The OCI is reviewing the solvency and capital regime with a view to developing an appropriate RBC framework for Hong Kong, taking into account experiences in other jurisdictions and latest international regulatory requirements. The OCI has recently indicated that the new RBC framework is expected to be implemented in 2016. Considerations The expected RBC framework would consider the need to maintain a level playing field for all insurers in the market. According to the OCI, the expected RBC framework would consider the following key aspects: • Latest Insurance Core Principles, Standards, Guidance and Assessment Methodology (ICP) issued by the International Association of Insurance Supervisors (IAIS) • Experience of overseas jurisdictions, although this will not replicate Solvency II • Hong Kong’s unique market situation (e.g., diverse profile of large and smaller players with different lines of business) • Incentives to introduce enhanced risk management • Ease of use and ability to compute new capital requirements for such a diverse market • The need to maintain a level playing field for all insurers in the market • Avoidance of regulatory arbitrage Proposed time line The establishment of the new RBC framework is expected to follow the timetable below: 2013–14 2014–15 2015–16 2016–17 • Consult with the industry on proposed framework • Prepare draft of detailed rules and perform deep- dive quantitative impact analysis • Develop legislative amendment • Start phased-in implementation with parallel and long run-in
16 Impact of upcoming establishment of IIA Hong Kong is currently looking into establishing an Independent Insurance Authority (IIA) to replace the current OCI. The IIA is expected to be financially and operationally independent of the Government. The initiative of establishing the IIA has passed the consultation stage. The next step is to introduce an Insurance Companies (Amendment) Bill into the Legislative Council with a view toward establishing the IIA in 2015. Therefore, the adoption of a new RBC system for Hong Kong is unlikely to take place before then. Concerns from the industry The insurance industry has a number of concerns about the proposed RBC framework: • Operational challenges stemming from the time line and possible approach to the new RBC framework • Priority of the implementation of the new RBC framework after the establishment of IIA in 2015 • Level of details in the primary regulations that might restrict flexibility in the launch of new products • Potential impact on the Hong Kong insurance market The RBC framework could lead to rapid market consolidation, cessation of business among small and midsize insurers, and the exit or withdrawal of international players due to the additional capital needed to meet the new RBC requirements. There are many uncertainties and the potential for major changes in the Hong Kong insurance industry.
Risk-based capital and governance in Asia-Pacific: emerging regulations | 17 India Introduction
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