Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

Chapter 15: The Prudential Solvency Regimes of East and Southeast Asia

Skadden Publication

Robert A. Chaplin Caroline C. Jaffer Connor Williamson James J. Pickstock Dev Jain Richi Kidiata Zana A. Bakalli Grace Vaughan-Jeffrey

See all chapters of Encyclopaedia of Prudential Solvency and
A Guide to Solvency II.

Introduction

This chapter of the Encyclopaedia of Prudential Solvency discusses select prudential solvency regimes in East and Southeast Asia: those of Hong Kong, Malaysia, Singapore, Vietnam and Taiwan. The regulatory architectures of these jurisdictions are amongst the most sophisticated and distinctive in the Asia Pacific region.

Each of these five jurisdictions is at its own stage of regulatory evolution, but several overarching themes are pervasive across the region. There is a clear regional convergence towards risk-based capital frameworks aligned with international prudential standards. Each jurisdiction is actively pursuing strategies to attract international capital and foster innovation. Policyholder protection and robust governance standards remain foundational priorities across the region. This chapter provides an overview of each jurisdiction’s prudential solvency framework, including its regulatory architecture, capital adequacy standards, governance expectations and distinctive market features.

1. Hong Kong

Background

Hong Kong is one of the world’s pre-eminent international financial centres, with insurance penetration and density figures that rank amongst the highest in the world. Total gross premiums amounted to almost US$86 billion in 2024, with a particularly high life insurance penetration of 17.4% — far greater than 7.7% and 8.2% in the UK and US, respectively.

The jurisdiction has recently completed a fundamental transformation of its regulatory architecture, transitioning from a traditional, rules-based solvency margin regime to a comprehensive, three-pillar, risk-based capital framework. This transition was over a decade in the making.

Regulatory Architecture

Insurance undertakings in Hong Kong are regulated by the Insurance Authority (IA) with its authority deriving from the Insurance Ordinance, Cap 41. The IA is a relatively new regulator, having replaced the former Office of the Commissioner for Insurance in 2017. The IA supervises authorised insurers and insurance intermediaries, and may undertake responsibility for the supervision of large multijurisdictional insurance groups whose ultimate parent entities are incorporated in Hong Kong. The Insurance Ordinance framework applies to both life and non-life insurers, as well as other entities such as captives and reinsurers.

Historically, Hong Kong had a rules-based solvency regime, which focused on fixed solvency margins. However, this was replaced by risk-based regime by way of the Insurance (Amendment) Ordinance 2023, which was fully implemented on 1 July 2024. This change:

  • Aligned Hong Kong with international solvency standards.
  • Introduced risk-sensitive capital requirements, more akin to those required under Solvency II.
  • Has encouraged better asset-liability matching and risk management by requiring insurers to hold capital proportionate to the specific risks they carry.
  • Reinforced a continuing trend for the IA to engage more closely with global bodies such as the International Association of Insurance Supervisors (IAIS).1

The IA’s statutory objectives are to promote the general stability of the insurance industry and to protect existing and potential policyholders.2 All insurers carrying on business in or from Hong Kong must be authorised by the IA3 with separate authorisations for long-term business — such as life and annuity and health — and general business — such as accident, fire and property damage.4 It is worth noting that it is possible to be authorised as a composite, but such entities will be subject to separate prudential calculations for each class.

Transition to a Risk-Based Capital Regime

The implementation of a risk-based prudential regime was instigated in 2014 by the IA’s predecessor.5 Similar to Solvency II, Hong Kong’s risk-based framework is organised around three pillars:6

  • Pillar 1 covers quantitative requirements, including the calculation of capital base and the prescription of capital requirements and valuation methodologies.
  • Pillar 2 addresses qualitative requirements for governance and enterprise risk management, including risk governance, the identification and assessment of risk exposure and the development and enhancement of risk-management techniques.
  • Pillar 3 deals with supervisory reporting and public disclosure, ensuring that the IA and the public market have access to the information needed to assess an insurer’s financial health.

These pillars apply to all authorised insurers with some exceptions, such as marine insurers, captive insurers, special purpose insurers and Lloyd’s.

This three-pillar structure reflects the global consensus that robust prudential supervision must address not just the quantum of capital, but also the quality of risk management and the transparency of information.

Pillar 1

Under Pillar 1, unless varied by the IA, an insurer must maintain a capital base which must never be less than each of:

  • The Prescribed Capital Amount (PCA).
  • The Minimum Capital Amount (MCA).
  • 20 million Hong Kong dollars (US$2.6 million).

The PCA and MCA are largely analogous to the SCR and MCR under Solvency II. The PCA relies upon prescribed methods to calculate and then aggregate capital amounts for market risk, life insurance risk, general insurance risk, counterparty default risk and operational and other risk. These aggregation methods broadly recognise that risk scenarios may be uncorrelated and these calculation methods are broadly calibrated to ensure that, where applicable, for each risk, insurers remain solvent with 99.5% confidence over a one-year period, which is roughly equal to a 1-in-200-year stress event. The MCA, meanwhile, is generally calibrated at 50% of the PCA.

The composition of Pillar 1 eligible capital is divided into three tiers, reflecting the quality and loss-absorbing capacity of different instruments. Unlimited Tier 1 capital may include ordinary fully paid-up share capital and retained earnings. Limited Tier 1 capital may include preferred shares and must not exceed 10% of the PCA. Tier 2 capital may include items such as qualifying subordinated debt instruments and must not exceed 50% of the PCA.

