On 18 February the PRC State Council published its blueprint for the development of the Greater Bay Area, an area comprising Hong Kong, Macau, Shenzhen, Guangzhou and a number of other cities in Guangdong province. The insurance sector is expected to be one of the biggest winners under the plan as it will enable more cross- border insurance policy sales, claims and investigations. In an earlier interview with Insurance Asia News, Chris Kershaw, head of global markets, explains how Hong Kong is going to benefit from latest groundbreaking regulatory developments in the region.
Two important regulatory developments in 2018 are potential game changers for reinsurers operating in the city — “mutual equivalence recognition” with mainland reinsurers under the Chinese solvency regime, C-Ross, and a double taxation treaty with India. These measures will open a market of almost three billion people to reinsurers based in Hong Kong.
“That is another step forward for Hong Kong towards being a significant super-regional hub for insurance,” says Kershaw.
Under the equivalence agreement with China, mainland insurers will qualify for reduced capital requirement when ceding business to a qualified Hong Kong reinsurer, just as they do when ceding to a domestic reinsurer.
Hong Kong’s regulator sees this development as a key to winning Belt and Road business, as well as strengthening the city’s position as a reinsurance hub in Asia — and Kershaw agrees.
At the same time, the double taxation treaty with India reverses the country’s previous classification of Hong Kong as a tax haven, which meant that reinsurers here were subject to a 40% withholding tax — enough to kill any potential deals.
“Hong Kong has an opportunity to play a pivotal role for these two major trading nations,” says Kershaw. “The intellectual capital that sits here in Hong Kong can be put to work in both directions, understanding that the needs and the opportunities are very different. I think it’s quite an interesting long-term development for Hong Kong.”
Belt and Road, in particular, is a significant initiative for the industry in Hong Kong, not only in terms of the insurance premiums, but also the technical expertise that needs to be applied to some of the projects. It may even kickstart the city’s lacklustre captive industry, according to Kershaw.
“A lot of those companies that are going to be heavily involved in Belt and Road will be big enough to operate their own captive insurance company and Hong Kong would be an obvious hub for those,” he says.
“I think Belt and Road stands a better chance of delivering better outcomes for the people it touches than isolationism,” says Kershaw. “I think [Belt and Road] is really indicative of how emerging powerful nations will fill vacuums left by the more traditional architects of the second half of the 20th century.”
That potentially puts Hong Kong at the centre of the global economy as Belt and Road extends China’s sphere of influence across Eurasia, South-East Asia, Africa and beyond. Insurance will clearly play a central role in facilitating this infrastructure.
“Without insurance, the cost of financing all of these projects is massively increased because insurance enables these projects to take place in a much more efficient financial manner than would be the case otherwise,” says Kershaw.
“Hong Kong has always been an attractive place to do business. It’s built on trade — active trading is what the city is good at,” he adds. “Fundamentally, Hong Kong’s great strength is its human resource and the way in which the human resource applies itself to the opportunity that sits in front of it. There’s a lot going for it.”
