Authorization Requirements

Any company interested in carrying on insurance business in or from Hong Kong may apply to the Insurance Authority ("IA") for authorization to do so under the Insurance Companies Ordinance (Cap. 41) ("ICO").

A "company" for the purposes of the ICO is one formed and registered under the Companies Ordinance (Cap. 32) and includes a company incorporated outside Hong Kong to which Part XI of the Companies Ordinance applies. Part XI of the Companies Ordinance lays down provisions as to the establishment of a place of business in Hong Kong by a company incorporated outside Hong Kong.

Section 6 of the ICO prohibits any person from carrying on insurance business in or from Hong Kong except an authorized insurer, Lloyd's or an association of underwriters approved by the IA.

Authorization to carry on insurance business in or from Hong Kong will only be granted to those insurers who meet the authorization requirements stipulated under sections 8(2) and 8(3) of the ICO, which focus on, among other things, the following aspects:

Capital Requirement

The minimum paid-up capital is currently HK$10 million, or HK$20 million for a composite insurer (i.e. carrying on both general and long term business) or for an insurer wishing to carry on statutory classes of insurance business or HK$2 million for a captive insurer.

Solvency Requirement

An insurer shall maintain an excess of assets over liabilities of not less than a required solvency margin. The objective is to provide a reasonable safeguard against the risk that the insurer's assets may be inadequate to meet its liabilities arising from unpredictable events, such as adverse fluctuations in its operating result or the value of its assets and liabilities.

There are separate provisions for a general business insurer, a long term business insurer and a captive insurer :

• General Business Insurer
  The solvency margin is the greater of :
  • one-fifth of the relevant premium income up to HK$200 million, plus one-tenth of the amount by which the relevant premium income exceeds HK$200 million; or
  • one-fifth of the relevant claims outstanding up to HK$200 million, plus one-tenth of the amount by which the relevant claims outstanding exceeds HK$200 million.
  subject to a minimum of HK$10 million, or HK$20 million in the case of insurers carrying on statutory classes of insurance business.
  
  
• Long Term Business Insurer
  The solvency margin is determined by the greater of :
  • HK$2 million; or
  • an amount specified under the Insurance Companies (Margin of Solvency) Regulation 1995 (which is generally 4% of the mathematical reserves and 0.3% of the capital at risk).
    
    
• Captive Insurer
  The solvency margin is determined by the greatest of :
  • 5% of the net premium income; or
  • 5% of the net claims outstanding; or
  • HK$2 million.

Fitness and Properness of Management and Shareholders

The ICO requires that any person who is a director or controller of an insurer must be "fit and proper" to hold such position. Prior approval of the IA is required under sections 13A or 13B for the appointment of certain controllers, including the chief executive of an insurer. In applying the fit and proper test, the IA will take into account, among other things, the character, qualifications and experience of the directors or controllers of the applicant company.

To enhance transparency of this regulatory requirement, the IA has issued a Guidance Note on "Fit and Proper" Criteria under the ICO for the information of all parties concerned. The Guidance Note sets out those factors that the IA will take into account in administering the said requirement.

Please click here [PDF] to download a copy of the Guidance Note.

Adequacy of Reinsurance Arrangements

The ICO requires that adequate arrangements are in force, or will be made, for the reinsurance of risks of those classes of insurance which are to be carried on by the insurer.

Besides, an insurer applying for authorization must meet certain other conditions as set out in the Authorization Guidelines ("the Guideline") [PDF] issued by the IA, which seek to ensure that the applicant insurer is financially sound and competent to provide an adequate level of services to the insuring public. These conditions continue to apply to an insurer after its authorization. The requirements set forth in Item 11 of the Guideline apply to all applicants, whether incorporated locally or overseas. A company applying for authorization to carry on long term insurance business in or from Hong Kong must also meet the requirements set forth in Item 12 of the Guideline. An applicant which is a company incorporated overseas must further meet the requirements set forth in Item 13 of the Guideline. However, an overseas applicant may, if it so chooses, incorporate a subsidiary company in Hong Kong for the purpose of the application, in which event the additional requirements set forth in Item 13 of the Guideline will not apply.

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