Pillar 1 capital requirements apply at the entire group level (excluding regulated financial entities) to Hong Kong-incorporated insurers and non-Hong Kong-incorporated insurers designated by the IA on the basis that the majority of their business is in Hong Kong. However, they apply only to assets, liabilities and capital related to the business carried on in Hong Kong for insurers incorporated outside Hong Kong which have not been designated by the IA.7

Pillar 2

Pillar 2 establishes the qualitative governance expectations that sit alongside the quantitative requirements. Similar to Solvency II, there is an Own Risk and Solvency Assessment (ORSA).8 This is a forward-looking, board-approved assessment that each insurer — including on a consolidated basis, where applicable — must conduct at least annually. An ORSA must also be carried out promptly whenever there is a material change in risk profile. The ORSA requires an insurer to assess its overall solvency needs in light of its specific risk profile, risk appetite and business strategy, and to identify where its actual risk profile diverges from the standard formula assumptions.

The Pillar 2 framework imposes a duty on the boards of insurers to define risk management responsibilities and reporting lines, to agree a risk appetite statement and to establish policies and procedures to identify risk, measure and quantify risk, monitor and report risk, and review mitigate or transfer risk in a manner proportionate to the nature, scale and complexity of its operations.

Pillar 2 operates in conjunction with statutory controls over key control functions, including risk management, compliance, internal audit and the actuarial function. Each function must have appointed leaders who satisfy the IA’s fit-and-proper requirements.9

The IA also conducts its own risk-based supervisory assessments alongside insurers’ internal processes, marking a significant evolution from the previous compliance-focused model.

Pillar 3

Pillar 3 introduces enhanced transparency obligations, which fall under one of two headings: (i) confidential regulatory reporting to the IA, and (ii) public disclosure to the market.

In respect of regulatory reporting, each year, authorised insurers must submit their audited financial statements, an auditor’s report, an actuary’s report, their annual ORSA report and detailed returns to the IA covering their financial position, capital adequacy, business results, governance and, for insurers engaged in long-term business, their anti-money-laundering and counter-terrorist-financing program.

Public disclosure rules are broadly comparable to the SFCR under Solvency II in the European Economic Area and UK and are intended to provide policyholders, counterparties and other market participants with meaningful information about an insurer’s financial position and performance, investments, insurance liabilities, pricing adequacy, capital adequacy and risk management.

Supervisory Intervention

The IA has a graduated ladder of supervisory intervention tools.

At the outset, an insurer must notify the IA immediately if any of its directors or key control personnel reach a view that the insurer is at risk of contravening capital requirements or if such personnel know or have reason to believe that such a contravention has occurred. Failure to do so is an offence.10

Where the IA comes to understand that there is or may be a failure to meet PCA or MCA requirements, it will typically exercise statutory powers to require a plan to restore capital to the PCA or MCA level or to increase capital to pre-empt an anticipated breach of the PCA or MCA level.11 Failure to comply with the plan or scheme within prescribed timelines is an offence and can ultimately lead to the revocation of authorisation or — in the most serious cases — commencing winding-up proceedings. The IA may, in addition, impose conditions on authorisation, restrict writing of new business or require reduction of risk exposure.

The IA also has powers to impose financial penalties for breaches of the Ordinance and associated legislation.12

Proportionality is a key principle: Supervisory intensity is calibrated to the size, complexity and risk profile of each insurer.

Group Supervision

Group supervision is an important dimension of the prudential framework and operates alongside, and in addition to, the solo supervision of each individual authorised insurer. The IA may designate an entity incorporated in Hong Kong which holds an authorised insurer or which is an authorised insurer that holds another body that carries on insurance business in a place outside Hong Kong as an insurance holding company, thus subjecting that entity and its subsidiaries as part of a supervisory group regulated by the IA.12 Designation will depend upon the number of jurisdictions outside Hong Kong in which the group carries on insurance business as well as the size of the insurance and other businesses of the group.

At group level, the IA requires designated insurance holding companies to:

  • Maintain capital based on the sum of the local requirements applicable to each supervised group member.
  • Complete a group ORSA.
  • Submit reports and plans to the IA, including an annual group capital adequacy report.
  • Disclose and manage intragroup transactions.
  • Ensure appropriate group governance, risk management and internal controls.13

For those Hong Kong insurance groups with material operations in mainland China, this may involve close engagement between the IA and China’s National Financial Regulatory Administration (NFRA), which regulates the insurance sector on the mainland.

The Greater Bay Area

The interaction between the Hong Kong and mainland prudential frameworks is an evolving area, particularly in the context of the Greater Bay Area initiative.

The Greater Bay Area — officially known as the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) — is a national-level strategic initiative creating an integrated economic zone across Hong Kong, Macao and nine Guangdong Province cities. For Hong Kong’s insurance sector, the GBA presents a substantial opportunity: a large and growing middle class which is generating demand for the sophisticated protection, savings and retirement products that Hong Kong insurers are well-positioned to provide.

The IA has taken significant steps to facilitate cross-boundary business, for example by working with the mainland government to implement after-sales service centres in GBA cities that will provide ongoing servicing to Hong Kong policyholders in the mainland. This addresses a real practical barrier within the GBA.

ILS Hub Initiative

Insurance-Linked Securities (ILS) represent one of the most dynamic areas of the global reinsurance market, and Hong Kong has made a deliberate and well-resourced effort to establish itself as a leading ILS domicile for the Asia Pacific region. The legal framework for ILS issuance was introduced in 2021 and created the concept of Special Purpose Insurers (SPIs). An SPI is a dedicated, ring-fenced, bankruptcy-remote vehicle that issues ILS instruments to capital market investors and uses the proceeds to collateralise reinsurance protection for a ceding insurer.

