Derivatives Framework under HKRBC

Next in our series of thought leadership, focuses on the Hong Kong Risk-Based Capital (HKRBC) regime which will become effective in the second half of 2024. As insurers prepare for the new regime and those insurers who have early adopted seek to further operationalize HKRBC, there will be a greater focus on topics such as Strategic Asset Allocation (SAA), ALM and Capital Optimization, Pillar 3 reporting to name a few.

The next topic we explore is how Hong Kong insurers can set up a derivatives framework under HKRBC. HKRBC is expected to stimulate a greater use of derivatives for efficient portfolio management or hedging purposes. Hedging is very commonly used in risk-based regimes to improve asset and liability matching, reduce balance sheet volatility and protect against extreme market events such as equity market falls, credit spread widening and extreme interest rate movements, to name just a few common hedgeable risks. However, before considering whether to hedge or not, we believe that a derivatives framework is needed to ensure there is proper governance and ongoing management around hedging decisions. This framework would aid an insurer in Hong Kong to achieve the economic benefit from hedging and the compliance requirements under HKRBC.

Read the Thought Leadership and connect with a member of the team if you have comments or questions.

Dhiran Dookhi
Partner, Actuarial
+852 9500 9681
ddookhi@deloitte.com.hk

Francesco Nagari
Partner, Hong Kong FSI Leader
+852 2852 1977
frnagari@deloitte.com.hk