John Leung Chi-yan, the Insurance Authority’s chief executive, is complaining of lack of sleep.
In his budget statement on February 28, Financial Secretary Paul Chan handed the Insurance Authority, or IA, two new assignments, piling on the pressure for the newly constituted regulatory body.
When Chan delivered his speech he asked the watchdog to draw up guidelines for tax concessions on deferred annuity products, in order to improve retirement planning for Hong Kong’s aging population.
He also wanted the IA to make Hong Kong more attractive for insurance companies.
“I will ask the Insurance Authority to explore ways of enhancing Hong Kong's competitiveness as an insurance hub, including tax arrangements and other regulatory requirements, in collaboration with the industry,” said Chan.
Leung interpreted this mandate in part as developing IA’s “role as a risk management hub for the mainland and infrastructure products under the Belt and Road Initiative”.
The IA was set up in June as an independent regulator to protect policyholders and improve the competitiveness of Hong Kong’s insurance industry. Leung’s role as its head was always transitory. He is moving on when his secondment ends in late June to another government role.
On the side lines of AsianInvestor's insurance investment forum in Hong Kong on Thursday, Leung said that a paper on the city’s role in China's Belt and Road Initiative would be ready before he leaves the office.
“We are in the last stage of the recruitment exercise so you will hear about the new CEO of the IA very soon,” said Leung, who was formerly the city’s Commissioner of Insurance, a civil service post.
Industry insiders told FinanceAsia, sister publication of AsianInvestor, that Leung’s boots have been very difficult to fill.
Insurance specialists expect a Hong Kong local to be the new face of the IA. The person will have to familiar with the dynamics of Hong Kong politics and be able to command the respect of global insurance companies, many of which see Hong Kong as their hub for pan-Asian operations, they said.
Speculation is rife as to who the new permanent chief executive will be. A foreigner looks politically unacceptable, reducing the pool of possibilities.
“I’ve heard the new head will be a civil servant, not somebody from the [insurance] industry,” the head of Hong Kong operations for an international insurer told AsianInvestor.
The new person will have some sizeable responsibilities. One of the first will be to finish filling out its ranks. The IA is believed to have around 180 employees at present, but Leung said it should have 300 when fully-staffed. He said that he hoped to have around 200 to 220 by the time he leaves.
BELT & ROAD
During his tenure at the IA, Leung has been working to promote the business and investment opportunities, as well as the risks, posed by Belt and Road for Hong Kong-based insurers.
For Leung, insurance companies could help bring to life President Xi Jinping’s ambition to revitalise China’s ancient road and sea trade routes for the 21st century, boosting cross-border trade across more than 60 countries.
Hong Kong is in pole position to provide reinsurance services for the mainland Chinese insurers underwriting Belt and Road infrastructure projects. The two jurisdictions’ regulators struck a deal in May to move towards mutual recognition of each other’s solvency regimes.
They are at slightly different levels of modernisation. China adopted a risk-based capital regime, China Risk Oriented Solvency System (C-Ross), with effect from January 1, 2016. In Hong Kong there is an ongoing consultation on an updated risk-based capital regime.
China’s C-Ross accords unfavourable capital treatment for reinsurance with reinsurers that are not authorised by its insurance regulator, the China Insurance Regulatory Commission (CIRC). This originally included Hong Kong-authorised reinsurers, but under the new agreement they now benefit from Hong Kong’s solvency regime being recognised as being equivalent under C-Ross.
The next step is for the CIRC and the IA to work out a more detailed equivalence regime. This should be completed within four years.
On the sidelines of the conference, Leung said insurers should expect progress on equivalence shortly.
Insurance professionals at the conference voiced some concerns about the ease of investing in Belt and Road projects, which are mostly infrastructure related.
“If we have one part of the government encouraging us to invest in infrastructure and yet we’re getting a very high capital charge because it is unrated debt I don’t see how the market can take off,” said Paul Carrett, the chief investment officer at Hong Kong-headquartered insurance company FWD.
Additional reporting by Richard Morrow