The Hong Kong government has even established a grant scheme14 to subsidise the issuance costs of ILS transactions arranged through Hong Kong-based SPIs, allowing the domicile to be more cost-competitive relative to established offshore centres. To drive uptake, the Hong Kong government has announced proposals to include ILS as a class of securities in which funds and family offices may invest on a tax-exempt basis.15

The market has facilitated multiple catastrophe bond listings. The insurance industry has utilised catastrophe bonds as an alternative solution to traditional reinsurance and retrocession contracts, and as such the success of the ILS in attracting such activity presents an opportunity to tap into risks arising from earthquakes, typhoons, floods and droughts in the APAC region. As well as these natural disaster bonds, however, the scope of the market is also rapidly expanding to cover specialty risks and broader alternative risk solutions.16

Next Steps for Prudential Regulation in Hong Kong

There are several significant developments in train for the Hong Kong prudential regulatory landscape:

  • First, the potential for internal model approval: The framework is currently built around the standard formula, but larger and more sophisticated insurers may in time apply to use internal models, whether full or partial, to achieve a more risk-sensitive assessment of their capital requirements.
  • Second, new and alternative asset classes: The IA is exploring ways in which it can allow insurers to invest in new asset classes, including digital assets, whilst imposing appropriate capital charges.
  • Finally, the ILS market will continue to grow, supported by a well-designed legal framework, a supportive regulatory environment, and a government committed to financial incentives for market development.

2. Malaysia

Background

Malaysia has a highly developed insurance market, with total gross written premiums for general insurance reaching 23.1 billion Malaysian ringgit (US$5.6 billion) in 2024. According to the General Association of Malaysia, this represents year-on-year growth of 6.9%. The life insurance market is estimated to have reached US$10 billion to US$13 billion in gross written premiums over the same period. Insurance and takaful (Malaysia’s comprehensive Islamic insurance framework) penetration currently stands at 4.4% of GDP, although Bank Negara Malaysia (BNM) — the central bank and prudential regulator — is targeting an increase to approximately 5% of GDP by the end of 2026 under its Financial Inclusion Framework for 2023 to 2026.

What makes Malaysia particularly distinctive from a practitioner’s perspective is its dual financial system covering both onshore and offshore insurance. Conventional insurance regulation operates alongside takaful; and each is governed by separate primary legislation. Onshore insurance is supervised by BNM, while offshore insurance conducted in the Federal Territory of Labuan falls under the purview of the Labuan Financial Services Authority. Malaysia is also in the midst of a landmark reform: BNM issued an exposure draft in June 2024 setting out proposed changes to its Risk-Based Capital framework (RBC2), with implementation targeted for 1 January 2027.

Legal and Regulatory Framework

Primary Legislation and the Role of BNM

The primary legislation governing conventional insurance in Malaysia is the Financial Services Act 2013 (FSA). For Islamic insurance, the main law is the Islamic Financial Services Act 2013 (IFSA). Both pieces of legislation were given royal assent on 18 March 2013 and came into force on 30 June 2013. The FSA consolidated several predecessor statutes, namely the Banking and Financial Institutions Act 1989, the Insurance Act 1996, the Payment Systems Act 2003 and the Exchange Control Act 1953. The IFSA similarly consolidated the Islamic Banking Act 1983 and the Takaful Act 1984.

BNM is established under the Central Bank of Malaysia Act 2009. Its principal regulatory objective under the legislation is to promote financial stability, including the safety and soundness of financial institutions, the integrity of financial markets and the protection of financial consumers. A critical structural feature is that there is no separate conduct regulator; BNM combines both prudential and conduct supervision in a single body.

The Dual Framework: FSA and IFSA in Practice

The FSA and IFSA are parallel frameworks, deliberately designed to allow conventional and Islamic financial institutions to operate on a level playing field. Approximately 75% of the provisions between the two acts overlap.

The critical departure is Part IV of the IFSA, which creates a comprehensive statutory Shariah governance framework. Under the IFSA, all Islamic financial institutions, including takaful operators, must ensure their aims, operations, business, affairs and activities are in compliance with Shariah at all times. Carrying on Shariah-noncompliant activities is a statutory criminal offence. BNM — through its Shariah Advisory Council, established under the Central Bank of Malaysia Act 2009 — holds wide powers to assess, intervene, direct and penalise for breaches. This statutory enforcement architecture has no real parallel in Solvency II, or indeed most comparable international frameworks, and is a threshold consideration for any practitioner advising on takaful market entry.

Shariah governance operates on a two-tier structure. At the institutional level, every takaful operator must maintain an internal Shariah committee, whose members require BNM’s prior written approval for appointment and reappointment. At the national level, BNM’s Shariah Advisory Council serves as the apex Shariah authority for the industry, with its rulings binding on all Islamic financial institutions.

Two structural constraints flow from the FSA and IFSA:

  • First, insurers are no longer permitted to operate under composite licences. The current framework requires life and general insurance businesses to be separately licensed. The same rule applies to takaful operators, where family takaful and general takaful require separate licensed entities, with limited exceptions for professional reinsurers and retakaful operators.
  • Second, minimum paid-up capital for conventional life and general insurers, as well as for takaful operators, is 100 million Malaysian ringgit (US$24.2 million) in each case. Professional reinsurers and retakaful operators face higher thresholds reflecting their larger risk footprint. Licence applications are made to BNM, and the licence itself is granted by the Minister of Finance. Foreign insurers must also obtain approval from their home regulator exercising consolidated supervision.

Capital Requirements

The Current RBC Framework

The current Risk-Based Capital framework for insurers was issued by BNM on 17 December 2018 and applies to all licensed insurers, including professional reinsurers. A parallel Risk-Based Capital framework for takaful operators applies to licensed takaful operators, including professional retakaful operators. The central metric is the Capital Adequacy Ratio (CAR), calculated as total capital available divided by total capital required. The supervisory target CAR is set at 130%.

