With 86 non-life insurers competing in a market posting low-to-mid single-digit growth over five years, Hong Kong’s latest capital proposals may accelerate insurers’ shift toward offshore opportunities.
A consultation paper released by the Hong Kong Insurance Authority (HKIA) outlines revisions to required capital calculations under the Risk-Based Capital (RBC) regime, including the treatment of offshore reinsurance business. The consultation follows the introduction of the RBC framework on July 1, 2024.
According to AM Best, the proposed adjustments are credit positive for Hong Kong’s non-life sector, with domestic insurers expected to see improved capital efficiency and the potential to pursue business outside the local market.
A central proposal allows eligible Hong Kong insurers, including designated entities within non-Hong Kong insurance groups, to apply for the exclusion of offshore non-life reinsurance business from prescribed capital calculations.
The proposal forms part of a broader review of the Insurance (Valuation and Capital) Rules (Cap. 41R), launched in February, which may affect capital planning for insurers operating in Hong Kong and across Asia.
“By better aligning capital standards with local market characteristics and maintaining international prudential benchmarks, the HKIA is trying to balance the non-life segment’s sustainable development with policyholder protection,” said James Chan, director at AM Best.
Alongside offshore treatment, the HKIA is proposing to scale back certain prescribed natural catastrophe risk factors and allow greater diversification benefits across selected markets in the Greater China region.
The consultation also includes technical updates to capital requirements for general insurance business and addresses additional areas such as infrastructure investments, crypto assets, and specified stablecoins, based on regulatory disclosures. These elements form part of a wider review of how risks and assets are treated under the capital framework.
The RBC regime operates on a three-pillar structure covering quantitative requirements, risk management, and disclosure. Under Pillar 1, capital requirements are determined by aggregating risk charges across modules, including market, insurance, counterparty, and operational risks, with diversification effects recognized.
The framework requires insurers to maintain capital above the prescribed capital amount (PCA), the minimum capital amount (MCA), and a baseline threshold of HK$20 million, with capital classified into tiers based on quality. Insurers are also required to conduct an own risk and solvency assessment and meet regulatory reporting requirements.
An RBC readiness survey published by Deloitte prior to implementation indicated that more than half of respondents expected to raise capital to meet requirements, while 80% anticipated revising reporting processes. The survey also pointed to gaps in enterprise risk management frameworks and preparedness for own risk and solvency assessment processes.
AM Best said Hong Kong’s direct non-life insurance segment remains fragmented, with 86 pure non-life insurers as of September 2025. Growth has remained in the low-to-mid single digits over the past five years, influenced by economic conditions and slower activity in mainland China.
Within this environment, the proposed solvency framework adjustments could act as a catalyst for insurers assessing opportunities outside Hong Kong, particularly for companies with strong capitalization, underwriting capability, or parental support.
“As a result, we view the proposed solvency framework adjustments as a catalyst for insurers, especially for domestic direct insurers who are equipped with strong capitalization, robust underwriting know-how, or favorable parental support, to pursue growth opportunities outside the local market,” said Christie Lee, senior director at AM Best.
The consultation on the proposed amendments is open for feedback until March 10. The HKIA is expected to review submissions and publish its conclusions, which may influence how insurers manage capital and structure operations across domestic and offshore markets.
