Consultation conclusions on risk-based capital framework for Hong Kong insurance industry published

      The Insurance Authority published today (September 30) the consultation conclusions on a risk-based capital (RBC) framework for the Hong Kong insurance industry.
     The Commissioner of Insurance, Mr John Leung, said, "We are pleased to note that there is general support from the industry for the move towards an RBC framework. The proposed framework will help make capital requirements more sensitive to the level of risk that insurance companies are bearing. It also enhances the corporate governance and risk management of insurance companies.

     "While there is general agreement on the high level principles of the conceptual framework, there are mixed views on some of the technical aspects and details which will be handled in the next phase of the project."

     The RBC framework comprises requirements for quantitative aspects, qualitative aspects and disclosure. In respect of quantitative requirements, respondents generally support the proposals, including the establishment of two solvency control levels, the broad risk categories identified and the approaches for risk assessment. Further consideration will be given to assessment methodologies during the next phase of the project.  

     In respect of qualitative requirements, respondents support the proposed requirements relating to enterprise risk management (ERM) and own risk and solvency assessment (ORSA). ERM requirements will be introduced by phases while ORSA requirements, which should be supported by quantitative analysis, would be developed in conjunction with quantitative requirements. Respondents also support the proposed disclosure requirements, which will be further considered during the next phase of the project.

     The RBC regime will be developed in four phases:

* Phase I involves development of the framework and key approaches.

* Phase II will involve development of detailed rules. Quantitative impact studies (QIS) should be conducted for different types of insurance companies to ensure that the new regime is viable and practicable, and that it should not bring about instability to the insurance industry.  Phase II would begin in 2015, to be followed by another consultation exercise.

* Phase III will involve setting out the new requirements in legislation. At least two to three years will be needed to complete all the preparatory tasks during Phases I and II, including public consultations before Phase III commences.

* Phase IV will be the implementation phase. The new RBC regime should be rolled out in phases with a sufficiently long run-in period, so that insurance companies will have adequate time to understand the requirements thoroughly, and be able to achieve full compliance incrementally.

     Taking into account the comments received, the Insurance Authority will proceed with the next phase of the project, which involves developing detailed rules as well as conducting QIS, to be followed by another round of consultation.

     "We note that both the accounting standard and capital standard for the insurance industry are evolving internationally. We will keep these developments in view when formulating our RBC regime.

     "We will continue to engage all relevant stakeholders in the next phases of the project," Mr Leung said.  

     The consultation findings and the Insurance Authority's responses are set out in the consultation conclusions which have been uploaded to the website of the Insurance Authority (

Ends/Wednesday, September 30, 2015
Issued at HKT 17:14