Total capital required is the sum of capital charges across four main risk categories: credit risk, market risk, liability risk, and operational and expenses risk. This is determined separately for each fund maintained by the insurer — the insurance fund and the shareholders’ fund.

The current framework provides two explicit trigger levels: the supervisory action level at 130% CAR, and a lower mandatory control level that triggers more prescriptive intervention. Beyond the CAR framework, BNM holds extensive powers under the FSA and IFSA, including the ability to remove directors, chief executives and senior officers; reduce share capital; appoint a receiver and manager; and, in extremis, assume control of an institution. It may also order share transfers or share issues. These powers were significantly strengthened by the FSA and IFSA compared to predecessor legislation.

Policyholders benefit from the Takaful and Insurance Benefits Protection System administered by the Perbadanan Insurans Deposit Malaysia. Approximately 95% of all policyholders are protected up to 500,000 Malaysian ringgit (US$120,800) in respect of ringgit-denominated policies.

Takaful-Specific Capital Architecture

The takaful RBC framework has a structurally distinct architecture. Most Malaysian takaful operators use the wakalah model — an agency arrangement under which the operator manages takaful funds on behalf of participants, receiving an agency fee charged to the participants’ fund plus a performance incentive linked to the fund’s investment or underwriting surplus.

The participants’ risk fund is separate from the participants’ investment fund, and separate from the operator’s own shareholders’ fund. The takaful RBC framework requires the operator to hold sufficient capital in the shareholders’ fund to support any shortfall in the participants’ risk fund, with CAR calculations performed at fund level.

In a shortfall scenario, the operator may be required to provide a qard hasan — an interest-free loan — to the participants’ risk fund. The qard hasan is not a conventional debt instrument, and its treatment in the capital framework is a unique takaful feature with no direct parallel in conventional insurance.

RBC2: The Forthcoming Reform

On 28 June 2024, BNM issued its exposure draft on the RBC2 framework, targeting implementation from 1 January 2027 and parallel reporting from the reporting period beginning 1 January 2026. BNM’s stated objectives are fourfold:

  • To ensure the framework appropriately reflects underlying risk exposures.
  • To ensure capital adequacy is commensurate with risk profile at all times.
  • To promote consistent measurement across the insurance and takaful sector.
  • To achieve greater alignment with the Insurance Capital Standard (ICS) issued by the International Association of Insurance Supervisors, calibrated to Malaysian market conditions.

RBC2 draws on ICS concepts while preserving features of the existing Malaysian framework — in other words, it is a considered local response to the development of a global solvency standard, and not a wholesale transposition.

The most substantial change for general insurers and general takaful operators is the introduction of a catastrophe risk charge — an entirely new risk module requiring capital calculations specifically for catastrophe perils including floods, earthquakes and windstorms. Gross losses are reduced by reinsurance recoveries to produce the net losses on which the capital charge is based. From 2027 onwards, reinsurance treaty structures and counterparty selection will directly affect capital adequacy ratios.

For life insurers and family takaful operators, RBC2 enhances how insurance liabilities are valued, moving toward greater risk-sensitivity in liability measurement and drawing on ICS concepts including more forward-looking cash-flow assessments and a more granular risk-margin treatment. RBC2 also introduces a unified approach to the CAR formula across both insurers and takaful operators, promoting greater comparability of capital adequacy measurement across the two sectors. This is a significant conceptual development, given that the two frameworks had previously retained certain structural differences despite their shared architecture.

Quantitative Impact and Practical Considerations

BNM conducted a Quantitative Impact Study (QIS2) as part of the exposure draft process, requesting responses from licensed persons by 31 December 2024. QIS2 results will inform the final calibration of RBC2 before it comes into force. Individual risk charges are generally rising under the proposals; operators with less diversified risk profiles or significant catastrophe exposure are likely to see reductions in their capital adequacy ratios.

International reinsurers should pay close attention to the RBC2 treatment of counterparty default risk on reinsurance recoveries, which introduces specific requirements for how capital charges are calculated where reinsurance recoveries are relied upon.

For takaful operators specifically, BNM’s January 2025 policy document on hajah and darurah — respectively meaning need and dire necessity — clarifies the parameters for takaful operators to use conventional reinsurance on grounds of necessity, where retakaful capacity or expertise is insufficient or where risks could undermine takaful fund stability. This is directly relevant to RBC2 implementation given the importance of reinsurance in managing catastrophe risk capital charges and the limited depth of the retakaful market.

Takaful: Governance and Shariah Compliance

Shariah Governance Requirements

The IFSA establishes a comprehensive statutory Shariah governance framework that goes considerably further than most comparable international frameworks. Every licensed takaful operator must maintain an internal Shariah committee, with BNM’s prior written approval required for all appointments and reappointments. The committee’s rulings bind the institution. BNM’s Shariah Advisory Council sits above this as the apex national authority, with rulings binding on all Islamic financial institutions.

A takaful operator’s legal risk profile therefore includes not only conventional regulatory and contractual exposures, but a live criminal liability exposure if its operations are found to be Shariah noncompliant. International practitioners entering the takaful market must appreciate this at the outset and ensure specialist Shariah governance advice is built into any due diligence or structuring exercise.

Operating Models

Takaful operators in Malaysia operate predominantly under either the wakalah model — an agency arrangement — or a hybrid wakalah-mudarabah model, which is a hybrid agency-profit share model under which the operator additionally acts as investment manager and shares in the investment profits of the fund, acting as the mudarib.

