b'TABLE OF CONTENTScustomer to sign a declaration with an Importantterm market by striking a right balance between Facts Statement and requiring insurers to conduct aproduct suitability, market sustainability, customer post-sales check-up call on the customer. As ofvalue and intermediary development. 2020, there are about 1.2 million ILAS policies in Hong Kong, contributing a total of HK$39.87 billionHong Kong and the Implementation as annual premium into the Hong Kong insuranceof IFRS 17industry, according to data from the IA. ILAS is gaining attraction again, as the IA formalizedDespite the International Accounting Standards the assessment of ILAS products on December 28,Boards decision to delay the International Financial 2021. In a circular to insurers, the IA provided furtherReporting Standard 17 (IFRS 17) implementation information on requirements relating to productstandards by a year, beginning on or after January 1, design and information disclosure with particular2023, many insurers are still unprepared for the focus to ILAS with a high level of life protection,upcoming changes. In particular, Hong Kong is in a known as Protection Linked Plans (PLP). unique position that makes the implementation of IFRS 17 challenging.The green light process of assessment streamlinesHong Kong is home to many global and regional the relevant regulatory application proceduresheadquarters of many large insurance groups in through enhanced coordination between the IA andAsia. However it also has a number of domestic life the Securities and Futures Commission (SFC).and non-life insurers. This diversity will present one Under the enhanced mechanism, an insurer mayof the first challenges. Large insurance groups with submit its application to SFC for authorization onceheadquarters in Hong Kong will need to coordinate it has obtained the approval from the IA. the changes across cultures, languages, time zones, According to Ms. Carol Hui, the Executive Directormarkets and regulatory frameworks between their of Long-Term Business at the IA, the purpose of PLPoperating regions. Three key changes are to be is to introduce a product with a higher mortalityhighlighted. First, the IFRS 17 will categorize protection element, a simple and transparent feecompanies by a measurement of profit in line in structure and confined fund choices so as to narrowterms of services provided, rather than in terms of the protection gap and facilitate financial inclusion.revenue. Second, insurance companies will draw up In August 2021, an IA study revealed the existencetheir contracts on a current measurement basis, of a HK$6.9 trillion (US$880 billion) mortalitymeaning they can no longer use historical protection gap in Hong Kong. It is agreed that PLPassumptions. Lastly, the risk of any shortfall of should offer at least one investment choice linkedinvestment returns against pricing assumptions now to an SFC-authorized ESG fund to policyholders.needs to be reflected in the valuation of the The IAs announcement has been well received byinsurance contract.the industry. The Hong Kong Federation of InsurersAmongst other challenges posed by IFRS 17, the (HKFI) has said in a statement that theimplementation of the new standard ranks high on introduction of PLP could revitalize the linked longthe list because of its sheer complexity. It is worth MAYER BROWN |111'