Insurance Bulletin - Hong Kong Autumn 2025

Insurance Bulletin, Autumn 2025 – In their regular Insurance Bulletin, RPC's Hong Kong Corporate & Regulatory Insurance team review some topical and regulatory developments in Hong Kong's insurance industry.

Offshore Insurance Products in Focus

Hong Kong’s insurance market is served by more than 150 authorized insurers, offering a wide range of coverage options. Nonetheless, some policyholders look to offshore insurers for niche products or competitive features. Licensed insurance broker companies play a crucial role in advising clients on these offshore options and the regulations surrounding the placement of these products often arises.

Background

Under the Insurance Ordinance (Cap. 41), only authorized insurers may carry on insurance business in or from Hong Kong. Offshore insurers fall outside HKIA’s direct supervision, which is why brokers must apply heightened due diligence and disclosure when advising on such products. The "Code of Conduct for Licensed Insurance Broker Companies" makes these obligations clear – brokers must act in the best interests of clients, avoid conflicts of interest and maintain proper documentation.

Disclosure Requirements

When presenting offshore products, brokers are required to disclose the identity and regulatory status of the offshore insurer, its financial standing, the governing law and the jurisdiction for dispute resolution. Written acknowledgement of these disclosures must be obtained from clients. Beyond disclosure, brokers must explain the risks inherent in offshore policies – from claims handling limitations and foreign exchange exposure to tax implications, political uncertainties and solvency concerns. Suitability assessments must be thorough, advice must be documented, and due diligence must be rigorous.

Takeaway – The requirements on keeping policyholders fully informed are crucial. Failure to meet these obligations may result in regulatory action, including suspension or revocation of license, fines, or public reprimand. Notably this topic has been addressed specifically in the HKIA's most recent "Conduct in Focus" bulletin (which we look at further, below). Internationally, this approach aligns Hong Kong with practices in markets such as Singapore and the UK, where transparency and suitability are central to regulatory expectations.

HKIA Issues Practice Note on Remuneration Structures and Commission Spreading for Participating Policies (Effective from 2026)

On 30 July 2025, the HKIA issued a "Practice Note on Remuneration Structures of Authorized Insurers for Licensed Insurance Intermediaries for Participating Policies" (Practice Note). This guidance applies to long-term participating policies with regular premium payment terms and supplements existing requirements under the "Guideline on Underwriting Long Term Insurance Business" (GL16).

Key Requirements

• Commission cap: No more than 70% of total commission may be paid in the first policy year.
• Spreading rule: The remainder must be paid evenly over 5 years, or the full premium term if shorter.
• Encouragement to exceed minimums: HKIA urges insurers and intermediaries to adopt even more conservative structures (e.g., lower upfront commission or longer spreading) to strengthen policyholder protection.
• Governance obligations: Insurers must ensure fair allocation of costs, clear profit-sharing frameworks, proper segregation of assets and maintain records of non-financial performance metrics for at least seven years.

Exceptions

The spreading requirement does not apply to:

• Overriding commissions for agent managers, if based on objective non-financial metrics.
• Bonus commissions tied to persistency, product mix, or customer feedback.
• Fixed remuneration packages not linked to policy sales.
• Bancassurance commissions (subject to GL16).
• Policies purchased by professional investors.

Impact

Participating policies are singled out because of their long-term nature and profit-sharing features, where fair remuneration is critical to protect policyholders. The new rules aim to reduce misaligned incentives, improve post-sale servicing and enhance transparency.

Internationally, Hong Kong’s approach aligns with global trends: the UK emphasizes commission disclosure, while Singapore has introduced remuneration guidelines to curb aggressive sales practices. Hong Kong’s framework positions it as a jurisdiction committed to consumer-centric regulation.

Implications for Insurers and Intermediaries

• Operational recalibration: Commission frameworks must be revised, compliance protocols updated and non-financial metrics documented.
• Record-keeping: Firms must maintain evidence of compliance for seven years.
• Next steps: Review existing contracts, update governance manuals, train intermediaries and monitor further regulatory developments.

Takeaway – This Practice Note marks a significant step towards aligning intermediary incentives with policyholder interests. Insurers and intermediaries should review and adjust commission structures, strengthen governance and prepare for implementation of the Practice Note on 1 January 2026. It also ties in with the HKIA circular on Benchmark Referral Fees Requirements (September 2025) – this again aims to curb aggressive remuneration practices that prioritize sales over long-term servicing. We have written on this previously [here].

Captive Insurance: Hong Kong's New Momentum

Hong Kong has stated its aim of becoming a leading hub for captive insurance in Asia. In 2025, the HKIA approved two new captive insurers: Wayfoong (Asia) Limited and SAIC Motor Insurance Limited. These approvals are a positive market response and demonstrate momentum in the sector.

To attract more local and foreign enterprises to form captives in Hong Kong, a continuing incentive is available: since FY 2013/14, captives benefit from a 50% reduction in profits tax on insuring offshore risks. This long-standing concession remains a cornerstone of Hong Kong’s competitive offering.

Captive Insurance: What and Why?

Captive insurance is typically a tool used by multinational companies for tailored risk management and to reduce premiums otherwise paid to external insurers. Captives allow groups to retain control over their risk financing, improve cash flow and potentially access reinsurance markets directly.

