6 March 2017Analysis

Hong Kong must address shortcomings to reach 50 captive goal by 2025

Hong Kong has all the necessary ingredients to establish itself as a world class and leading captive domicile by 2020, according to the Hong Kong Financial Services Development Council (FSDC).

By 2025, the FSDC aims for over 5-10 captives to be licensed per year, totalling 50 captives by 2025.

The council believes this is a realistic goal considering the number of organisations in mainland China and the surrounding region that have the size, scale, risk profile and relevant growth plans to utilize captives.

“Hong Kong should be an attractive domicile for offshore captives from Greater China, around the region and the world along with an attractive onshore domicile for Hong Kong based corporates,” said the FSDC

With Hong Kong experiencing huge inflows of capital in recent years from both overseas and mainland China, providing a favourable macro-monetary environment for the development of capital intensive businesses.

There are currently 102 central enterprises under the regime of the State-owned Assets Supervision and Administration Committee of the State Council (SASAC), with assets under supervision amounting to RMB119,200bn ($17.2 trillion).

The Hong Kong captive insurance industry is expected to experience a huge growth if it can capture all or any part of these assets in captive insurance.

The FSDC believes Hong Kong is falling behind its Asian competitors in areas such as reinsurance, marine and captives, which are important for establishing Hong Kong as a financial centre.

In an FSDC report, the departure and downsizing of Munich Re and other global reinsurance companies from Hong Kong, for example, was seen as a failing of Hong Kong in this reinsurance industry.

The FSDC believes Hong Kong will emerge as a leading re/insurance hub in Asia if it takes a series of actions, including the implementation of C-ROSS, the introduction of tax incentives, as well as improving the current insurance regulatory framework, business promotion and talent development.

Laura Cha, the chairman of the FSDC said: "The recent departure and downsizing of the Hong Kong offices of various international insurance and reinsurance companies highlights the need for Hong Kong to further develop our insurance and reinsurance industry. Further departures are likely in the near future if action is not taken.

"Hong Kong has all the necessary ingredients to be a leading insurance and reinsurance hub in Asia. Hong Kong insurers and reinsurers have played a critical role in supporting mainland Chinese companies to transfer and manage their risks, particularly as they expand into new territories, specifically in the regions in the Belt and Road Initiative.

“Mainland Chinese companies and insurers will be able to take advantage of the benefits in terms of efficiency, best practices, language and ease of doing business by transacting reinsurance in Hong Kong."

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