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Hong Kong's Offerings For RMB Reinsurance Compared

by Mary Swire, Lowtax.net, Hong Kong
19 December, 2014

Hong Kong's Financial Services Development Council (FSDC) has released a report that proposes initiatives to reinforce the territory's position as a leading offshore renminbi (RMB) reinsurance center.

The report notes that there is a huge potential market to be tapped that is said to be worth an additional RMB22bn (USD3.55bn) from insurers in the Greater China region. Meanwhile, the further development of RMB reinsurance services in Hong Kong will help Mainland insurers to diversify their exposure and offer them better access to a wider range of international reinsurance providers and specialist carriers currently based overseas, the report says.

The Chairman of the FSDC, Laura Cha, said, "Hong Kong should act quickly to secure the first-mover advantage to become the leading offshore RMB reinsurance center. This would complete Hong Kong's offshore RMB service offerings, strengthen our position as the premier offshore RMB business center, and further contribute to RMB internationalization."

The limited RMB investment possibilities for offshore reinsurers are found to be one of the major hurdles to fostering growth in RMB reinsurance business in Hong Kong, and the report therefore recommends providing Hong Kong-based reinsurers with a specific RMB Qualified Foreign Institutional Investors bond quota for tapping into the Mainland investment market.

Such an arrangement, it continues, would provide exclusive access for Hong Kong-based reinsurers to the Mainland's onshore bond market and could differentiate Hong Kong from other offshore centers.

The report further points out that creating a competitive tax regime for all types of reinsurance written in Hong Kong – though not a necessary condition - could also help attract international reinsurers to establish a presence and conduct business in the city.

Hong Kong's main competitor, Singapore, levies a 10 percent tax on both life and non-life insurance, compared with Hong Kong's rates of 16.5 percent and 8.25 percent, respectively. Labuan levies a rate of only three percent, and Bermuda exempts the industry.

Singapore also has zero tax rates on certain reinsurance lines, such as both onshore and offshore marine and hull reinsurance and offshore energy, aviation, aerospace, and captive business, and it has a more extensive network of double taxation agreements – 70, against Hong Kong's 31.

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