Territory believes regulatory and tax concessions make convincing case for captive insurance

Hong Kong has been keeping a watchful eye on the growth of Asia’s captive-insurance market for some time. An increasing understanding in the region of the value of captives has led it to act.

The latest move to convince organisations to form captives in the territory is a proposal in the 2013/14 budget to halve the profits tax on the offshore insurance business of captives.

Click here to read the views of regional brokers on Hong Kong’s captive-insurance market.

Acting assistant commissioner of insurance at Hong Kong’s Office of the Commissioner of Insurance (OCI) Tony Chan believes such legislative action will “enhance the competitive edge of Hong Kong in attracting captive insurance companies”.

Good prospects
“We are in the process of the legislative amendment and the tax concessions. We anticipate there will be very good prospects for captive insurance in Hong Kong,” he says.

According to Chan under the Insurance Companies Ordinance (Cap. 41 of the Laws of Hong Kong), regulatory concessions were already in place to provide incentives for multinational conglomerates to establish captive insurers in Hong Kong. “First of all, they have lower minimum pay of capital – currently only HKD2 million,” he said. “They also have a lower policy margin, only 5% of premiums compared to the normal request of 20% of premiums.”

Hong Kong offers an excellent regulatory regime and legal structure, Chan believes, as well as good banking and investment services and strong international reinsurer presence. But perhaps its biggest drawcard is its proximity to mainland China.

Two-pronged attack

When the OCI ran a seminar in Beijing in 2010, in conjunction with the China Insurance Regulatory Commission (CIRC), it had two objectives, says Chan.

“We wanted to promote the regulatory changes in Hong Kong and we also wanted to explain some of the regulatory requirements for setting up captives,” he says.

“At the time, captives were a new concept in China and even the Chinese insurance regulator did not know what was meant by a captive. So we also tried to explain the concept of a captive and to emphasise that it is a good risk management vehicle.”

In June 2012, the Central People’s Government (CPG) announced a series of measures to enhance cooperation between Hong Kong and the mainland.

CPG support

“One of the measures is CPG’s support for mainland enterprises to establish captive insurance companies in Hong Kong,” Chan says. “It is a breakthrough for the CIRC to confirm to us that there will be no policy hurdle for Chinese enterprises to set up captives in Hong Kong. It is a major commitment.”

According to Chan, only one captive is set up in Hong Kong at present, but the OCI has received “a number of enquiries from captive managers as well as from Chinese enterprises”.

Many Chinese conglomerates have undergone overseas expansion in recent years, he says. Setting up captives in Hong Kong could be a good way for them to manage their off-shore risks, reduce insurance costs, increase cashflow and centralise insurance management.

“However, for a Chinese conglomerate to set up a captive, they have to undergo some kind of reengineering of their operations,” Chan says. “This will take time.”

For more information on regulatory concessions for captives in Hong Kong, visit: www.oci.gov.hk/framework/index08_07.html