including valuation, capital, and fund requirements, as well as requirements to seek the IA’s approval of certain personnel. These requirements would enhance the existing statutory regime in which certain requirements only apply if the insurer is incorporated in Hong Kong. In practice, however, the IA has imposed these requirements on some non-Hong Kong insurers through other means such as notices and undertakings.
  • A person would need the IA’s approval to acquire 50% or more of the voting power of an insurance company (as a “majority shareholder controller”). This requirement would be in addition to the existing requirement to obtain approval from the IA when acquiring 15% or more of the voting power (now termed a “minority shareholder controller”), and would apply to both insurers incorporated in Hong Kong and designated insurers. Similar changes would also be made to the controller regime for designated insurance holding companies under the IA’s group-wide supervision powers. This added distinction between majority and minority shareholder controllers would bring the insurance controller regime closer to the Hong Kong banking regime, which has approval thresholds for minority, majority, and indirect shareholders. It demonstrates the importance of majority shareholder controllers in establishing group corporate governance and supporting their subsidiaries when needed. The Hong Kong regime still compares favourably to its European equivalent, where further regulatory approvals are required for an increase in control over specified percentage thresholds (10%, 20%, 30%, and 50%). European rules also require indirect acquisitions of control to be pre-approved. In assessing whether a body corporate is “fit and proper”, the IA would also have an added criterion to assess the entity’s internal controls and corporate governance.
  • The IA would have the power to object to an approved shareholder controller if it considers that the shareholder controller is not, or is no longer, fit and proper.
  • The IA also intends to further consult on increased disclosure requirements to the IA and the public about insurers’ financial condition.


Hong Kong aims to implement the RBC regime in 2024.

The RBC proposal comes after the Hong Kong insurance regime has undergone significant upgrades in recent years, with the IA (an independent regulatory authority that replaced a government office as the primary insurance regulator) taking over the regulation of insurance intermediaries in 2019 and receiving group-wide supervision powers in 2021. The Hong Kong government is concurrently looking to establish a protection scheme to protect policy holders upon an insurer’s insolvency.

Hong Kong insurers and their group companies should monitor developments as the insurance regime continues to mature and align with international standards. Since other jurisdictions, such as the United Kingdom, the European Union, and the United States, have already enacted similar risk-based capital regimes, these changes would promote greater consistency amongst insurance groups’ global operations. The RBC regime’s implementation would require insurers to strengthen their risk management culture and, for some, reinforce their capital position. For interested investors, we expect the IA to look more closely at proposed controllers to ensure they can support the insurer during this transition period into more rigorous capital requirements.