Update on RBC development in Hong Kong Raymond Tam Executive Director, Policy & Development Insurance Authority 26 October 2018
Implementation Roadmap 2017 2018 2019 2020 2021 2022+ Legislative preparation Long run-in period Pillar I QIS 1 QIS 2 (Open till Nov-18) IA to analyze QIS results QIS 3 (Tentative) Consultation on detailed rules Insurers to make preparations for RBC Pillar 1 implementation Pillar II Draft ERM Guideline for consultation in May-18 Finalized Guideline (Under Consultation) Implementation of Pillar 2 requirements Pillar III Conduct Studies Industry consultation FTF Meeting Aug-17 FTF Meeting Oct-18 2
Pillar I Key Milestones 2017 2018 2019 Jul-17: QIS1 Release Aug-18: QIS2 Release 30-Nov-18: QIS2 Submission mid-19 (tentative): QIS3 Release Jul Dec Aug Nov Dec QIS2 Preparation: Calibration of QIS2 parameters 3 IFG meetings held during Jan to Jun-18 to share calibration approach and collect comments from HKFI, ASHK and IFG members QIS3 Preparation : Impact analysis of RBC to individual insurers and HK industry as a whole Moderation exercise with revised parameters for QIS3 after forming holistic view on industry 3
Pillar I Key Developments under QIS2 Economic Balance Sheet Separate reporting in respect of HK operation and other overseas branches for Hong Kong incorporated insurance companies, or de facto Hong Kong insurers Treatment of different operations in HK Valuation Specified requirements on Margin on Current Estimate (MOCE) for long-term business More guidance on TVOG and introduction of factor-based approach for those insurers not having stochastic model Testing of different methodologies in deriving the discount rates for long-term business 4
Pillar I Key Developments under QIS2 Prescribed Capital Requirement (PCR) Updated risk charges on insurance risk and market risk, based on QIS1 data and HK market data New items correlation matrix (diversification benefit) and operational risk Additional data collection for GI catastrophe risk in QIS2 GI catastrophe risk onshore and offshore Capital Resources New item data collection for further study 5
Pillar I Key Considerations under QIS3 Discount rate for long-term business Methodologies and techniques for yield curve calibration fit for HK circumstances Prescribed Capital Requirements (PCR) Calibration approach for interest rate risk and credit spread risk Scope and methodology for GI catastrophe risk based on QIS2 data Capital Resources Determination criteria based on quality and loss absorbing capacity Others Minimum capital requirement Transition arrangement 6
Pillar I Key Considerations under QIS3 Overall Holistic view on industry landscape under RBC for moderation exercise Continuous monitoring of international developments over capital frameworks 7
Pillar I International Developments Insurance Capital Standard (ICS) developed by International Association of Insurance Supervisors (IAIS) Roll-out of ICS version 2.0 in mid-2018 for consultation Reporting required based on market-adjusted valuation (MAV), being the standard method for capital requirements Additional reporting, at the option of the group-wide supervisor, of ICS based on GAAP Plus valuation Target timeframe: adoption of ICS 2.0 at IAIS 2019 General Meeting Review over existing capital regimes around the world, e.g. Singapore RBC, EIOPA Solvency II, C-ROSS, etc. 8
Pillar II ERM Guideline Industry consultation on draft ERM Guideline started in May- 18 Received 45 comments and valuable input ERM Guidelines sets forth risk appetite framework and, more importantly, culture of risk assessment and management Takes time to build up risk culture among the industry apart from hardware or resources allocation Principles-based approach; comply-or-explain approach Implementation ahead of Pillar I 9
Pillar II Major Feedback Received Delegation of the Board responsibilities to consider outlining the extent of delegation of risk management responsibilities particularly for overseas insurers operating in HK as branches Assessments on capital requirements concerns on the level of sophistication required for the majority of the industry Effective date of ERM Guideline to consider a longer transition period or a phased implementation Effective date: 1 January 2020 Submission of annual ORSA Report comments on the ORSA valuation date and extending the report submission deadline Submission of annual ORSA Report within four months after each financial year end (1st Report: by 30 Apr 2021) 10
Pillar II Way Forward Industry consultation on ERM Guideline by end of 2018 Issuance of the ERM Guideline tentatively by early 2019, depending on the comments received However, insurers should start reviewing their ERM and ORSA framework now Implementation capability among the industry 11
Pillar II Way Forward 12
Pillar III Key Objectives Aims at addressing transparency thereby enhancing market discipline and increasing comparability among insurers Statutory Reporting Facilitate regulator to pay attention to the financial positions of insurers regularly and carry out appropriate actions when necessary Public Disclosure Allow policy holders and investors to make more informed decisions when taking out insurance or investing in insurance. 13
Thank You! 14