Hong Kong won’t be celebrating the new year with its traditional firework show (due to “safety concerns” amid the continuing protests), but 2020 will nevertheless start with a bang for the city’s insurance sector.
The reason for optimism is chief executive Carrie Lam’s promise last week that legislation enabling insurance-linked securities (ILS) would be signed into law in the first quarter.
“Let’s work together for Hong Kong, and recreate a united community and a flourishing economy.” Carrie Lam, chief executive, Hong Kong.
Speaking at the Asian Insurance Forum, Lam acknowledged the social unrest and “sometimes horrific violence” that has haunted Hong Kong during the past six months and asked for the industry’s support to get the city back on track in the new year.
“Stopping violence and restoring public order remains our top priority now, and that requires a joint effort by all of us,” she said. “Let’s work together for Hong Kong, and recreate a united community and a flourishing economy.”
That’s a tall order, but it is hoped that turning Hong Kong into an ILS-friendly jurisdiction will at least attract new business to the city. The ILS legislation will enable the creation of special purpose vehicles that can issue catastrophe bonds, mortality bonds, industry loss warranties, sidecars and other collateralised insurance and reinsurance products.
UnaffectedMuch will rest on how Hong Kong’s government resolves the unrest among its citizens, though the protests haven’t significantly affected the general insurance sector yet. Figures released by the Insurance Authority show that gross premiums were up 11% for direct insurers and 5% for reinsurers during the first three quarters. And those figures are broadly the same for the third quarter alone, which coincided with the start of the unrest — direct premiums were up 12% and reinsurance premiums 4% between July and September, compared to the same period in 2018.
“My government is determined to help the industry seize these outsized opportunities,” Carrie Lam, chief executive, Hong Kong.
Of course, the fourth quarter may tell a different story as the protests have become more entrenched, with many businesses forced to take the unrest into account as they plan for 2020. On the other hand, the small third-quarter bump was led by a rise in property damage and that may be repeated.
China hubDespite the protests, the government continues to place great hope in ever-closer integration with the mainland, principally through the Guangdong-Hong Kong-Macau Greater Bay Area development, which Lam said presents huge potential for the insurance sector as it supports Hong Kong’s role as a risk-management centre.
Three new insurance-focused policy measures were decided during a plenary meeting for the project in November, including the central government’s support for mainland insurance companies to issue catastrophe bonds, which could eventually see Hong Kong emerge as a leading global centre for the issuance of Chinese ILS.
“My government is determined to help the industry seize these outsized opportunities,” said Lam. “Our goal is to introduce the relevant legislative amendments into the Legislative Council early next year.”
There is clearly demand for Asian risks among ILS investors, as evidenced by the success of the landmark deals issued in Singapore this year, and the sector has proven its mettle after absorbing some significant losses. This year will see less issuance than 2018, but the US$1.42 billion of catastrophe bond and ILS issuance during the past quarter is the third highest quarterly performance of the past decade, according to Artemis, demonstrating that the sector remains resilient.
Lam also continues to pitch the Belt and Road initiative as a potential source of business for Hong Kong insurers and reinsurers, announcing plans to introduce new rules for captive insurers into LegCo in the first quarter of 2020.
Tax cutPerhaps more significantly, Lam also announced a half-rate profits tax for captives, reinsurers and marine underwriters that she said would be introduced into LegCo this week. Belt and Road business is long-promised and little-seen, but a 50% tax discount is at least tangible. Whether it will encourage business to the city is another matter.
Hong Kong’s plans to revitalise the insurance sector and promote ILS have been in the works for a couple of years, and as they come to fruition in 2020 the Insurance Authority will be hoping that they have the desired effect.
As for Hong Kong’s broader outlook, Lam ended by saying that the future depends on mutual trust, concluding: “Once we’ve re-established that, we’ll be on our way again.”

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