Major financial opening measures! Lowering the entry threshold for Hong Kong and Macau financial institutions in the Mainland. How will Hong Kong and Macau capital ignite the Mainland insurance market?

Financial opening-up policy welcomes another major advantage. Today, the China Banking and Insurance Regulatory Commission issued a new notice regarding the participation of financial institutions from Hong Kong and Macau in insurance companies. Starting from March 1st this year, the requirement that the total assets of financial institutions from Hong Kong and Macau investing in insurance companies must not be less than $2 billion USD at the end of the previous year has been lifted. Industry experts told Caijing reporters that this measure reflects the determination of financial opening-up and will help attract more capital from Hong Kong and Macau. Some experts also pointed out that the notice will not only accelerate the participation of foreign financial institutions in the Chinese insurance market, but also ease the current capital constraints in the insurance industry. Additionally, it will facilitate the introduction of products and experiences from mature insurance markets. One year ago, the idea of lowering the entry threshold for financial institutions from Hong Kong and Macau to invest in the mainland was proposed. Specifically, the China Banking and Insurance Regulatory Commission stated that this measure is in line with relevant agreements. Formulating this notice is an important step for the orderly expansion of financial opening-up by the China Banking and Insurance Regulatory Commission, which will help mainland insurance companies attract investments from quality financial institutions in Hong Kong and Macau, further enhancing their capital strength and optimizing equity structure. It will also deepen the open cooperation with Hong Kong and Macau, promoting the long-term prosperity and stability of the regions. Tian Lihui, Director of the Financial Development Research Institute at Nankai University, told Caijing reporters that this regulation demonstrates the further opening-up of the mainland financial market and will attract more capital from Hong Kong and Macau. It will facilitate regional financial integration, consolidate the international financial center status of Hong Kong and Macau, and promote the high-quality development of mainland insurance companies. It is worth noting that on February 20th, the China Banking and Insurance Regulatory Commission also issued a notice allowing Hong Kong and Macau banks' mainland branches to offer foreign currency bank card services and RMB bank card services to customers other than Chinese nationals. How will incremental capital affect the mainland insurance industry? It will help ease the current capital constraints. Experts in the industry believe that the notice will not only ease the current capital constraints in the insurance industry but also introduce experiences from mature markets. Under the "Phase II" of the second-generation solvency standards project, the overall solvency sufficiency ratio of insurance companies has dropped significantly, leading to a considerable pressure for capital replenishment. The latest data released by the China Banking and Insurance Regulatory Commission shows that by the end of 2024, the comprehensive solvency adequacy ratio and core solvency adequacy ratio of the insurance industry were 199.4% and 139.1% respectively, representing a decrease of 24.8 and 10.9 percentage points from the end of the first quarter of 2022. Especially in the context of low interest rates, investment fluctuations, and the implementation of new accounting standards, the insurance industry faces significant pressure for capital replenishment. Currently, insurance companies mainly rely on issuing capital replenishment bonds and increasing capital through shareholder contributions. Zhou Jin, partner at PwC China Financial Services Management Consulting, told Caijing reporters that the notice will effectively lower the threshold for financial institutions from Hong Kong and Macau to invest in insurance companies, accelerating the participation of foreign financial institutions in the Chinese insurance market and easing the current capital constraints in the industry. "On the other hand, it will also introduce products and experiences from mature insurance markets to enrich the product supply in the domestic market and enhance the operational management level of domestic insurance companies," Zhou also stated that the competition in the insurance market in Hong Kong and Macau is relatively concentrated, with large-scale leading companies, while many small and medium-sized companies generally have relatively small scale and may not meet the $2 billion USD total asset requirement. After lowering the entry threshold, these small and medium-sized insurance companies will be able to invest in the equity of domestic insurance companies. The insurance market in Hong Kong has been developing rapidly, particularly in recent years, as Chinese mainland residents investing in Hong Kong have led to a rapid growth in policy business. Data from the Hong Kong Insurance Authority shows that in the first three quarters of 2024, the total new premiums reached HK$169.6 billion, an increase of 15.7% year-on-year, with mainland Chinese residents investing HK$46.6 billion in Hong Kong. As of February 14th this year, Hong Kong has a total of 158 authorized insurance companies. It has been noted that some market opinions believe that the notice will enable financial institutions from Hong Kong and Macau to invest in the mainland, allocate assets, and bring incremental funds to the A-share market. In response, Zhou Jin believes that the main purpose of the notice is not direct investment in A-shares by foreign capital; it depends on the asset allocation of insurance funds. "If there is capital of billions of US dollars coming in, it may trigger hundreds of billions or even trillions of premiums, and these insurance funds will certainly involve A-shares." This article is reprinted from "Caijing." Editor: Liu Jiayin.