ComplianceOne Insurance Newsletter –
August 2026
The topics discussed in this monthly newsletter are as follows:
Regulatory Updates
IA Clarifies that Mainland Residents’ Obligation to Declare and Pay Tax on Overseas Investment Income Has Always Existed
IA’s Observations on Insurance Business Carried On with Premium Financing Facilities
IA Requires Authorised Insurers to Adopt an Integrity Management Policy by 1 January 2027
Enforcement News
Market News
HKSAR Government Re-appoints Mr Clement CHEUNG as Chief Executive Officer of the IA
First cohort of GenA.I. Sandbox++ announced, including insurance claims and anti-fraud use cases
Regulatory Updates
1. IA Clarifies that Mainland Residents’ Obligation to Declare and Pay Tax on Overseas Investment Income Has Always Existed
On 06 Aug 2026, multiple media outlets reported that cities such as Beijing and Hangzhou where individual income tax at 20% has been levied on Hong Kong insurance proceeds, covering insurance policy dividends (保險分紅) and prepaid premium interest (預繳保費利息). However, the taxation is not yet universal, with no unified enforcement standard.
Source: Reuters; South China Morning Post; HK01
The Insurance Authority ("IA") responded that the Government and the IA are closely monitoring the latest developments regarding mainland financial product tax arrangements. The IA emphasised that the requirement for Chinese residents to lawfully declare and pay tax on overseas investment income has always existed, and the market should not over-interpret or speculate. The IA further noted that Hong Kong’s insurance market remains mature and attractive to mainland clients, offering currency selection, global asset allocation, life planning and wealth succession services.
The next-day (i.e. 07 Aug 2026) official Mainland line is separate: State Taxation Administration of PRC / Xinhua on 7 August 2026
SIGNIFICANCE:
The IA and STA clarifications confirm that mainland tax residents’ duty to declare and pay tax on overseas investment income, including returns on Hong Kong policies, is a long-standing rule rather than a new levy aimed at Hong Kong. Enforcement does not yet appear uniform. Brokers in cross-border business should make sure mainland clients are told that filing and payment obligations may arise, and that marketing and oral explanations do not treat Hong Kong proceeds as tax-exempt.
Stay close to further STA and local-bureau practice: a move toward consistent collection would change how certain savings and participating features are sold, even if the legal text does not change.
2. IA’s Observations on Insurance Business Carried On with Premium Financing Facilities
On 20 August 2026, the IA issued a circular to chief executives of all authorised insurers carrying on long-term insurance business, setting out its observations on policies written with premium financing facilities. The Hong Kong Monetary Authority (“HKMA”) also issued a companion circular the same day to all authorized institutions, including those acting as licensed insurance intermediaries or as premium financing providers.
The IA noted a marked rise in premium-financed long-term business in the first half of 2026. The increase was observed across a number of life insurers, and for some insurers premium financing has become the main source of new sales.
Period | Figure |
H1 2025 | *Premium-financed business about 21% of new business premiums. |
H1 2026 | *Premium-financed business about 36% of new business premiums (+15 percentage points). |
H2 2026 | IA and HKMA schedule a further joint thematic inspection on premium financing. |
*For some products, PF Policies exceeded 80% of policy count or premiums.
What is Premium-Financed Policies:
Premium-financed policies (“PF Policies”) are commonly used for wealth management. Customer objectives and lapse behaviour can differ materially from non-PF policies. Because participating policyholders share returns from the same participating fund pool, practices on PF business can also affect the long-term outcomes of non-premium-financed policyholders.