BNM’s Takaful Operational Framework Policy Document sets out the permissible models and their specific governance requirements. The choice of operating model has direct prudential implications: It determines the structure of the takaful funds and the flows between them, affects how the RBC calculations apply (particularly regarding the agency fee as a liability risk charge) and determines how the qard hasan obligation is triggered in a shortfall scenario. Practitioners advising on takaful group structures or on the acquisition of takaful operators must work through these fund-flow implications carefully.

Digital Innovation: The DITO Framework

On 9 July 2024, BNM issued its Policy Document on the Licensing and Regulatory Framework for Digital Insurers and Takaful Operators (DITOs), which came into effect on 2 January 2025. Formal DITO licence applications are accepted from 2 January 2025 through 31 December 2026. The DITO framework is aligned with BNM’s Financial Sector Blueprint for 2022 to 2026, and its stated purpose is to close Malaysia’s significant protection gap. Approximately 90% of the Malaysian population are underinsured, and over 85% of small and medium-size enterprises have inadequate coverage.

DITOs undergo a foundational phase of between three and seven years from commencement of operations. The most significant regulatory flexibility is a lower minimum paid-up capital of 30 million Malaysian ringgit (US$7.2 million) at entry and throughout the foundational phase, compared with 100 million ringgit (US$24.2 million) for established conventional insurers and takaful operators. At the end of the foundational phase, a DITO must demonstrate, to the satisfaction of BNM, that it has reached and is maintaining the full minimum paid-up capital of 100 million ringgit.

The assessment criteria are built around three core value propositions:

  • Inclusion — demonstrating how the business model enhances financial resilience for unserved or underserved consumers.
  • Competition — introducing innovative products for diverse protection needs.
  • Efficiency — delivering a convenient, seamless, and cost-efficient consumer experience.

BNM has removed its previously indicated cap of five DITO licences, leaving the market, in principle, open to all qualifying applicants. BNM requires a seven-year business plan, including an exit plan, and DITOs must be prepared to voluntarily surrender their licence and wind up if their model becomes unsustainable during the foundational phase.

Digital takaful operators — licensed as DITOs under the IFSA — are subject to exactly the same Shariah governance obligations as conventional takaful operators. There is no relaxation of Shariah compliance requirements during the foundational phase. A DITO applying for a digital takaful licence must have a fully operational internal Shariah committee from the point of licensing, with Shariah-compliant products and operations from day one. Fintech and insurtech applicants seeking to operate in the takaful space must demonstrate robust Shariah governance infrastructure — including qualified Shariah scholars for the internal Shariah committee and appropriate Shariah audit and risk management functions — alongside their digital and prudential capabilities.

Governance, Risk Management, Reporting and Disclosure

BNM adopts a risk-based supervision approach, calibrating supervisory intensity to each institution’s individual risk profile. The FSA and IFSA contain detailed governance provisions applicable to all licensed persons, including requirements on board composition, senior management suitability, internal control functions and risk management. BNM’s prior written approval is required for the appointment or re-election of the chairman, directors and chief executive officer of any licensed insurer or takaful operator. BNM also has the power to remove directors and senior officers where it considers this necessary to protect the soundness of the institution or the interests of policyholders.

The RBC framework requires insurers to establish links between their risk and solvency capital management activities, with robust enterprise risk management frameworks proportionate to the size and complexity of the business and dedicated independent control functions. Financial groups are subject to consolidated supervision through the Financial Holding Company (FHC) framework, introduced under the FSA and IFSA. An FHC holding more than 50% of shares in a licensed entity must be approved by BNM and is subject to prudential requirements under the IFSA.

Reporting and Market Conduct

Insurers must submit RBC reports to BNM on a regular basis, certified by the appointed actuary and the chief executive officer — the actuary’s central certification role being a defining feature of the Malaysian reporting framework. BNM may require more frequent reporting where it considers this appropriate given an institution’s risk profile. Takaful operators are subject to similar requirements.

On market conduct, BNM has introduced policies requiring insurers to publish, on their website, reasons for changes in premiums, following significant medical inflation pressures in the Malaysian market from 2024 onwards. BNM has mandated that premium increases be staggered over a minimum of three years and has capped annual health insurance premium increases at 10% for the years 2024 to 2026.

In early 2026, BNM further announced that it will strengthen regulatory requirements for all medical and health products, alongside the introduction of a standardised base Medical and Health Insurance Takaful (MHIT) plan. The base MHIT plan, offered on a voluntary basis, is scheduled for pilot implementation in the second half of 2026, with a full rollout targeted for early 2027, coinciding with the expiry of BNM’s interim measures on medical insurance repricing. Policyholders facing repricing will have the option to switch seamlessly to the base plan with their current insurer, without new medical underwriting.

Labuan Offshore Insurance

Labuan is a Federal Territory island off the coast of Sabah and is home to the Labuan International Business and Financial Centre (Labuan IBFC). It operates under an entirely separate regulatory regime from the onshore market supervised by BNM. The Labuan IBFC was established in 1990 and is regulated by the Labuan Financial Services Authority (Labuan FSA), a regulator with a separate statutory mandate from BNM. The primary legislation consists of the Labuan Financial Services and Securities Act 2010 and the Labuan Islamic Financial Services and Securities Act 2010.

A defining feature is that Labuan insurance business is transacted in foreign currency and expressly excludes domestic insurance business, although Labuan insurers and reinsurers may access certain permitted Malaysian risks — including marine, aviation and transit — subject to regulatory approval, and may reinsure Malaysian domestic business. The Labuan IBFC offers a business-friendly, low-tax and efficient environment for various financial services, including banking, insurance and wealth management.

