Hong Kong’s Insurance Authority (IA) is consulting on proposed changes to its risk-based capital framework as the market approaches two years under the new solvency regime, with possible effects on capital planning and product structures for insurers operating in Asia.

Consultation focuses on capital rules and specific exposures

On Feb. 11, the IA launched a public consultation on amendments to the Insurance (Valuation and Capital) Rules (Cap. 41R) following a review of the Risk-based Capital (RBC) Regime introduced in mid‑2024. According to the IA, the proposals are intended to maintain prudential safeguards while adjusting elements of the framework to reflect investment and product developments in the Hong Kong market. The consultation paper sets out proposals in several technical areas relevant to solvency calculations. These include preferential capital treatment for certain infrastructure investments that meet specified eligibility criteria, revisions to required capital amounts for general insurance business, and adjustments related to indexed universal life business. The paper also addresses the treatment of crypto assets and specified stablecoins, reflecting the sector’s growing exposure to digital assets and associated risk considerations.

The IA’s consultation paper is available on its website. Market participants and other interested parties can submit comments by email or post on or before March 10. The regulator has said it will review the responses and publish its consultation conclusions in due course. For regional and multinational insurers using Hong Kong as a base for Asian operations, the outcome may affect internal capital models, product pricing assumptions, and investment allocation policies, depending on how the final rules are calibrated.

Implementation history of the RBC regime

The RBC regime took effect for Hong Kong’s insurance sector on July 1, 2024, following the commencement of the Insurance (Amendment) Ordinance 2023 and related subsidiary legislation and guidelines issued by the IA. The framework replaced the previous solvency margin approach with a more granular assessment of insurers’ risk profiles. At the time of the launch, an IA spokesperson said: “The introduction of the RBC regime will strengthen the financial soundness of insurers in Hong Kong by taking a modular approach for an assessment more sensitive to each insurer’s risk profile while providing closer alignment with international standards. Its implementation marks a significant milestone for the insurance industry, enhancing protection for policy holders and solidifying Hong Kong’s role as a global insurance hub.” Since passage of the Insurance (Amendment) Bill 2023, the IA has worked with industry representatives on the detailed rules and guidance underpinning the regime. The current consultation is the latest step in that process as the authority reviews the operation of the framework and its interaction with changing market conditions and product offerings.

Structure and requirements under the three-pillar framework

Hong Kong’s RBC regime is organised around three pillars covering quantitative requirements, qualitative risk management expectations, and reporting and disclosure obligations. Pillar 1 sets out quantitative rules, including valuation standards, capital quality criteria, and capital requirements. Under Part 4 of the Insurance (Valuation and Capital) Rules, insurers must value assets and liabilities, including insurance liabilities, on a market‑consistent basis. Capital resources are classified into Unlimited Tier 1, Limited Tier 1, and Tier 2 capital, with limits on the amounts of Limited Tier 1 and Tier 2 that can be included in the capital base.

With the exception of marine insurers, captive insurers, special purpose insurers, and Lloyd’s, insurers must maintain a capital base at or above three thresholds: the prescribed capital amount (PCA), the minimum capital amount (MCA), and HK$20 million. The PCA is calculated by aggregating capital charges across risk modules and sub‑modules covering market risk, life insurance risk, general insurance risk, counterparty default and other risk, and operational risk, with recognition of diversification effects among those risks.

Pillar 2 addresses qualitative requirements. Under the Guideline on Enterprise Risk Management (GL21), authorised insurers must maintain processes to identify, monitor, manage, and mitigate risks, and must conduct an own risk and solvency assessment (ORSA). Each insurer is required to submit an ORSA report to the IA at least once a year, setting out its assessment of its risk profile and capital needs in relation to its strategy and risk appetite.

Pillar 3 covers regulatory reporting and public disclosure. The Insurance (Submission of Statements, Reports and Information) Rules (Cap. 41S) specify the information that insurers must submit to the IA, such as financial statements, regulatory returns, auditors’ reports on those returns, and actuarial investigation or review reports. The IA has indicated that the detailed public disclosure requirements under the RBC regime will be developed further and issued for consultation at a later stage. For insurance professionals in Asia, the ongoing development of Hong Kong’s RBC framework, including the current consultation on valuation and capital rules, forms part of a broader shift toward risk-based solvency regimes in key regional markets and may factor into group-wide capital and risk management strategies.