Recent policy changes and industry-led developments are positive steps for Hong Kong’s insurers and should encourage more international firms to relocate their headquarters to the city.
It’s little wonder that Asia Insurance’s Hong Kong Chief Executive Officer, Winnie Wong, describes the local market as crowded. No fewer than 160 separate insurance firms have operations in the city, offering an array of services with their extensive skills, exceptional regional experience and long-established global networks. However, she says, a number of them have been relocating their headquarters elsewhere.
As the gateway to Belt and Road investments, Hong Kong’s experienced professional services within the insurance industry are an essential part of the investment process, from preventing risk before a contract is signed, to bankability and ensuring the long-term success of each project.
For Wong, it’s all about finding solutions. “People always talk about risk, but insurance is actually the solution. I’m a very positive person, and I think that if we position ourselves well, Hong Kong insurers will be known for our solutions. We are very close to Belt and Road decision makers but we’ve not been promoting ourselves correctly.”
Wong believes two new developments in particular are likely to give Hong Kong’s industry a boost. These include a recent joint agreement with the Chinese mainland which Wong describes as a “game-changer” and a new initiative by Hong Kong’s Insurance Authority (IA) to connect Belt and Road investors with local industry experts.
Stronger ties reduce risks
In July 2018, the IA and the China Banking and Insurance Regulatory Commission (CBIRC) agreed to give preferential treatment to mainland insurers ceding business to Hong Kong-based reinsurance companies, under the China Risk Oriented Solvency System (C-ROSS) agreement.
The official announcement stated: “CBIRC supports Hong Kong being the (Chinese) mainland’s overseas risk management platform to assist mainland enterprises in going global…. The preferential factor under C-ROSS will be applicable to high-quality Hong Kong reinsurers, which will foster the development of the reinsurance business in Hong Kong.”
The move has obvious benefits. China’s investors will gain greater access to insurers with extensive regional knowledge and the ability to help them better mitigate risk in Belt and Road infrastructure and investment projects, and it will also strengthen Hong Kong’s position as the reinsurance hub of Asia.
Wong says this development now gives Hong Kong a competitive edge over other Asian insurance hubs such as Singapore. This is because the new category for Hong Kong places it as close to “onshore” as possible. Under C-ROSS, the capital requirement for Hong Kong-based reinsurers to do business with the Chinese mainland would be lower than other “offshore” countries and regions. This would therefore increase the competitiveness and attractiveness of Hong Kong as a reinsurance hub for the region.
The decision is also important for China’s state-owned enterprises (SOEs) and large private corporations which she points out have sometimes underestimated the risks involved in emerging markets. Violations of local requirements and problems in claims have proved costly to these entities.
Moving in the right direction
From an investor’s perspective, finding solutions to risk involves a number of steps, according to Wong. These include:
- Risk awareness
- Risk identification
- Risk mitigation
- Risk transference – deciding which risks will be transferred to an insurer or risk manager
- Risk retention – deciding on the degree of risk an investor is comfortable to retain in-house
As part of its strategy to position Hong Kong as a risk management centre, the IA recently released plans to launch an insurance facilitation platform to connect Belt and Road investors to local insurers, reinsurers, insurance brokers and related professional service providers.
As well as providing connectivity, the IA hopes this will strengthen the local industry by encouraging more corporates to place their insurance and reinsurance in Hong Kong. Wong says the IA has been very responsive, and is actively consulting with the industry to explore opportunities for education, promotion and networking.
Strength in unity
Not all of Hong Kong’s insurance initiatives are being driven by government or government agencies. For example, Wong and a panel of local insurers and reinsurers formed the Hong Kong China War Risk Syndicate in 2017, to assess the impact armed conflict would have on shipping and maritime investments.
Other such panels could be formed to find solutions for political risk (since without political risk cover it is difficult to get funding from banks in some jurisdictions), terrorism, cyber security and cyber liability, kidnap and ransom as well as construction risks, and to devise tailor-made solutions to warranty and indemnity. Given the size of Hong Kong’s industry, finding solutions to such a diverse range of risks would need independent oversight.
“No single company in Hong Kong can lead this sort of initiative, so we need the Insurance Authority to take the lead,” Wong says. Given the recent innovative developments and support being shown by the Chinese mainland and local authorities together with industry drivers such as Winnie Wong, it seems Hong Kong’s insurers are setting the pace in helping to find effective solutions and limit corporate risks posed by Belt and Road investments.