Licences under the offshore framework include direct insurers and reinsurers (general and life), captive insurers, insurance managers, underwriting managers, insurance brokers and Islamic equivalents such as takaful operators, retakaful operators and related intermediaries. The offshore framework continues to allow composite licences, enabling a single insurer or reinsurer to conduct both life and general insurance business. Takaful and retakaful windows — allowing a conventional licensee to offer Islamic products from the same entity — are available without a separate licence, a pragmatic feature distinguishing Labuan from most comparable offshore jurisdictions.

The captive market is a particular draw for multinationals with Asia Pacific risk exposures. Available structures span single-parent captives; group, association and multiowner captives; rent-a-captives and master rent-a-captives; and Protected Cell Companies (PCCs), where legislation ring-fences each cell’s assets and liabilities, and which may be used for both conventional and Shariah-compliant business.

Minimum paid-up capital requirements vary depending on the type of captive structure. For pure or single captive and group or association captives, the minimum is 300,000 Malaysian ringgit (US$72,500), whereas rent-a-captive and PCC structures require a higher minimum of 500,000 ringgit (US$120,800). The solvency margin is calculated at the higher of:

  • the required working fund amount;
  • 10% of net premium income for the preceding year;
  • 10% of provision for outstanding claims for the preceding year for general business; or
  • 2.5% of the actuarial valuation of the liabilities for life business.

Next Steps for Prudential Regulation in Malaysia

Malaysia’s insurance regulatory framework presents several headline considerations for practitioners.

First, the dual onshore and offshore framework — featuring both conventional and Islamic regulation — is unique globally and requires careful navigation by any insurer or reinsurer entering or operating in Malaysia. The prohibition on composite licences and the minimum capital thresholds are structural constraints that shape group architecture from the outset.

Second, RBC2 comes into force on 1 January 2027 and will substantially alter the capital landscape. Operators need to be modelling its impact now and engaging with the QIS2 outcomes when published, with parallel reporting commencing 1 January 2026.

Third, the DITO framework represents a genuine liberalisation opportunity. It is one of very few markets globally where digital insurance newcomers can enter with a proportionate capital regime of 30 million Malaysian ringgit (US$7.2 million) and a clear regulatory pathway to scale.

Finally, the Shariah governance framework under the IFSA is significantly more prescriptive than most international practitioners expect. The statutory enforcement of Shariah compliance, including criminal liability for noncompliance, is a feature with no real parallel in the conventional insurance world. This demands specialist advice for any institution wishing to participate in the takaful market, whether as a licensed takaful operator, a reinsurer providing capacity to a takaful fund or an investor in a takaful group.

3. Singapore

Background

Singapore’s insurance market is on a strong growth trajectory, projected to expand at an annual rate of 6.3% between 2026 and 2030, with gross written premiums expected to reach approximately US$6.5 billion by 2030. The market is dominated by personal accident and health, motor, property and liability insurance, which together account for over 80% of total gross written premiums.

Underpinning this growth is a robust prudential regime — the Risk-Based Capital 2 (RBC2) framework — administered by the Monetary Authority of Singapore (MAS).

Regulatory Architecture – The RBC2 Framework

Singapore’s insurance industry is regulated by the MAS under the RBC2 framework, which was first introduced in 2004 and has since evolved to keep pace with international standards and the changing risk landscape. The RBC2 regime is designed to ensure that insurers hold capital commensurate with the risks they actually face, rather than imposing a uniform, one-size-fits-all capital requirement.

The core requirements are set out in MAS Notice 133, the principal rulebook for valuation and capital standards. Insurers are required to maintain a minimum level of financial resources of at least 5 million Singapore dollars (US$3.9 million) and to calculate their Capital Adequacy Ratio (CAR), which is the ratio of an insurer’s financial resources to its Total Risk Requirement (TRR). Where an insurer operates multiple funds, it must also calculate a Fund Solvency Ratio (FSR) for each fund.

Capital Requirements

Solvency Intervention Levels

There are two key solvency intervention levels under the RBC2 framework. The higher level is the Prescribed Capital Requirement (PCR), calibrated at a 99.5% Value-at-Risk over a one-year period. The lower level is the Minimum Capital Requirement (MCR), set at a 90% Value-at-Risk and pegged at 50% of the PCR.

The approach taken by the MAS is closely analogous to the European Solvency II regime. The methodology used to calculate the PCR is identical to the approach applied for determining the Solvency Capital Requirement (SCR) under Solvency II. There is, however, a slight divergence in the calculation of the MCR: Under Solvency II, the MCR is calibrated to a confidence level of 85% over a one-year period, as compared to the 90% threshold applied in Singapore.

Composition of Regulatory Capital

The RBC2 framework uses a tiered approach to regulatory capital, similar in structure to Solvency II. Tier 1 Capital is the core capital and includes paid-up ordinary share capital, retained earnings, surplus from overseas branches and any Additional Tier 1 instruments for Singapore-incorporated insurers. It also includes the surplus of assets over liabilities in all insurance funds (other than participating funds) and, for each participating fund, the balance in its corresponding surplus account. Tier 2 Capital consists of qualifying subordinated instruments. Notably, there is no Tier 3 capital under the Singapore regime, meaning insurers have less flexibility in the types of capital they can deploy.

The MAS has set out detailed eligibility criteria for both Tier 1 and Tier 2 capital instruments. For example, Tier 2 instruments must be fully paid-up, must have a minimum original maturity of five years and must not contain incentives to redeem early. There are also strict requirements around subordination, loss absorption and investor eligibility — retail investors in Singapore are generally unable to purchase these instruments.

Matching Adjustment

The RBC2 framework permits insurers to use a Matching Adjustment (MA) when valuing long-term insurance liabilities. The MA allows insurers to adjust the discount rate used to value such liabilities, provided they can demonstrate that the assets backing those liabilities are closely matched in terms of cash flows and credit quality.

