HK urged to team up with mainland to compete with regional rivals

Hong Kong may risk losing yet another sparkling jewel in its crown unless it pulls its socks up as arch-rival Singapore closes in on all fronts.

The stakes have escalated after Munich Re Group — the world’s largest reinsurer with assets to the tune of $275 billion — made an unflattering move to trim its exposure to Hong Kong more than half a century to the day it first set foot in the city.

The Munich-based group said it’s revamping its business and expanding in Singapore, Beijing and Tokyo after dropping a bombshell in September last year. Besides partially showing the SAR the door, it said it would shut down its offices in Kuala Lumpur, Melbourne and Shanghai, while maintaining offices in Auckland and Sydney, as well as a liaison office in Taipei.

The move prompted the Financial Services Development Council (FSDC) — the Hong Kong government’s think tank tasked with bolstering the city’s financial industry — to warn that the SAR has to shore up as its Asian reinsurance hub status wanes in the face of the Singaporean threat.

“We’r e s t r e a m l i n i n g t h e structure, to be able to respond quickly and effectively to the challenges of these highly competitive markets,” Ludger Arnoldussen, a member of the Munich Re management board for the Asia Pacific, said in September.

The reinsurance giant will raise the headcount at its Singapore office, now being staffed by more than 200, compared to its 50-strong team in Hong Kong. The unit in the Lion City will, in future, serve clients from Southeast Asia and support the group’s reinsurance activities in India, Japan and South Korea.

According to the Office of the Commissioner of Insurance (OCI), although the gross premiums of Hong Kong’s reinsurance business grew 9.5 percent from HK$2.47 billion in 2012 to HK$2.7 billion in 2015, the industry’s total underwriting profit dropped nearly 71 percent — from HK$537.9 million to HK$157.8 million — in the same period.

Reinsurance represents the insurance policies purchased by an insurance company from one or more reinsurers as a risk management strategy to trim its exposure to loss by ceding part of the risk to third-party reinsurers.

“The Hong Kong government should consider negotiating an agreement with the China Insurance Regulatory Commission (CIRC) to secure preferential treatment for Hong Kong-based and registered reinsurers as opposed to being regarded as offshore,” the FSDC said in a recent report, adding that the amendment, if enacted, can facilitate rerouting insurance business from other offshore centers to the SAR.

The CIRC implemented the China Risk Oriented Solvency System (C-ROSS) in January last year in an attempt to standardize the regulator y standards of the mainland’s reinsurance industry to make it compatible with overseas standards in capital require- ments, risk management and transparency disclosures.

Under the C-ROSS, higher capital charges will be imposed on mainland insurers if they purchase reinsurance products from Hong Kong-registered reinsurance companies that are regarded as offshore service providers.

“The government has been in close dialogue with the relevant mainland authorities and lobbying for relaxing the C-ROSS restriction. It’s our understanding that the mainland authorities are considering the issues favorably,” an OCI spokesperson told China Daily.

“As Hong Kong’s reinsurance market is limited, it’s necessary for Hong Kong to cooperate with the mainland in lifting the

drop in the total underwriting profit of Hong Kong’s reinsurance industry from 2012 to 2015