The legal definition of "captive insurer" under Cap. 41 is a company authorised to carry on general insurance business only, with restrictions that its business must not cover compulsory insurance risks and is limited to insuring or reinsuring risks within its corporate group.

Set-up: Process and Regulatory Requirements

To establish a captive, the holding company must first apply to the HKIA for approval. Adequate information must be provided for HKIA to consider giving an "approval-in-principle". Upon full compliance with the requirements set out in the "approval-in-principle" letter (e.g., to establish a fully-fledged office and have the necessary capital in place) formal authorisation will be given. The approval process usually takes around three months.

The key regulatory requirements for captives sit within the Insurance (Marine Insurers and Captive Insurers) Rules, which prescribe a dedicated capital regime. Unlike commercial insurers, which must comply with complex solvency requirements, captives benefit from a simplified calculation method based on net premium or relevant claims outstanding. The capital base of a captive must be no less than HK$2,000,000, but it is not required to hold assets in Hong Kong – an attractive feature for multinational groups.

Risks and Considerations

While captive insurance offers many benefits, the HKIA has highlighted several risks for companies to consider. These include the need for enhanced corporate governance and risk management, as captives must be able to handle claims and maintain adequate reserves. The risk of regulatory non-compliance may also lead to penalties or a revocation of the captive's license. Companies must ensure transparency, maintain robust internal controls and regularly review their risk profiles.

Clear regulatory guidelines are welcomed by the market and provide a solid foundation for growth. Companies considering this route should assess the regulatory requirements and risks and seek professional advice where needed.

Takeaway – Hong Kong’s regime is designed to be straightforward and cost-efficient. Compared with Singapore, which has a more established captive market but stricter solvency requirements, Hong Kong offers a lighter regulatory burden and tax concessions. Labuan (Malaysia) also provides a competitive environment, but Hong Kong’s proximity to mainland China and its role as an international financial centre give it a unique advantage for Chinese and regional enterprises.

Some Key Regulatory Takeaways from Insurance Authority's "Conduct in Focus" Issue 11

The Hong Kong Insurance Authority (HKIA) has released Issue 11 of its "Conduct in Focus", touching on, among other topics, the rise in complaints in the first half of 2025.

Rise in Complaints

The HKIA reported a 33% increase in complaints in the first half of 2025, with 593 cases compared to 445 in the same period of 2024. Much of this was driven by policy actions such as cancellations, surrenders, renewals and administrative matters.

Early surrender requests in long-term policies remain particularly sensitive. These transactions often involve significant financial loss to policyholders. Insurers are required to apply rigorous checks to ensure decisions are informed and to manage anti-money laundering risks. While these procedures are necessary safeguards, they can frustrate policyholders if not explained clearly. The HKIA has emphasised that effective communication and efficient processing are key to reducing grievances.

Despite the short-term rise, the longer-term picture is more positive – during the past five years, complaints have trended downward compared to pre-pandemic levels, reflecting improvements in market conduct and consumer protection.

From a regulatory perspective, insurers are required by the "Guideline on the Corporate Governance of Authorised Insurers" (GL10) to establish clear policies and procedures to ensure all complaints are properly handled, including accessibility, proper record keeping, time frame and monitoring, and to resolve disputes with customers in a fair manner. The recent rise in complaints highlights the importance of strict adherence to these obligations, as poor complaint handling can itself become a regulatory breach and a focus for regulators.

Takeaway – The HKIA’s Conduct in Focus Issue 11 delivers clear messages. Insurers must communicate more proactively and clearly when handling policy actions, especially sensitive matters like early surrenders and must establish clear complaint handling policies and procedures.

This highlights the regulator’s continued push for a consumer-centric market. For insurers and intermediaries, the regulatory and compliance path forward is clear: strengthen governance, train staff and ensure that every interaction with policyholders is transparent, compliant and professional.

Final Aside – AML high on the regulatory radar 

Hong Kong's next assessment by the Financial Action Task Force (FATF) – the intergovernmental body responsible for assessing countries or jurisdictions compliance with anti-money laundering and counter-terrorist financing global standards (AMLCTF) – is due (at the time of writing) in the second half of 2029, followed by the FATF's "mutual evaluation" report in 2030. In the run up to that, all regulators for the financial industry and designated non-financial businesses and professions in Hong Kong are expected to show increased focus on regulated entities and individuals' compliance with customer due diligence and record-keeping requirements and AMLCTF laws and regulations. The HKIA conducts routine "AML/CFT Onsite Inspections" to ascertain standards of AMLCTF compliance across the Hong Kong insurance market. The HKIA's AMLCTF regulatory focus is on all authorised insurers carrying on long-term business and licensed insurance intermediaries carrying on regulated activities in respect of long-term business, to ensure that they (among other things) maintain effective AMLCTF controls and procedures and take all reasonable measures to mitigate money laundering and terrorist financing risks. Authorised insurers and licensed intermediaries should expect more regulatory focus on AMLCTF and be prepared for that.

Contact Us

 Please contact Andrew, Beverly or Heidi if you have any queries regarding the issues raised in this publication or if you wish to consider commercial law or insurance matters in Hong Kong.

With thanks to Kylie Tang who assisted with the preparation of this publication.