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In this Fall 2023 edition of Regulatory Insurance Update, the Hong Kong Corporate and Commercial Team provide the latest updates relating to the law and regulations, developments, and news in the insurance industry in Hong Kong.
Insurance industry news and developments
Date: 12 September 2023
Severe weather events, including the recent extensive flooding caused by Super Typhoon Saola in Hong Kong, have caused significant motor damage losses and property losses in Hong Kong. The total insurance claims may exceed the HK$3.1 billion incurred claims due to Typhoon Mangkhut in 2018.
The Insurance Authority (IA) has taken the opportunity to raise public awareness about the need for adequate cover for potential risk exposure whilst reminding insurers to ensure that they have adequate resources available to handle a potential influx of claims and to settle those claims in a transparent, fair and timely manner.
According to an AM Best commentary titled “Hong Kong 1-in-500 Year Flood Likely to Have an Earnings Impact”, the overall impact of the recent rainstorm is expected to reduce insurance companies’ earnings rather than significantly impacting their capital adequacy. The cost of insurance in 2024 is expected to increase and exert additional pressure on reinsurance pricing which is already high. This may make it prohibitively expensive for smaller insurance companies.
Mitigating Factors
In a post-event report published by Guy Carpenter, the infrastructure investments on enhancing the drainage systems by the Hong Kong Drainage Services Department (e.g. modified rivers, flood storage, drainage tunnels and protective embankments) have effectively mitigated damages caused by heavy rainfall, allowing Hong Kong to quickly resume normal economic activities following flooding events. This has also prevented a larger impact on the insurance sector caused by the rainstorm.
Other factors minimising insurance losses include lower inflation rates in East Asia compared to other regions and ongoing supply chain normalisation as the East Asia region recovers from the pandemic.
Link to Insurance Asia article (1)
Link to Insurance Asia article (2)
Link to Insurance Business article
Date: 18 September 2023
On 18 September 2023, the IA introduced the Open Application Programming Interface (API) Framework (Framework) and the Central Register for the insurance sector with an aim to achieving the objectives outlined below.
The objectives of the Framework are to:
- speed up innovation by encouraging information sharing;
- provide guidance to market participants and facilitate Open API implementation;
- facilitate collaboration across sectors and Insurtech development to provide more streamlined financial services to the public;
- capture emerging business opportunities and pioneer open insurance (e.g. accessing and sharing data through APIs to foster digital and open relationships between insurance practitioners and their counterparts); and
- increase global competitiveness of the insurance sector.
The IA also collaborated with Hong Kong Science and Technology Parks Corporation (HKSTP) to develop the Central Register for the insurance industry, which serves as a standardised and trusted online platform to allow authorised insurers, licensed insurance intermediaries and their partnering third-party service providers to manage and introduce their Open API and relevant data to the public. The IA and HKSTP encourage the insurance industry to leverage the Central Register for innovation and partnership and to harness the full potential of Open APIs.
Link to Open Application Programming Interface Framework for the Insurance Sector in Hong Kong
Date: 22 September 2023
HKMC Insurance Limited[1] (HKMCI) introduced changes to the Mortgage Insurance Programme (MIP) for residential properties under construction.
Previously, mortgage insurance under the MIP was only for properties under construction with a property value of up to HK$6 million. To align the eligibility criteria with those applicable to completed residential properties, the following amendments took effect from 22 September 2023:
|
Eligible properties under construction with a property value of: |
Maximum loan-to-value (LTV) ratio |
|
90% |
|
80%, or an LTV ratio derived from a mortgage loan cap of HK$9 million, whichever is higher |
|
70%, or an LTV ratio derived from a mortgage loan cap of HK$12 million, whichever is higher |
These amendments took into account considerations of property market conditions, business and risk factors with the aim of promote home ownership through the MIP.
[1] HKMCI is a wholly-owned subsidiary of the Hong Kong Mortgage Corporation.
Date: 29 September 2023
The IA released the Hong Kong insurance business statistics for 2022. The total gross premiums were HK$538 billion in 2022 (a drop of 7.5% compared to the 2021 figure).
General Business
Against the backdrop of the fifth wave of COVID-19 and subdued economic recovery, total gross written premiums for general insurance increased by 4.5% to HK$64,387 million in 2022. The growth in premium was mainly attributable to the following businesses:
- Accident and Health (growth of 8.3%);
- General Liability (growth of 6.1%);
- Ships (growth of 6.0%); and
- Property Damage (growth of 3.7%).
These were partially offset by a contraction in Pecuniary Loss (drop of 4.2%) and Motor Vehicle (drop of 2.0%) businesses.
Overall underwriting profit increased to HK$4,338 million in 2022 compared to HK$1,720 million in 2021.
Long Term Business
Total office premiums for in-force long term business were HK$473,598 million in 2022 (a drop of 8.9% compared to the 2021 figure).
In particular, the total office premiums of individual life business were HK$424,289 million, representing 89.6% of the total for long term business. This continued to be the dominant line of business albeit a decrease of 8.7% compared to the 2021 figure. The number of policies in this category was 14 million.
As for new individual life business, the total office premiums were HK$127.5 billion (decreased by 16.3%), derived from HK$112.6 billion of non-linked business (decreased by 7.5%) and HK$14.9 billion from linked business (decreased by 51.3%). The number of new policies was approximately 760,000 (decreased by 23.1%).
Link to Annex to the IA press release
Date: 29 September 2023
The IA released Employees’ Compensation (EC) Insurance (Direct Business) and Motor Vehicle (MV) Insurance (Direct Business) Statistics for 2022.
In summary:
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|
Direct EC Insurance |
Direct MV Insurance |
|
Underwriting margin recorded by the top 25 direct insurers in 2022 |
11.2% |
-2.6% |
|
Underwriting margin of the best and worst performers |
44.6% (best) -12.8% (worst) |
27% (best) -56.3% (worst) |
|
Total gross premiums |
HK$7,986 million |
HK$4,947 million (941,068 vehicles being insured) |
|
Total claims (Accident Year Basis) |
HK$192 million |
HK$485 million |
|
Reserve for outstanding claims provision |
HK$6,065 million |
HK$3,046 million |
The Insurance Authority (IA) has taken the opportunity to arouse public awareness about the need for adequate cover for potential risk exposure whilst reminding insurers to ensure that they have adequate resources available to handle potential influx of claims and to settle the claims in a transparent, fair and timely manner.