Hong Kong’s Financial Services Development Council has called for the Government to take action to boost the territory’s aspirations to be an insurance hub.
In a paper entitled “Turning Crisis into Opportunities: Hong Kong as an Insurance Hub with Development Focuses on Reinsurance, Marine and Captive” the industry body warns that “Hong Kong is facing serious challenges and is lagging behind its main competitors in may areas, especially reinsurance, marine and captives.”
The position of Hong Kong as Asia’s reinsurance centre was lost to Singapore after 1997, suggests the paper, with the number of captives and volume of reinsurance and marine business growing significantly in the Lion State over the last 20 years.
As the world’s second largest reinsurer, the recent departure and/or downsizing of Munich Re in Hong Kong is seen as a major blow that could be repeated by other companies in the near future if action is not taken, the FSDC said.
Risks closer to home include the introduction in January 2016 of the China Risk Oriented Solvency System that is expected to have an adverse impact on Hong Kong insurance business. The push to strengthen local capital requirements, risk management and transparency, C-ROSS aims to bring Mainland China in line with or above global standards. Hong Kong is made vulnerable because the framework imposes higher capital charges on local insurers in Mainland China who purchase offshore, including Hong Kong based, reinsurance than if the local insurer purchase reinsurance inside Mainland China.
In order to remedy what FSDC perceives of as failures within the present Hong Kong insurance regime it recommends first:
That the Hong Kong Government seek an agreement with the Chinese Insurance Regulatory Commission to apply a Special Administrative Region status to Hong Kong under C-ROSS.
“Hong Kong is currently grouped ‘offshore’ with all other non-Chinese jurisdictions. This would involve creating a new category between ‘Onshore’ and ‘Offshore’,” says the report.
“This amendment is our highest priority for stopping further loss of business and talents to the other regional financial centres and for re-routing insurance business from other offshore centres to Hong Kong.
“Through this SAR status, some preferential treatment to domestic insurers and reinsurers can be extended to companies with SAR status, so that (i) Hong Kong companies can develop together with the insurance and reinsurance business in Mainland China, (ii) Mainland Chinese companies can enjoy the comprehensive range of sophisticated corporate insurance products and risk transfer solutions offered by Hong Kong insurers in their Belt and Road businesses, and (iii) The insurance authorities in Mainland China and Hong Kong can make some joint efforts to develop cooperative oversight, especially for businesses relating to the Belt and Road Initiatives to maintain financial stability and customer protection,” the report adds.
Tax incentives are also seen as vital, including a plan to extend the current offshore reinsurance tax incentive to direct insurers in respect of their business.
The report calls for tax incentives to insurers of marine hull and liability policies; similar incentives to brokers to encourage the placement of business in Hong Kong; the provision of tax concessions to Hong Kong registered/flagged shipowners who take insurance policies from Hong Kong insurers. It is also hoped that tax incentives may be offered to Hong Kong insurers who place their reinsurance business with Hong Kong registered reinsurers.
There is an urgent need to speed up the negotiations of Double Taxation Agreements, something the shipping community has been urging for many years.
In terms of regulation, fast tracking the implementation of a risk based capital regime tailored for Hong Kong is recommended.
Finally, looking to the next generation FSDC presses the need for specific insurance courses to be made available in tertiary institutions and for the Continued Professional Development programmes to be augmented and enhanced.
All in all, the FSDC report amounts to a substantial wish list. Just what can be achieved is uncertain. It is true that with the establishment of the Hong Kong Maritime and Port Board in April 2016, a new sense of purpose on behalf of government has been detected. Just over a week ago HKMPB delegates met senior members at Lloyd’s in London to explore deeper cooperation.
Hong Kong Maritime Week, first instituted last year as Hong Kong Maritime Industry Week by HKMPB, is set to run again in November this year and is seen as a major international showcase of the marine industries including insurance. But tax incentives in a territory where the light hand of government has historically been seen as a virtue may be interpreted as a dangerous precedent.