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    HKMA Criteria on Accepting Life Insurance Policy as Security in BELR

    January 21, 2020

    HKMA issued a circular on life insurance policy as acceptable security under the Banking (Exposure Limits) Rules (BELR) Rule 29(2). HKMA received a number of enquiries on whether life insurance policy is an acceptable security for the purposes of Part 5 of the BELR on financial facility provided to employee. To strike a balance between prudential regulation and allow room for authorized institutions to design their own staff loan policies, HKMA, therefore, considered that life insurance policy should only be accepted as security for financial facility to employee if certain criteria are met. The Annex to this circular contains the criteria for life insurance policy to be accepted as security under the BELR.

    HKMA also acknowledged the need of special arrangements to avoid this policy, creating hardship on the employees who have existing financial facilities secured by life insurance policy. Pursuant to the BELR rule 29(2), life insurance policy is acceptable to a prudent banker

    • without condition for the financial facilities already granted or provisionally granted to an employee on or before the date of this circular—which are term facilities or which are revolving facilities until the date the facilities are due for annual credit review for the first time after December 31, 2020
    • only if the criteria in the Annex are met for all the financial facilities granted after the date of this circular or existing revolving financial facilities from the date that the facilities are due for annual credit review for the first time after December 31, 2020.

    A life insurance policy is acceptable to a prudent banker if the following criteria are met:

    • The life insurance policy is written in or from Hong Kong by an authorized insurer in Hong Kong
    • The insurer or its holding company has a credit rating of at least BBB- from Standard & Poor’s Ratings or Fitch Ratings, or an equivalent rating from other credit agencies at the time the life insurance policy is accepted by the authorized insurer as security
    • The value of the life insurance policy as security is measured at the lower of the surrender value or 75% of the cash value of the life insurance policy, or a more prudent internal valuation.

    HKMA intends to amend paragraph 4 of the Banking (Exposure Limits) Code to include life insurance policy (with conditions) as a security that is “acceptable to a prudent banker,” when the next opportunity arises. 


    Keywords: Asia Pacific, Hong Kong, Banking, Insurance, BELR, Life Insurance Policy, Exposure Limits, Concentration Risk, Banking Exposure Limits Rule, HKMA

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