The MAS has specified that only certain assets are eligible for inclusion in an MA portfolio. These include Singapore Government Securities, SGD- or USD-denominated investment-grade corporate bonds (including those issued by Singapore Statutory Boards), US Treasury securities, and cash in SGD or USD. Unrated bonds may also be included where the insurer has an MAS-approved internal credit rating model.

To apply the MA, insurers must obtain regulatory approval and establish robust governance processes. They are also required to submit detailed documentation, including asset and liability cash flow projections, and to undergo regular independent reviews. The MA may only be applied to certain types of life insurance products, primarily non-investment-linked policies denominated in SGD or USD.

Takeaways for Foreign Entrants

The RBC2 framework is broadly aligned with international best practice, and its general principles should be familiar to insurers operating in other major markets. There are generally two routes by which foreign insurers can enter the Singapore market. The first is to apply for an insurance company licence from the MAS. The second is through the Lloyd’s Asia platform, which is the largest Lloyd’s underwriting centre outside London. Lloyd’s Asia currently has more than 200 underwriters representing 15 syndicates, reflecting significant and ongoing activity in the region.

The regulatory environment in Singapore is stable, transparent and supportive of innovation. It is, however, demanding — insurers should be prepared for rigorous supervision and ongoing compliance obligations.

4. Vietnam

Background

Vietnam is a rapidly evolving insurance market, with recent regulatory reforms, strong economic growth and a government vision to position the country as a regional financial hub.

Vietnam’s insurance sector has become an increasingly attractive destination for international investors and insurers, driven by robust market growth, regulatory liberalisation and rising demand for insurance products. As of September 2025, Vietnam’s insurance market includes 32 non-life insurance companies, one branch of a foreign non-life insurer, 20 life insurance companies and two reinsurance companies, many of which are foreign-owned or have significant foreign investment.

In the first nine months of 2025, total insurance premium revenue reached approximately 171.7 trillion Vietnamese dong (VND) (roughly equivalent to US$6.53 billion), with non-life insurance growing by over 10% year-on-year. The sector’s assets have also expanded significantly, with total assets nearing VND 1,077 trillion (US$41 billion) and technical reserves and owners’ equity both showing double-digit growth. This robust expansion is driven by a young, increasingly financially literate population and a resultant rising demand for health, life and property insurance.

Despite this significant growth in recent years, insurance penetration still remains below 3% of GDP. For context, the UK had insurance penetration of 7.4% in 2024, which was broadly in line with other major economies. The Vietnamese government has set certain growth targets and has a detailed agenda in place. For example, by 2030, the government aims for 18% of the population to hold life insurance policies, in comparison to 10% currently, and for overall insurance penetration to reach 3.5% of GDP. The sector is therefore recognised as a key pillar for long-term economic resilience and capital market development. These ambitious growth targets, coupled with strong demographic growth, are amongst the main reasons why strategic reforms to Vietnam’s insurance sector have been enacted.

Regulatory Architecture

Vietnam’s insurance sector has transformed over the last 20 years. Prior to 2000, the market was essentially wholly state-run. Bao Viet, Vietnam’s state-owned insurer, held a monopoly and there were no private firms operating in the sector.

However, the transition in Vietnam towards an insurance market with greater openness arose as a result of the enactment of the 2000 Law on Insurance Business, which came into force on 1 April 2001. New rules were introduced for both life and non-life insurance, reinsurance and brokerage activities, and for the first time private companies were permitted to participate in the insurance industry. Since then, the Vietnamese government has implemented incremental reforms, aimed at gradually opening up the market and making it more competitive.

Today, Vietnam’s primary insurance regulatory authority is the Ministry of Finance, which is responsible for licensing, supervising and inspecting insurance-related entities, as well as issuing regulations, setting financial safety standards and formulating national insurance development strategies. The Ministry of Finance is supported by the Insurance Supervisory Authority, which conducts regular and ad-hoc supervision of insurers’ operations, focusing on solvency, capital adequacy, risk management and compliance with disclosure and financial health requirements.

On the legislative side, the main legal instrument currently regulating insurance business is the Law on Insurance Business, issued by Vietnam’s National Assembly in 2022. The most important requirements set out in the 2022 Law on Insurance Business, together with its amendments in 2025, are explored below.

Since 2007, Vietnam has been a member of the International Association of Insurance Supervisors (IAIS) and is a contracting party to a number of treaties regulating cross-border insurance and reinsurance services, such as the EU-Vietnam Free Trade Agreement regulating reinsurance services.

Investment and Market Entry Requirements

Vietnam provides a relatively open market to foreign investment and there are no statutory caps on foreign ownership. Recent reforms have also streamlined the licensing process in the jurisdiction. The commercial presence of a foreign entity can be established: (i) as a joint venture with a Vietnamese partner; (ii) as a wholly foreign-owned enterprise; (iii) through the acquisition of a domestic company; or (iv) through the establishment of a foreign branch in Vietnam of an overseas insurer.

However, a key restriction in the Vietnamese market is that foreign investors cannot establish a foreign branch to carry out life insurance business. These foreign investors are only able to pursue non-life insurance or reinsurance business in Vietnam.

Overall, the licensing process is comprehensive, with the Ministry of Finance reviewing applications for completeness and substance and requiring detailed documentation on corporate structure, risk management as well as internal controls to be submitted. Ultimately, the Ministry of Finance assesses each application based on financial capacity, business plan, governance, and compliance with regulatory standards.

Capital Requirements

The current minimum capital levels depend on the specific business line of the relevant entity in question.

