HKIA updates capital rules

The updated guidelines are effective 1 July.

The Hong Kong Insurance Authority’s (HKIA) new rules and regulations, including the Insurance (Valuation and Capital) Rules (Cap. 41R), will take effect on 1 July.

The authority is providing guidance on the following areas, which have been reviewed with the industry and incorporated into the latest technical specifications:

1. Minimum requirements for stochastic simulation approach (rule 19): Rule 19(2) mandates that insurers use a stochastic simulation approach to calculate the time value of options and guarantees in insurance contracts with such features. The economic scenario generator used must meet the requirements in Appendix 1.
2. Simplified approaches for the calculation of matching adjustment (rule 24): Rule 24(6) allows insurers facing practical difficulties in performing full matching adjustment calculations to use any or all of the simplified approaches approved by the IA, detailed in Appendix 2.
3. Approval for using their own assessment approach for natural catastrophe risk (rule 67): Rule 67 requires insurers to determine their risk capital amount for natural catastrophe risk using a factor-based approach per rule 68 unless they have IA approval to use their own assessment (OA). Appendix 3 provides guidance on applying for such approval and details on the submission requirements for ongoing monitoring.

Further guidance and practical considerations will be provided in a forthcoming guideline, which will be consulted with the industry. 

Additionally, the Guideline on Insurance (General Business) (Valuation) Rules (GL2) and the Guideline on the Reserve Provision for Class G of Long Term Business (GL7) will be repealed effective 1 July.