Insurance Authority to revamp capital rules to boost infra investments

The Insurance Authority (IA) is reviewing its risk-based capital (RBC) regime this year to encourage insurers to invest in infrastructure projects, strengthen risk diversification, and bolster Hong Kong's role as a global risk management centre, according to regulatory officials.

The initiative, highlighted in the 2024 Policy Address, represents a strategic move to adjust capital requirements in support of Hong Kong's long-term economic development, including flagship initiatives like the Northern Metropolis.

"The IA has commenced a policy review on the RBC regime this year, with a view to incentivise insurers to invest in infrastructure projects through adjusting capital requirements for enriching investment portfolio for their risk diversification, thereby supporting the long-term economic development in Hong Kong," an IA spokesperson told AsianInvestor.

Industry experts anticipate the changes could trigger substantial capital flows into infrastructure equity over the coming years.

Rick Wei, head of Asia ex-Japan insurance strategy at JP Morgan Asset Management, anticipates significant increases in Hong Kong insurers' investments in infrastructure equity.

"If the IA lowers the capital charge on infrastructure equity from 50% to 20-30%, we expect Hong Kong insurers' investments in this asset class could total $5 to 10 billion over the next five years," Wei told AsianInvestor.

REGIONAL CONTEXT

Hong Kong's approach mirrors similar initiatives in Singapore. In 2024, regulators in both jurisdictions simultaneously explored favorable capital treatments for infrastructure investments.

"It may be overly optimistic to expect that the capital risk charge for infrastructure equity investments will be reduced from 50% to 20-30%, if the Hong Kong regulator follows its peer in Singapore," Xiong Jian, senior solutions director at Aberdeen Investments told AsianInvestor.