Asia Pacific Insurance

Hong Kong

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Insurance Regulatory Landscape and Key Considerations for M&A Transactions
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Insurance Regulatory Landscape and Key Considerations for M&A Transactions Start Comparison
Who is the main regulator with oversight of insurance companies?

Insurance Authority (IA)

Are there foreign ownership limitations for insurance companies? Are there shareholding caps on individuals and/or corporate bodies for insurance companies? If in the affirmative, is this encapsulated within statute or a matter of policy?

No.

Can an insurance company carry on a composite business (i.e., life and non-life)? Is this encapsulated in statute or a matter of policy?

No (a matter of policy).

Are there other conditions imposed by the regulator in doing an M&A transaction?

Conditions are on a case-by-case basis. For example, the IA may:

  • Require the parent to give an undertaking on continuous financial support
  • Require the insurance company to comply with the guidelines issued by the IA
  • Require the insurance company to maintain a solvency margin as may be requested by the IA
Is dispensation given for fulfillment of these conditions and in what circumstances?

Generally no.

Is there a single presence policy and is it imposed under statute or policy? Is dispensation given and what criteria will the regulator consider?

No, although the regulator encourages consolidation of life businesses (and non-life businesses).

What approvals are required for a foreign entity to take a stake in an insurer? Is there a distinction between a share deal or an asset deal?

Share deal

IA approval is required for the acquisition of 15% or more of a Hong Kong insurance company.

In other case, there is only a notification requirement. However, in practice, a submission to the IA for pre-vetting is highly recommended to ensure that the IA is satisfied with the new shareholder.

Asset deal

IA approval is required. For a life business, there is an additional requirement of court approval. Court approval is not required for the transfer of a non-life business.

How long will regulatory approvals typically take for a share deal versus an asset deal?

Share deal

These take around six to eight months or one year if the buyer is not already a controller of an unauthorized insurer in Hong Kong, from signing to IA's approval (aasuming no complicated issues arise).

Asset deal

For a life business, approval could take nine to 10 months or more. For a non-life business, it could take up to six to eight months. This is based on the assumptions that the buyer is already an authorized insurer in Hong Kong.

How open is the regulator to private equity participation in an insurer?

There is no statutory prohibition, but private equity investors will be subject to more extensive review and additional conditions may be imposed.

Is there a financial holding company concept (FHC) or other equivalent status? What are the implications?

There is no FHC concept for insurance companies.

The holding company must satisfy the "controller" requirements – being fit and proper, and being able to provide continuous financial support to the insurance company. Preferably, it should have insurance experience, and if not, it has to justify why the lack of experience would not affect the insurance company. If the holding company is simply an interposing holding company, the regulator will look at the ultimate parent.

What are the typical modes of distribution for insurance companies?

Bancassurance, agency force, brokers, telemarketing, direct marketing and direct sales through the Internet

Is bancassurance a popular mode of distribution? What approvals are required? What are the main parameters in negotiating a bancassurance agreement?

Yes, bancassurance is a popular mode of distribution

The bank should be registered as an insurance agency.

The salient terms are:

  • Exclusivity
  • Products
  • Co-branding/white label products
  • Remuneration and risk allocation
  • Mining of the bank's customer data
What are the top challenges in closing an insurance M&A transaction (share deal versus asset deal)?

Share and asset deals

  • Regulatory approval
  • Price
  • MAC clause

Asset deal

  • Transfer of all other business undertakings
  • Transfer of employees
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