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Supervision > Regulation of Designated Insurance Holding Companies > Overview

Regulation of Designated Insurance Holding Companies


Overiew

Regulatory Requirements


Under the Insurance Ordinance (Cap. 41) (“IO”), the Insurance Authority (“IA”), as the group supervisor appointed to regulate and supervise an insurance group, is empowered to designate an insurance holding company belonging to that insurance group as a designated insurance holding company (“DIHC”). After designation, the IA will have the following direct regulatory powers over the DIHC –

  1. determination of a supervised group to which the DIHC belongs;
  2. governance on suitability of shareholder controllers, chief executives, directors and key persons in control functions of the DIHC through prior approval requirements and objection by the IA;
  3. requirements on certain financial matters such as requiring the DIHC to submit financial information, to comply with requirements related to group capital, reporting and disclosure, and to seek regulatory approval for major acquisitions;
  4. inspection and investigation powers over the DIHC; and
  5. intervention and disciplinary actions against the DIHC.

The Group-wide Supervision (“GWS”) framework


The GWS framework is anchored on three pillars:


Pillar 1

Pillar 1 establishes capital requirements which a DIHC in relation to its supervised group would be expected to meet.

According to rule 3 of the Insurance (Group Capital) Rules (Cap. 41O) (“Group Capital Rules”), a DIHC in relation to its supervised group must ensure that at all times, (a) the tier 1 group capital of the supervised group is not less than the group minimum capital requirement (“GMCR”); and (b) the sum of the tier 1 group capital and tier 2 group capital of the supervised group is not less than the group prescribed capital requirement (“GPCR”). The GMCR and GPCR respectively is calculated as the sum of the regulatory minimum capital requirements and prescribed capital requirements which apply to each of the supervised group members in the supervised group in the jurisdictions in which they carry on business.

The eligible group capital resources of a supervised group must consist of the eligible capital resources of all supervised group members of the supervised group. Such eligibility to be based on whether the supervised group member can count the capital resource towards meeting its minimum or prescribed capital requirement in the jurisdiction where it carries on business. Tiering approach of eligible group capital resources is applied.

Variation will be made to the GMCR, the GPCR or the eligible group capital resources of the supervised group of a DIHC, if the IA is satisfied, on reasonable grounds, that it is prudent to make the variation so that the group capital requirements for the insurance group are commensurate with the risks associated with the group.


Pillar 2

Pillar 2 sets out the risk management and governance requirements that a DIHC would be expected to apply across its supervised group and includes requirements to carry out the Group Internal Economic Capital Assessments (“GIECA”) and the Own Risk and Solvency Assessments (“ORSA”) to assess present and future financial and risk conditions of its supervised group

A GIECA is effectively a requirement for a DIHC in respect of its supervised group to calculate its own view of the economic capital required to meet the group’s risk profile calibrated to a consistent confidence level and time horizon across all legal entities in the group. The GIECA requirement will require the supervised group to undertake its own assessment of capital adequacy to a target of 99.5% value-at-risk over a 1-year time horizon, or equivalent.

The ORSA in relation to a supervised group should encompass all reasonably foreseeable and relevant material risks including, at a minimum, insurance, credit, market, concentration, operational, liquidity, conduct risks and group risks.


Pillar 3

Pillar 3 sets out disclosure requirements for a DIHC that cover risk and governance disclosures in relation to its supervise group consistent with general financial reporting requirements, including public disclosure of GMCR, complemented by other regulatory reporting to the IA such as reports on GIECA and ORSA.

Supervisory Cooperation and Coordination


As a group supervisor, the IA is responsible for understanding the structure and operations of the insurance groups; and leading group-wide supervision, taking into account assessments made by the other involved supervisors. The IA chairs supervisory colleges regularly for insurance groups of which the IA is the group supervisor. Supervisory college is a coordination arrangement to foster cooperation and coordination between involved supervisors with regard to the supervision of an insurance group, as well as to promote common understanding, communication and information exchange. The IA also coordinates crisis management preparations with other involved supervisors and relevant authorities.