HONG KONG SAR, CHINA Law and Practice Contributed by: Edwin Northover, Jan Buschmann and Tony Dymond, Debevoise & Plimpton
11. Emerging Risks and New Products 11.1 Emerging Risks Affecting the Insurance Market Catastrophe risk (including more severe typhoons as a result of climate change) is regarded as one of the key emerging risks in Hong Kong. The newly established regime for ILS (see 7.1 ART Transactions ) is a key response of the regulator to such risk, which affects not only Hong Kong but Mainland China and the wid- er region as well, and may give rise to an increased demand for risk transfer to the capital markets. The other regulatory initiatives in Hong Kong have been primarily focused on the emerging protection gaps for an aging population. Many Hong Kong resi- dents have no or limited private health insurance and only limited pensions or other retirement protection. This has resulted in the design and promotion of new products with the assistance of the IA and the Hong Kong government – see 11.2 New Products or Alter- native Solutions . 11.2 New Products or Alternative Solutions The new ILS regime has been described in 7.1 ART Transactions . In the last few years, the Hong Kong insurance indus- try, supported by the Hong Kong government, has developed a number of products that are designed to address existing protection gaps. This includes voluntary health insurance scheme (VHIS) products that provide indemnity coverage for hospital treatments in accordance with standards set by the Food and Health Bureau. Premiums paid for VHIS products are tax-deductible up to certain limits. The newly developed products also include qualified deferred annuity plans, which are deferred annuity plans meeting certain requirements set by the IA and permit taxpayers to claim a tax deduction for their premiums up to a defined maximum limit. In recent years, the IA and the SFC have provided updated guidance on unit-linked products, which are locally known as “investment-linked assurance scheme” (ILAS) products. The guidance sets out new
requirements that such products must meet in relation to various aspects (such as cost of insurance charges, fees and surrender charges) in order to benefit from a swifter approval process involving both regulators. In order to service the high net worth market, in 2025 the IA (in conjunction with the SFC) introduced a regu- latory regime for indexed universal life policies, which can only be sold to professional investors in Hong Kong. 12. Developments in Insurance Law 12.1 Significant Legislative or Regulatory Developments Amendments to the Insurance Ordinance Significant amendments to the Insurance Ordinance came into effect on 1 July 2024. The amendments mainly lay the groundwork for the new risk-based cap- ital regime that has applied to Hong Kong authorised insurers since 1 July 2024, and whose details are set out in subsidiary legislation and will be complemented by regulatory guidance. The new risk-based regime follows a three-pillar approach similar to Solvency II and other risk-based frameworks. It is complemented by a group-wide solvency regime for Hong Kong-reg- ulated insurance groups, which was implemented in 2021. In addition, the Insurance Ordinance has been updat- ed in several areas, including by: • treating foreign-incorporated insurers that carry on most of their business in Hong Kong, and that have been designated by the IA as such, in broadly the same way as Hong Kong-incorporated insurers for regulatory purposes; • requiring a separate regulatory approval for minor- ity shareholder controllers who propose to become majority controllers; • requiring general insurers to have approved actuar- ies and file periodic actuarial reports; and • providing for the IA’s power to require insurers to obtain third-party reports on specified matters, which is typically used in the context of regulatory investigation and enforcement.
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