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August 13, 2018

IA of Hong Kong issued templates and technical specifications for the second quantitative impact study (QIS 2) on the development of risk-based capital (RBC) regime. Additionally, IA released a package of template and technical specifications on matching adjustment for insurers conducting long-term business. Authorized insurers have been requested to participate in the QIS 2 and submit the completed template(s) by November 30, 2018.

IA released two different packages for QIS 2—one for insurers carrying on long-term business and the other for insurers carrying on general business. Composite insurers should use both packages in respect of long-term and general business. Each package contains a template collecting quantitative and qualitative data, technical specifications for the completion of the corresponding template, annex on discount rates, and a question and answer template. IA also finalized the package of template and technical specifications on matching adjustment for insurers carrying on long-term business. IA aims to collect sufficient and relevant data from the matching adjustment package to further analyze and formulate a set of eligible criteria in applying matching adjustment as well as to determine the adjusted spread methodology. Matching adjustment is an alternative discounting approach that reflects the assets held by individual companies based on their policies for asset and liability management.

QIS 2 is important and will offer a holistic view of the solvency position of individual insurers and the insurance industry. This would form a basis for IA to move forward to the next step of moderation exercise and to perform further testing in the third QIS. While developing the RBC regime, IA is mindful of the overarching objectives, including alignment with international standards and practices, resilience of the insurance industry for the protection of policyholders, and maintaining competitiveness of the Hong Kong insurance industry. IA has maintained close dialog with the insurance industry. Taking into account the industry feedback, IA is open to explore test options, for example, on discount rate of the long-term insurance liabilities. IA has also reflected on the feedback in certain areas in QIS 2, for example, alignment with the Hong Kong Financial Reporting Standard (HKFRS) 17 on insurance contracts to a certain extent and the proposed stress levels of certain risks. This would be a continuous process of moderation exercise, aiming to strike a balance toward a pragmatic and effective approach.


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Comment Due Date: November 30, 2018

Keywords: Asia Pacific, Hong Kong, Insurance, Risk-based Capital Regime, QIS 2, HKFRS 17, Matching Adjustment, IFRS 17, IA

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