Newsletter-volume 4 - 2011 (Draft) - Actuarial Society of Hong Kong

As one of the top financial centers in the world, Hong Kong has favorable business conditions includingfirst class accounting and legal services, high quality banking and investment services, along with astable political environment and other key factors that could have made it an excellent choice of acaptive domicile. The government passed captive legislation in 1997, recognizing the potential directand indirect benefits of captives to the insurance industry and economy. Unfortunately, the popularityof Hong Kong as a captive domicile never took off due to little demand for captives in the region, thelack of promotion by the Hong Kong government and the strong competition of Singapore whichretained its title as the captive domicile of choice in Asia. As of 2011, there are over 5,000 captivesoperating in the world, of which only 1 captive domiciled in Hong Kong.Considerations of captive domicile selectionBesides having a strong business environment, Hong Kong has other key factors of a captive domicile.The common considerations of choosing a captive domicile include:Insurance Regulatory EnvironmentWhile Hong Kong has been a stable insurance market, it may not have one of the most advancedinsurance regulatory systems within Asia. Captive regulation is one of the main reasons why captiveowners and managers select a captive domicile. Other factors include capital requirements andoperational costs, as well as the recognition of policies issued by the captive to policyholders and as aretrocessionaire to the reinsurance market. Today, leading captive jurisdictions are planning to adoptSolvency II type regulations/initiatives in order to be on par with the EU’s advancing regulations.Capital RequirementThe minimum capital requirement of captive is HK$2m (approximately US$300,000), which is in linewith capital requirements in other major captive domiciles.Operating ExpensesThe operating costs are supposedly lower than overseas captive domiciles and are comparable to thatof Singapore. However, this is difficult to substantiate due to the lack of valid Hong Kong examples.The Actuarial Society of Hong Kong, 2202 Tower Two, Lippo Centre, 89 Queensway, Hong KongTel (852) 2147 9420 Fax (852) 2147 2497 Website: www.actuaries.org.hkNote: Views expressed are not necessary those of The Actuarial Society of Hong Kong8