Principal risks identified
What the IA observed | |
Interest-rate and market sensitivity | PF business is sensitive to interest rates and economic volatility. Leverage amplifies these risks for policyholders and insurers, raising lapse risk and putting pressure on liquidity in private credit, private equity and other alternatives. |
Correlated stress sales | A concentrated PF book may trigger correlated asset sales at depressed prices in a stress scenario. |
Lapse assumption mismatch | If a large number of customers surrender when target returns are reached, or when financing facilities mature, actual lapse experience may diverge from product-design assumptions and produce adverse financial effects for the insurer. |
Competitive leverage | The industry has competed through larger premium discounts and higher “Day 1” surrender values, while banks have offered higher loan-to-value ratios. Recent IA reviews found sales materials suggesting a policyholder could achieve leverage of up to nine times by contributing only 10% of the premium. |
Supervisory expectations
What is expected | |
Authorised insurers | Comply with the Insurance Ordinance and relevant regulatory requirements when underwriting new policies that use premium financing facilities. |
Authorised insurers - ORSA | Enhance Own Risk and Solvency Assessment (“ORSA”) analysis of PF business, including appropriate lapse and economic stress and scenario testing. |
Insurers - sales and training | Keep materials well balanced. Do not emphasise the leveraging benefit of premium financing. Disclose potential significant losses under adverse scenarios and other key downside risks clearly and prominently. |
Authorized institutions acting as intermediaries | Keep abreast of changes in appointing principals’ materials and ensure the relevant information is properly disclosed and explained to customers. |
SIGNIFICANCE:
Premium financing is no longer a niche wealth-management feature. It now accounts for about 36% of Hong Kong new business premiums. The circular is a clear signal that product design, illustrations, sales scripts, fund management and ORSA should treat PF books as a distinct risk cluster, not as ordinary participating business with a financing overlay. Insurers, banks and intermediaries should review materials, leverage disclosures, persistency assumptions and participating-fund fairness before the H2 2026 joint inspection.
3. IA Requires Authorised Insurers to Adopt an Integrity Management Policy by 1 January 2027
On 31 August 2026, the IA issued a circular to chief executives of all authorised insurers. Each authorised insurer must formulate an Integrity Management Policy, or enhance its existing policy, by 1 January 2027.
The IA’s position is that sound corporate governance and internal controls are essential to the healthy development of the insurance industry. Integrity standards must be clearly communicated and built into the insurer’s control system through:
reporting and enforcement of non-compliance; and
regular review of the integrity policy and related procedures
Essential governance aspects in the sample policy (Annex)
Pillar | Expectation |
Anti-bribery | Prohibit the offer, solicitation or acceptance of advantages. |
Conflicts of interest | Avoid conflicts where possible. Declare and properly manage conflicts that cannot be avoided. |
Confidentiality | Preserve confidential information of the insurer, policyholders and counterparties. |
Enforcement and reporting | Report and enforce non-compliance, including corruption. Provide assistance to regulators and law enforcement agencies. |
Covered Persons | The policy is expected to bind directors, controllers, key persons in control functions, staff and agents. |
Insurance Broker Companies are not required to adopt their own policy under this circular, but counterparties may still raise anti-bribery, conflicts, confidentiality and reporting standards in agency agreements and due diligence.
SIGNIFICANCE:
This circular is addressed to authorised insurers only. Licensed insurance agencies and broker companies are not required to adopt their own Integrity Management Policy under this circular. That said, intermediaries should not treat the development as irrelevant. Appointed agents of an insurer fall within that insurer’s policy once it is in force, and insurers may cascade the same integrity standards through agency agreements, codes of conduct, training and monitoring. Brokers dealing with those insurers may also see tighter counterparties’ expectations on anti-bribery, conflicts, confidentiality and reporting.
Enforcement News
4. IA and Hong Kong Police Force Conduct Joint Operation and Arrest 15 Persons for Suspected Fraudulent Practices at an FLMI Examination Centre
On 27 August 2026, the IA and the Hong Kong Police Force conducted a joint enforcement operation against an examination centre operated by the Greater China Wemedia Association Limited. The centre organised the Fellow, Life Management Institute (“FLMI”) examinations awarded by the Life Office Management Association (“LOMA”). The IA announced the operation on 28 August 2026.
The operation covered searches of nine locations and the arrest of 15 persons, including three current and three former licensed insurance intermediaries.
Cheating in Exams
Police identified a syndicate of three local companies that marketed “intensive revision classes” and a “guaranteed pass”. Candidates were charged an extra HK$14,000 on top of the official examination fee of about HK$20,000. The alleged method was to:
install remote-control software on candidates’ examination computers;
arrange syndicate staff as invigilators; and
have off-site operators sit the online paper while the candidate remained seated, to create the appearance of a normal sitting.
Source: stheadline 29 Aug 2026
Temporary IA Non-Recognition of FLMI
Because there were indications that the suspected malpractice had continued for some time, and that LOMA had not exercised effective monitoring, the IA immediately suspended recognition of the FLMI as a qualification meeting the educational requirements for an insurance intermediary licence. The IA will also review in detail all cases in which the qualification was obtained through the examination centre concerned.
