Hong
Kong offers an excellent environment for insurers
and reinsurers amidst a global trend of convergence
among financial services industries with its
sophisticated capital markets and concentration
of fund managers. Being a leading insurance
centre in Asia, Hong Kong has attracted many
of the world's top insurance companies. The
insurance industry had a stock of US$ 4.1
billion in foreign direct investment as at
end-1998. Hong Kong has the largest number
of authorised insurance companies in Asia.
The industry has also built up a critical
mass of professionals.
As
at 31 August 2004, there were 181 authorized
insurers in Hong Kong, of which 117 were pure
general insurers, 45 were pure long-term insurers
and the remaining 19 were composite insurers.
Total gross premiums grew by 14.6% during
2003 to HK$102.0 billion, representing 8.3%
of the Hong Kong Gross Domestic Product.
According
to figures released by the Census & Statistics
Department, the business receipts of all service
industries in Hong Kong rose in value in the
third quarter 2007, over the same period in
the previous year.
Among
them, finance-industry business receipts rose
100.1%, and those for insurance industries
41.8%.
Taking
advantage of a more liberal regional insurance
market after the 1990s financial crisis in
Asia, many foreign insurers and reinsurers
have positioned to expand their market share
in the region. The accession of China to the
WTO has accelerated the process.
A number of foreign insurers and reinsurers
have newly announced to expand their regional
operations in Hong Kong to cater for the development
of the regional insurance market (as well
as the MPF market in Hong Kong). Mainland
affiliated companies are also linking up with
foreign insurers in Hong Kong to cater for
the mainland business.
A large number of insurers are incorporated
overseas, and most of these are in the general
business sector. Among the overseas incorporated
insurers, the US and the UK hold the lead.
Big players have a dominant presence in the
market. The top 10 insurers take more than
one third of the general insurance market,
and the top 10 long term insurers ahave more
than 80% of the long term insurance market.
Short-term
prospects for the insurance industry are enhanced
by the sharp recovery of regional economic
activities and the launching of the Mandatory
Provident Fund (MPF) scheme (which began collecting
contributions in December 2000). The MPF scheme
is estimated to inject an extra of US$4-5
billion a year of retirement funds for the
next 30 to 40 years until the system matures.
Insurance companies will play a vital role
in not just administering the MPF, but also
operating master trusts and directing funds
to various external fund managers.
Hong
Kong’s insurance sector was given a stable
outlook by ratings agency Standard & Poor’s
in August 2004, although the firm warned that
consolidation was likely in the territory's
fragmented industry. S&P observed that the
local insurance market has been resilient
amid the economic downturn and has survived
intense competition, volatile markets and
the outbreak of SARS in 2003.
Whilst ratings on local insurance firms are
unlikely to come under downward pressure,
S&P warned that smaller companies without
a sustainable and defendable niche may be
squeezed out. “Perhaps
the most obvious defect afflicting both sides
of the broader industry in Hong Kong is the
disparity between the larger and the smaller
operators,” noted managing director Ian Thompson.
“Both
the life and the non-life sectors in the territory
are overcrowded and smaller companies that
cannot find their own niche may find themselves
pushed out of the market,” he observed.
Asia,
in particular China, continues to be viewed
by global insurers and reinsurers as the region
most likely to provide growth in the longer
term and help balancing international risk
concentrations away from Europe and North
America. Exemplifying this trend, the French
AXA Group, the biggest insurance company worldwide,
established its Asia Pacific headquarters
in Hong Kong in a bid to tap into what it
calls tomorrow's insurance market.
Hong
Kong is relatively new to the concept of captive
insurers - companies set up so that the parent
company can insure its own risk, keeping the
insurance premiums within the group structure
- but the Office of the Commissioner of Insurance
has been actively promoting Hong Kong as an
excellent environment for captives from mainland
China, citing a well-developed infrastructure,
advanced telecommunications, the rule of law,
independent judicial power and an efficient
workforce. With the enactment of the Insurance
Companies (Amendment) Ordinance 1997 on May
1 1997, concessions are well in place in the
territory's regulatory framework to provide
incentives for multinational conglomerates
to establish their captive insurers in the
SAR.
In
April 2004 a row developed between Hong Kong's
insurance industry and the Inland Revenue
Department over a provision contained in new
International Accounting Standards Board rules
which could exempt some investment-linked
insurance products from tax.
Currently,
the Hong Kong government imposes a standard
profits tax of 17.5% on 5% of the aggregate
annual premium income of such insurance products.
However, under Rule IFRS4, set to come into
force next year, policyholder contributions
to investment-linked products are not classified
as premium income.
Insurance
firms argue that therefore, under Hong Kong
law, policyholder contributions (which will
exceed $16 billion in 2005) should be exempted
from tax when the new rules come into effect.
PricewaterhouseCoopers tax partner, Tim Lui
Tim-leung predicted that: "Both sides will
stand firm. The government stands to lose
a huge source of tax income, while the insurance
companies could add an equivalent amount to
their bottom lines."
