D-DAY: Commencement of a New Era of Insurance Regulation in Hong Kong

D-DAY: Commencement of a New Era of Insurance Regulation in Hong Kong

D-DAY: Commencement of a New Era of Insurance Regulation in Hong Kong

Monday, 22 May 2017 16:26

by Greg Crichton and Adelina Wong


Effective on June 26, 2017 (“D-day”), the Hong Kong independent Insurance Authority (“IA”), will take over the duties of the existing Office of the Commissioner of Insurance (“OCI”) relative to the regulation of authorised insurers in Hong Kong, and the OCI will be disbanded. This take-over has been two years in the making, starting with enactment of the Insurance Companies (Amendment) Ordinance 2015 (“ICAO 2015”) in July, 2015.

The ICAO 2015 provided for a three stage transition under which a new regulator (independent of industry and the government) would take over the OCI’s functions, and assume and exercise new statutory powers over both insurance companies and insurance intermediaries. D-day marks the completion of the second stage, with the IA replacing the OCI to take over the regulation of authorised insurers. Thereafter, the IA is expected to take over the licensing and regulation of insurance intermediaries from the three intermediary self-regulatory organisations within 2 years from D-day, completing the third stage of reform.


IA Governance Structure

Under the ICAO 2015, the IA comprises of the following members appointed by the Chief Executive:

  1. A Chairperson who is a non-executive director (“NED”);
  2. A CEO who is an executive director (“ED”); and
  3. No less than 6 other EDs or NEDs, with the number of NEDs exceeding the number of EDs.

Effective on December 28, 2015, Dr. Moses Cheng was appointed as Chairman of the IA and seven NEDs with relevant industry/professional/occupational experience) were also appointed. Subsequently, on May 5, 2017, Mr. John Leung Chi-yan, the incumbent Commissioner of Insurance, was appointed as CEO of the IA for one year from June 26, 2017 to June 25, 2018. According to the Secretary for Financial Services and the Treasury, secondment of Mr. Leung to the IA for one year “will ensure a smooth transition while allowing more time for the IA to search for a suitable candidate to fill the CEO post”. Concurrent with Mr. Leung’s appointment, 4 EDs were also appointed for 3-year terms pursuant to a selection process chaired by the Chairman of the IA.


New Fees and Charges

Some of the more immediate repercussions of the commencement of regulation by the IA are increased annual authorization fees and new user fees on specific IA services which will be in effect from D-day onwards, including the following:

  • Annual authorization fees payable by authorized insurers increased from current rates (e.g. HK$227,300 for long-term/general business) to a higher fee consisting of: i) a fixed fee (e.g. HK$300,000 for long-term/general business), and ii) a variable fee of up to 0.0039% on insurance liabilities to be phased in over 6 years, subject to a variable fee cap of HK$7 million annually.
  • Application fee for approval of the appointment of a controller/director/key person in control function under section 13A or 13B or an actuary under section 15(3A) of the Insurance Ordinance: HK$18,000 per application
  • Notification fee to propose a person to become a controller (i.e. person with/controlling at least 15% of the voting power at any general meeting of the insurer): HK$100,000 per notification where proposed controller holds/controls 50% or more of the voting power; or HK$50,000 per notification otherwise.

These fees are consistent with the long-term objective that the IA will finance its own operations and become financially independent of the government. To the same end, in addition to collecting authorization and user fees from insurance companies/users of IA services, the IA is also empowered under the ICAO 2015 to collect a levy on insurance premiums from policyholders. It is expected that this levy will be implemented by January 1, 2018.


Notifications and Approvals

To tie in with the ICAO 2015 provisions relating to IA approval of directors and key persons in control functions (as well as controllers) as “fit and proper persons” to be appointed, amended forms have been prescribed for use after D-day for submitting particulars in respect of those proposed to be appointed to such roles at an authorised insurer. Under the ICAO 2015, “key persons in control functions” include those who are responsible for any of the following functions who exercise a “significant influence” on the insurer’s business:

  1. risk management;
  2. financial control;
  3. compliance;
  4. internal audit;
  5. actuarial; and
  6. intermediary management.

Notably, the amended forms request additional particulars of the reporting structure or reporting lines that the director/key person in control functions has in relation to people within the insurer, people at the insurer’s head office and/or people at the insurer’s parent company (as appropriate).

While the IA approval requirements on their face seem to apply only to appointments made after D-day, the IA has now announced transitional arrangements whereby appointments of key persons made by authorised insurers prior to D-day must nonetheless be approved by the IA after the fact. However, the application fee for approval of those individuals has been waived.


Investigation & Displinary Powers

On D-day, a majority of the provisions of the ICAO 2015 will come into effect, at least as they pertain to the regulation of authorised insurers. These include the new regulatory powers conferred on the IA to conduct inspections and investigations relative to authorised insurers without a warrant; and greater disciplinary powers of the IA, including the power to impose a pecuniary penalty for misconduct of up to the greater of HK$10,000,000 or three times the amount profit gained/loss avoided by the insurers as a result of the misconduct. In the near future, it is expected that the IA will issue a new guideline (GL18) setting out the considerations in exercising its power to impose the pecuniary penalty.



With the commencement of the new regulatory regime under the IA on D-day, authorised insurers in Hong Kong must implement policies and processes to ensure compliance with the new regulatory requirements, including “fit and proper” assessments of controllers, directors and key persons in control functions and notifying the IA of new appointments. Insurers will need to stay current on regulatory developments, which will include issuance by the IA of an updated guideline on “fit and proper” criteria (GL4) to replace existing Guidance Note 4. Meanwhile, the IA is expected to push ahead with other regulatory reforms including a risk-based capital framework for insurers and a policyholders’ protection fund initiative. The Hong Kong insurance industry must brace itself for significant challenges and higher costs of compliance in adjusting to the new regulatory landscape.


Useful Links: [IA Appointments Press Release dated May 5, 2017] [D-day Press Release dated April 19, 2017] [Legco Brief] [Insurance Companies (Authorization and Annual Fees) (Amendment) Regulation 2017] [Insurance Companies (Register of Insurers) (Prescribed Fee) (Amendment) Regulation 2017] [ICAO 2015]


About OLN’s Insurance Practice Group
OLN’s Insurance Practice Group has direct experience of the legal, regulatory and practical challenges facing insurers and reinsurers throughout Asia region. Members of our Group have worked in the insurance industry and have extensive experience working in and advising insurers and reinsurers on contractual and regulatory matters and risk management issues relevant to their businesses. We have particular expertise in the review and drafting of contractual documentation relating to insurance and reinsurance activities, including the development of policy wording for life, accident, medical and health insurance products, and the review and vetting of related proposals, product brochures and training materials. We also have experience advising on disputes over coverage for claims under both life and general insurance policies, and with support from OLN’s Dispute Resolution Group, are well placed to represent clients in all aspects of insurance litigation.

For information about any other insurance related matters, please contact:

Greg Crichton, Consultant
(852) 2868 0696

Adelina Wong, Consultant
(852) 2868 0696