An agreement that gives certain Hong Kong-based reinsurers preferential treatment in mainland China over those from other markets will boost Hong Kong’s status as a premier re/insurance hub in Asia, according to an industry report.
The report by insurance ratings agency AM Best said that the agreement between the China Banking and Insurance Regulatory Commission (CBIRC) and the Insurance Authority of Hong Kong (IA) means mainland insurers that cede business to qualified Hong Kong reinsurers will be subjected to a lower reinsurance credit risk charge than those that work with reinsurers based in other markets.
Prior to the agreement, Hong Kong-based reinsurers were grouped with other overseas firms, which had higher credit risk charges.
There will be a four-year transition period during which the China Risk Oriented Solvency
System (C-ROSS) regime and its Hong Kong counterpart will be mutually recognized as the same or similar.
According to the CBIRC, to qualify, Hong Kong-based reinsurers must be authorised by the IA, have international credit ratings of A- or higher, submit quarterly solvency filings, and have minimum solvency ratios of 200% for non-life and 150% for life.
The change will encourage mainland Chinese insurers to prioritise reinsurers in the special administrative region over other markets, the report said. As a result, this will increase Hong Kong reinsurers’ competitiveness in the mainland, especially in support of the Belt and Road Initiative. This will also elevate Hong Kong’s reputation as a risk management hub across Asia, as well as attracting new capital to Hong Kong for those interested in accessing the Chinese reinsurance market.
