Year 2008 - Insurance Industry after current finanical tsunami

19 2008 YEARBOOK 二 〇 〇 八 年 年 刊 the benefits and efficiencies, namely the professional skills and legal framework, of an established and well regulated financial centre.With the sheer size, astonishing growth and maturation of the Mainland economy, the outlook for captives as a risk management and financing tool is definitely positive. What’s in it for Hong Kong? Success in capturing the anticipated business demand for captives will bring considerable benefit to our financial industry and will help consolidate Hong Kong’s role as a centre for management skills and services. In addition to the business that captive management will bring, the most potent benefit of this specialised service is that it will also act as a catalyst for wider engagement with Chinese multinationals and create a platform on which to build similar services for the Asian and global business community. A successful captive market will also have a positive impact on the insurance and reinsurance business and enhance Hong Kong’s position as a leading financial centre. To illustrate the catalyst effect, we can use the example of Singapore where despite the direct revenue generated by captive insurance being relatively small, Singapore’s active and considerable drive of the initiative is part of a bigger goal to promote its status as a financial centre, especially as an insurance and reinsurance hub for the region which has been recording average growth in assets at respectively 12.3% and 17.8% since 1990. A comprehensive insurance market, including captive capabilities, forms part of a package to attract multinationals to establish regional headquarters there. Illustrating the leverage effect, while the assets of captives had grown by 156% from 1997 to 2006 those of all insurers grown by 302% from S$30 to S$113 billion. By contrast, the cumulative premium growth of Hong Kong reinsurers of the same period was only 28%. What Hong Kong Needs to do? For Hong Kong, our success in capturing the anticipated business would depend on Hong Kong being properly positioned to compete for business as it arises. There can be no doubt that Mainland corporations which identify the benefits of a captive will be looking for the best option and if Hong Kong is to compete for the business, it must be competitive with the best. Reacting to demands as they develop without preparing the regulatory and tax environment or strong marketing of our strengths both at Government and industry level would allow other domiciles to gain a foothold in the newAsian market and represent a lost opportunity.There must be a commitment by both regulators and the industry to take the lead and meeting competition head on. Hong Kong currently offers less incentives than other major captive domiciles but has requirements that are as or even more stringent than its competitors. It will be essential to review areas relating to regulatory framework and fiscal essentials to ensure Hong Kong is more competitively placed. For example, Hong Kong only allows one type of captive insurance, i.e. pure captive, the most basic model and it does not allow captives to take non-in-house risks which other domiciles do permit in approved circumstances.Another example is that other leading captive domiciles also structure a minimum capital and other requirements according to the types of captive in which pure captive, given its limited application, is at the low end of the table. In this respect, Hong Kong is not particularly attractive, for example, its minimum capital requirement at $2 million is at the top end of the range for pure captives.