RBC will create winners and losers. How to be a winner

RBC will enable some companies to thrive, others will lose sales 

Most insurers are weary of the impact IFRS 17 has had on them over the last five years, 'good riddance' they may say. For insurers in Hong Kong, something bigger is coming: the Risk Based Capital regulatory regime (RBC). 

 It is compulsory and there will be winners and losers. Like IFRS 17, a company wins or loses depends on their starting position and their desire to make the change work for them. The big difference between IFRS and RBC is that some insurers will see a significant increase in sales, whilst one or two will be forced to exit the market. 

Drivers of success and failure 

Historic risk appetite is the single biggest factor in whether RBC works for an insurer or not. They are identified in more detail in our second paper, in summary: 

  • Companies who have managed their business under regulatory capital requirements (such as Solvency II) can see an immediate benefit (we call these Group 1) 
  • Companies who have chosen to manage their business with an internal capital model will also benefit, and will arguably be best placed to take market advantage (we call these Group 2) 
  • Companies who are not currently constrained by an economic capital model will find RBC a profound threat to their business. They will no longer be able to take advantage of their current risk approach to sales. (we call them Group 3) 
Sales impact due to RBC over time
The key questions insurers should ask of themselves

This starting point dictates the level of advantage or disadvantage each insurer has. Beyond these factors are critical decisions about how to best adapt. The major questions are:

  1. When should the company adopt (two have already)?
  2. Does the company decide to act tactically to reduce short-term risk exposure?
  3. Is the company willing to change its shape to prevent loss of sales?
  4. Does the company act strategically to take market share from others?
  5. Does the company consider exiting the market?
  6. How does the company handle its capitalisation  and relationships with investors?


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