HKIA sets 6% illustration rate cap on HKD policies

Caps apply only to internal rate of return used in benefit illustrations at the point of sale.

The Hong Kong Insurance Authority (HKIA) has introduced caps on illustration rates for participating insurance policies, setting limits of 6% for Hong Kong dollar-denominated policies and 6.5% for non-Hong Kong dollar-denominated policies. 

The new rules take effect on 1 July. Following the announcement, misunderstandings have circulated on social media, with some claims incorrectly stating that the caps limit actual policy returns. 

The HKIA clarified that the caps apply only to the internal rate of return used in benefit illustrations at the point of sale and do not restrict insurers from paying dividends above these rates.  

Competition amongst insurers over illustration rates has intensified in recent years, with some companies offering overly optimistic projections that do not fully account for market volatility and risks. 

This has led to an expectation gap when actual non-guaranteed returns fall short of projections. 

The HKIA believes that setting illustration rate caps will prevent aggressive sales practices and promote fair competition.  

The insurance industry has welcomed the initiative and is preparing for compliance by updating systems and training intermediaries. 

The HKIA is also engaging with the sector on further regulatory measures related to participating policies.  

The regulator encourages the public to review its online resources on participating policies and fulfilment ratios before purchasing a policy to make informed decisions.