HONG KONG SAR, CHINA Law and Practice Contributed by: Edwin Northover, Jan Buschmann and Tony Dymond, Debevoise & Plimpton
• “fit and proper” directors, controllers and other key persons; • adequate reinsurance (or retrocession) arrange- ments; • a viable business model; • sound corporate governance and enterprise risk management frameworks; and • a local office with a CEO and other relevant staff. In terms of shareholder controllers, the IA will focus on their financial resources and their ability and com- mitment to finance the insurer’s business operations and future capital needs, as well as on their internal governance, industry experience and reputation. 2.3 Taxation of Premium An insurance levy payable by policyholders has been applied to premium payments for new and in-force policies since 1 January 2018, subject to certain exceptions. The levy is collected by the relevant insur- ers and ultimately paid to the IA. The levy rate starts at 0.04% of the insurance premium per policy year and increases gradually to 0.1%. The amount of the levy imposed on each policy is subject to a cap. 3. Overseas Firms Doing Business in the Jurisdiction 3.1 Overseas-Based Insurers or Reinsurers Overseas-based direct insurers are not permitted to conduct insurance business in Hong Kong without authorisation. Overseas insurers may accept business from Hong Kong on a “reverse solicitation” basis so long as they do not conduct insurance or solicitation activities in Hong Kong and do not hold themselves out as insur- ers in Hong Kong. In practice, the scope of such activ- ity is very limited and typically relates to specialist policies written at the initiative of Hong Kong-based policyholders or their brokers. Reinsurers are permitted to conduct reinsurance busi- ness in Hong Kong without authorisation if they: • do not have a local presence; • do not act through an agent in Hong Kong; and
• do not carry out any regulated intermediary activi- ties. There is currently no passporting or equivalence regime that would allow overseas insurers or reinsur- ers to operate in Hong Kong without going through the usual authorisation process. 3.2 Fronting Fronting is not permitted in Hong Kong, and the gen- eral expectation is that each insurer retains a minimum share of the business it writes. 4. Transaction Activity 4.1 M&A Activities Relating to Insurance Companies Hong Kong has been an active M&A market with regard to insurance companies in recent years. This has largely been driven on the one hand by the desire of Chinese and overseas players to enter what is viewed as a lucrative market with potential for future growth in Mainland China, and on the other hand by owners of small and medium-sized insurers seeking to exit a highly competitive and increasingly regulated market in which it is difficult to remain profitable with- out scale, especially where Hong Kong is not core to their strategy. Hong Kong-based insurance groups continue to invest in Mainland China as well as the other growth markets in the region, in particular South-East Asia. Acquisitions linked to bancassurance or other distri- bution arrangements have been particularly popular. 5. Distribution 5.1 Distribution of Insurance and Reinsurance Products Insurance products are most commonly distributed through: • individual insurance agents engaged by insurers; • insurance agencies such as banks and other cor- porates; • insurance brokers; and
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