Hong Kong Insurance Regulations Update – May 2024

April 12, 2024

The IA has issued revised guidance on the ‘fit and proper’ criteria for authorized insurers under the Insurance Regulation (Chapter 41) (Revised GL4).

The revised version of GL4 will come into force on 1 July 2024, the same date as the Insurance (Amendment) Regulation 2023 comes into force (Amending Regulation) comes into force (the revised version of GL4 takes these changes into account).

The revised version of GL4 addresses the following issues:

• ‘fit and proper’ criteria for majority shareholder administrators;
• qualification and experience requirements for a certifying actuary in relation to general business activities; AND
• assessment of the internal control structure and corporate governance in the case of legal companies.

Controller of minority shareholders and controller of majority shareholders

The amending regulation and amended GL4 distinguish between controllers who are minority shareholders (15% or more but less than 50% of the votes at the insurer’s general meeting) and controllers who are majority shareholders (more than 50% of the votes at the insurer’s general meeting). general meeting of the insurer).

Under the amended Section 13B of the IO, a person must obtain the prior approval of the IA before becoming a majority shareholder administrator or minority controller of an eligible Hong Kong-incorporated insurer (a HK insurer) or designated insurer. This applies where a controller who is a minority shareholder intends to become a controller who is a majority shareholder of the same insurer.

If the controller of a majority shareholder of a Hong Kong insurer or a designated insurer becomes the controller of a minority shareholder of the same insurer, that person is obliged under (new) section 13BB of the IO to notify the IA within one month of that change.

The revised GL4 notes that shareholder controllers may exercise significant influence over the business strategy and conduct of the business of an authorized insurer. Accordingly, the impact assessment “will consider the likely or actual level of influence and control over the insurer by the person acting as shareholder controller. Generally speaking, the greater the shareholder controller’s influence over the insurer, the higher the level of standards the IA will apply in assessing its suitability and reputation.”

The prospective majority (and, where applicable, minority) shareholder administrator is required to provide clear and detailed strategic objectives and business plans for the eligible insurer and demonstrate that such objectives and plans are “realistic, feasible and conducive to long-term stability and sound and sustainable development insurer.” In particular, a majority shareholder controller is expected to demonstrate a long-term commitment to the insurer and that he or she has “the willingness and financial ability to maintain the financial health of the insurer, including to inject additional capital to support the insurer’s business, as and when required.” “

Attesting actuary for general business

Under (new) section 15AAAB(1) of the IO, an authorized insurer carrying on general business in or from Hong Kong must obtain the prior approval of the IA to appoint an actuary (who is referred to in the revised GL4 as an “insurance specialist certifying person”). The revised GL4 sets out the requirements for qualifications and experience of the certifying actuary.

Assessment of the internal control and corporate governance structure for legal companies

The revised GL4 sets out the following new additional criteria for determining whether a legal person is fit and proper, whether or not it is a body corporate:

“(j) has misrepresented, provided false or misleading information or received adverse comments from any regulatory authority in Hong Kong or elsewhere;

(k) has a sound corporate governance structure, for example the composition of the board of directors and board committees, including the percentage of directors who are independent non-executive directors;

(l) it has appropriate internal control systems and procedures that would reasonably ensure that persons designated to act on its behalf in connection with its activities regulated under the relevant legal or regulatory requirements meet appropriate and appropriate criteria relevant to the regulated activities;

m) maintains effective risk management and internal control systems and ensures appropriate monitoring and management of risks at unit or group level (as appropriate); Or

(n) has established appropriate internal controls over financial reporting that effectively provide reasonable assurance about the reliability of the financial statements or information required from regulators (as applicable) in accordance with the relevant rules.”

The key changes to IO introduced by the Amending Regulation can be found in our July 2023 issue.

Link to the IA circular

Link to attachment: Improved GL4

Link to the July 2023 edition containing a summary of the key changes introduced by the Amendment Regulation