The Office of the Commissioner of Insurance (OCI) issued on 1 June 2016 a new guidance note on prudent practices relating to reinsurance management and general guiding principles in assessing the adequacy of the reinsurance arrangements of authorized insurers (the Guidance Note).

The purpose of the Guidance Note is to set out Hong Kong reinsurance requirements for authorized insurers with reference to the international standards set out in the Insurance Core Principles, Standards, Guidance and Assessment Methodology promulgated by the International Association of Insurance Supervisors.

The Guidance Note applies to reinsurance arranged by: (i) an authorized insurer incorporated in Hong Kong; or (ii) an authorized insurer incorporated outside of Hong Kong pertaining to its Hong Kong insurance business or Hong Kong long term insurance business.

The OCI has said it may provide further guidance to insurers on prudent reinsurance practices through the issue of more guidance notes and circular letters in due course given “inadequacy in the arrangement of reinsurance may jeopardize the financial position of an insurer and affect its ability to meet the obligations to policyholders”.

The Guidance Note will apply to the reinsurance, alternative risk transfer (ART) arrangements and arrangements with insignificant risk transfer, made in respect of financial years of an authorized insurer commencing on or after 1 January 2017.  Additionally, where an authorized insurer has any existing ART arrangement or arrangement with insignificant risk transfer, it should, within 30 days from the commencement of the Guidance Note, notify the OCI of the arrangement.

A copy of the Guidance Note can be found here.