The Insurance Authority (IA) of Hong Kong has unveiled a set of proposed amendments to the capital framework for insurers, aiming to provide some companies with reduced capital requirements. According to analysis by Fitch Ratings, however, the overall impact on locally rated insurers is expected to be credit-neutral, as the agency primarily assesses capital adequacy through its Prism Global model. The proposed changes are designed to enable insurers to better align their investments, business mix, and risk management practices with modern market realities.
These reforms form part of the expansion of Hong Kong’s risk-based capital (RBC) regime, initially introduced in July 2024. The overarching objective is to encourage long-term infrastructure investment by life insurers and to formally recognise contemporary risk exposures, including digital assets.
Key Proposed Amendments
| Area | Proposed Change | Expected Impact |
|---|---|---|
| Infrastructure Investment | Priority capital allowance for eligible projects, similar to South Korea | Stimulates investment in Hong Kong and Mainland China infrastructure; enhances portfolio diversification alongside equities |
| Crypto and Stablecoins | Zero capital charge; 100% stress testing required | Practical impact limited due to high volatility and zero income generation |
| Natural Catastrophe Risk | Recalculated capital requirement; optional 1-in-200-year loss modelling | Favourable for multi-region insurers; geographic diversification reduces overall capital need |
| Index-Linked Universal Life Products | Recognition of distinct risk profile compared with traditional unit-linked products | Matching adjustment permitted; greater freedom for insurers in asset–liability management |
The IA emphasised that infrastructure investment aligns naturally with the long-term liabilities of life insurers. Individual firms will, however, make investment decisions based on their own risk appetite, strategic objectives, portfolio size, and liquidity considerations. Fitch notes that, at present, local rated insurers hold only modest allocations to infrastructure.
While digital assets—including stablecoins and cryptocurrencies—are gaining traction, insurers are expected to exercise caution. Zero capital recognition combined with full stress testing limits any immediate capital benefit.
For insurers with multi-region operations, recalibrated natural catastrophe risk charges could offer meaningful capital relief. Provisions allowing recognition of geographic diversification enable firms to apply a 1-in-200-year loss assumption where prescribed limits are not exceeded.
Moreover, index-linked universal life products are treated separately from conventional unit-linked products, giving professional investors greater clarity. Policyholders are shielded from investment risk, while insurers gain enhanced discretion in managing assets and liabilities.
The IA formally invited public consultation on 11 February 2026, marking a strategic step to refine Hong Kong’s RBC framework while maintaining financial stability and incentivising targeted long-term investment.