SIGNIFICANCE:
This is the first public use of the 2024 IA and Police joint enforcement MoU and goes directly to fitness and propriety. With immediate effect, FLMI is not recognised as meeting the educational requirements for an insurance intermediary licence. Firms should not treat an FLMI certificate as a valid licensing credential until the IA reinstates recognition. The IA has also said it will review, case by case, qualifications obtained through the affected centre, which may lead to follow-up on existing licences. Identify staff and appointed agents who used FLMI from that centre, keep the records, and be ready for licensing queries.
Markets News
5. HKSAR Government Re-appoints Mr Clement CHEUNG as Chief Executive Officer of the IA
On 14 August 2026, the HKSAR Government announced the reappointment of Mr Clement CHEUNG Wan-ching (張雲正) as Chief Executive Officer of the IA for a further term of three years, from 15 August 2026 to 14 August 2029. Mr CHEUNG was first appointed as CEO in August 2018. He currently serves as a member of the Executive Committee of the International Association of Insurance Supervisors and as a member of the Asian Forum of Insurance Regulators.
Sources:
SIGNIFICANCE:
Continuity of leadership matters for the regulatory calendar, such as RBC refinements, ILS and captives, and the conduct and technology agenda. The more immediate signal is the one CHEUNG gave on reappointment: reduce concentration on mainland-visitor demand and widen the regional client base.
6. First cohort of GenA.I. Sandbox++ announced, including insurance claims and anti-fraud use cases
The HKMA, the Securities and Futures Commission, the IA and the Mandatory Provident Fund Schemes Authority, together with the Hong Kong Cyberport Management Company Limited, announced the first cohort of the Generative Artificial Intelligence Sandbox++ (“GenA.I. Sandbox++”).
From nearly 100 proposals, 36 use cases were selected, involving 30 financial institutions and 27 technology partners. Selection turned on innovation, technical complexity and potential value to the industry, together with advice from an academic selection committee. Participants will be onboarded to a designated platform at Cyberport’s Artificial Intelligence Supercomputing Centre. Technical trials start later in 2026.
This cohort focuses on agentic A.I. systems that go beyond content generation and can take on greater autonomy. Testing will cover end-to-end processes including customer onboarding, payments, insurance claims and customer interactions. Building on the earlier “A.I. vs. A.I.” theme, the pilots will also examine how one A.I. application can provide dynamic oversight of another.
Illustrative themes
Theme | Example use cases |
Risk management | Real-time A.I. judge for chatbots; multimodal A.I. for compliance review; A.I.-enhanced due diligence; A.I. cybersecurity tools; A.I. compliance and regulatory-oversight assistants. |
Anti-fraud | Fraud simulation and defence reinforcement; multi-agent fraud detection and behavioural risk monitoring; intelligent fraud prevention for digitally altered medical documentation. |
Customer experience | Agentic payments; multi-agent wealth management; A.I. knowledge assistant for medical claims; A.I. engagement platforms for MPF scheme members. |
Insurance-sector participants in the first cohort include:
AXA China Region Insurance Company (Hong Kong) Limited;
FWD Life Insurance Company (Bermuda) Limited;
HSBC Life (International) Limited;
BOC Group Life Assurance Company Limited; and
Manulife (International) Limited.
For more details, please refer to the Annex(s)
Mr Clement CHEUNG, Chief Executive Officer of the IA, said: “I am very impressed by the quality and diversity of proposals originating from the insurance industry which reflect a commitment to deploy advanced technologies for the betterment of policyholders. The GenA.I. Sandbox++ has inspired new ideas, generated practical insights and deepened cross-sector collaboration. The IA will strive to reinforce the position of Hong Kong as an international innovative and technology centre under the National 15th Five-Year Plan through progressive expansion of the AI Cohort Programme.”
SIGNIFICANCE:
The first cohort confirms that agentic A.I. in claims, anti-fraud and customer servicing is moving from concept to supervised testing. Firms that are not in the cohort should still prepare governance, model-risk and conduct frameworks. Sandbox learnings are intended to be shared more widely through the IA’s AI Cohort Programme, and those standards will not stay confined to the 30 participating institutions.
[End of ComplianceOne Insurance Newsletter – August 2026]
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