In Hong Kong, a captive insurer is legally defined under section 2(7) of the Insurance Ordinance (Cap. 41). A captive insurer is a company ("relevant company") which is authorized to carry on general insurance business only and such business –
(i) does not relate to any liabilities or risks in respect of which persons are required by any Ordinance to be insured; and
(ii) is restricted to the insurance and reinsurance of
(A) risks of the bodies corporate within the relevant company's corporate group to which the relevant company belongs;
(B) the proportional share of risks of another body corporate to which the relevant company, or a first tier member in the relevant company's corporate group, is exposed directly; and
(C) any other risks of which the relevant company, or a first tier member in the relevant company's corporate group, has control, oversight or management or is otherwise sufficiently connected.
Salient regulatory concessions to a captive insurer are highlighted as follows:
| Item | General Business Insurer | Captive Insurer |
|---|---|---|
|
Capital Requirements: |
Insurance (Valuation and Capital) Rules (Cap. 41R) prescribes a risk-based capital regime. In the determination of prescribed capital amount, market risk, life insurance risk, general insurance risk, counterparty default and other risk, and operational risks are included. The capital base must also be no less than HK$20 million. |
Insurance (Marine Insurers and Captive Insurers) Rules (Cap. 41U) prescribe a dedicated capital regime for captive insurers. In the determination of prescribed capital amount, a simple calculation method based on its net premium or relevant claims outstanding is used. The capital base must also be no less than HK$2 million. |
|
Requirement for Assets in Hong Kong: |
Non-HK insurers (other than designated insurers) are required to maintain assets in Hong Kong in respect of its general insurance business with onshore risk |
Exempted |
|
Key persons in control function: |
Prior approval by the Insurance Authority is required, before an insurer appoints a key person in control function |
Captive insurer is only required to notify the Insurance Authority after the appointment |
|
Certifying actuary: |
Insurer is required to appoint certifying actuary, unless exempted under rule 3 of Insurance (Exemption to Appointment of Actuary) Rules (Cap. 41Q) |
Exempted |
To attract more local and foreign enterprises to form captives in Hong Kong, there is a tax concession for captive insurers. They can enjoy a 50% reduction in the profits tax on their insurance business of offshore risks commencing from the year of assessment 2013/14 onwards.