With regards to life and health insurers, the minimum capital requirements within the Vietnamese market are VND 750 billion (US$29 million). Regarding non-life and health insurance entities, as well as entities conducting term life insurance business with a term of one year or less,17 the minimum capital requirement is VND 400 billion (US$15 million). For full-scope reinsurance carrying out life, health and non-life business, the relevant minimum capital requirement is up to VND 1,400 billion (US$53 million). Insurance brokers conducting both direct insurance brokerage and reinsurance brokerage activities are subject to minimum capital requirements of VND 10 billion (US$380,000).

In addition to the above, all insurers and reinsurers must pay a security deposit equal to 2% of the relevant required capital into escrow in a Vietnamese commercial bank. This deposit is only released upon termination of operations and can be used to meet policyholder obligations if solvency is inadequate.

These requirements are designed to ensure that only very well-capitalised, stable entities operate in the market, and the Ministry of Finance has the authority to reject applications that do not meet these standards or fail to address market needs. However, this “one-size-fits-all” approach could have its limitations, as the minimum capital requirement figures referenced above are not immaterial, and are presumably prohibitive to entities which are not larger organisations intending to write a significant amount of business.

Vietnam’s capital requirements for insurance undertakings are set for substantial transformation. The 2025 amendments have set out a roadmap for insurers and reinsurers to adopt a risk-based capital regime in parallel with the current regime. From 2031 onwards, the risk-based capital regime will instead become mandatory.

It is worth noting that the capital requirements mentioned above apply where investors enter the market by establishing a local presence in Vietnam. For entities providing services on a cross-border basis, the financial capacity requirements are more stringent. Specifically, foreign insurers must have at least US$2 billion in total assets, while the minimum for foreign brokers is US$100 million. They must also maintain a statutory deposit of at least VND 100 billion (US$3.8 million) at a licensed Vietnamese bank and must provide a payment guarantee letter issued by that bank to guarantee capacity to settle claims that exceed the mandatory deposit amount. Furthermore, foreign insurers must have a minimum credit rating of BBB from Standard & Poor’s or Fitch, B++ from AM Best or Baa1 by Moody’s, or an equivalent rating; and both foreign insurers and foreign brokers must have been profitable for three consecutive years.

Regulatory Requirements − Fitness and Propriety Standards and Policyholder Protection

In the Vietnamese market, senior managerial positions must be covered by qualified personnel who meet certain requirements. There are several crucial conditions and standards required of key personnel. Members of the board, directors and legal representatives must all hold a university degree or higher. Such individuals also must not have been subject to administrative sanctions in the field of insurance business in the three years prior to appointment or be under prosecution at the time of appointment. In addition, these individuals must also have at least three years of direct experience in the insurance, finance or banking sector (or five years for directors and legal representatives) or three years in managerial or controlling positions in organisations operating directly in the same sectors more broadly.18

Beyond qualifications and fitness and propriety requirements imposed on key personnel, policyholder protection is also a cornerstone of Vietnam’s regulatory framework. With regard to policyholders, one of the key protections is the compulsory reserve fund, to which insurers, reinsurers and foreign branches must contribute. This mechanism is designed to provide a safety net for policyholders if an insurer becomes insolvent or bankrupt. Contributions to the protection fund are made on an annual basis at 5% of after-tax profits and the maximum amount of the levy is capped at 10% of the entity’s charter capital. Dividends and other returns of capital cannot be paid to shareholders unless this requirement is satisfied.

Further to the above, from 1 January 2031, new bankruptcy procedures for insurance companies will take effect. These rules prioritise compensation payments and policyholder claims ahead of other creditors, ensuring that policyholders have first priority for repayment if an insurer fails. The regulatory framework also requires strong corporate governance, internal controls and risk management. Insurers must establish internal audit and risk management functions, conduct annual assessments of their control systems and report any unusual events or solvency concerns to the Ministry of Finance. In their entirety, these requirements are designed to promote transparency, accountability and resilience in the sector.

However, Vietnam is not a member of the Financial Action Task Force and is currently on its grey list. As such, anti-money laundering and financial crime prevention remain areas of ongoing regulatory focus.

Vietnam’s International Financial Centres

Vietnam is making a major push to become a regional financial hub. The Vietnamese government has established two International Financial Centres (IFC), with one in Ho Chi Minh City and another in Da Nang, each under a dedicated regulatory framework. These IFCs are designed to attract international capital, foster innovation in financial services and support the development of digital and green finance. The IFCs will operate as unified entities with their own executive, supervisory and dispute resolution authorities and will offer regulatory clarity, fast-track licensing, and sandbox approvals for new technologies and business models. Furthermore, the IFCs are structured to support a wide range of financial activities, including banking, securities, asset management, fintech and insurance.

While Ho Chi Minh City’s IFC is focused on building a comprehensive financial ecosystem, Da Nang’s IFC is more oriented towards digital innovation and sustainable finance. Both centres will feature controlled testing environments for new financial models and the government has committed to reviewing their operational efficiency after five years to ensure they remain competitive and responsive to market needs.

In the near term, the Vietnamese government is prioritising infrastructure, human resources and the development of a modern finance ecosystem within each IFC. This includes promoting new trading platforms, digital asset exchanges and international-standard advisory services. The IFCs are therefore expected to play a key role in attracting foreign insurers, reinsurers and brokers and in supporting the growth of digital and green insurance products.

5. Taiwan

Background

Taiwan is a sophisticated insurance market, known for its robust regulatory framework, dynamic market growth and recent challenges around currency risk and capital adequacy. Over the past two decades, the Taiwanese insurance market has matured rapidly, with the Financial Supervisory Commission, (the FSC), at the helm as the primary regulator. The FSC oversees licensing, supervision, solvency and market conduct for all insurance entities, including life, non-life and reinsurance companies, as well as intermediaries like brokers and agents.

As of 2025, Taiwan’s general insurance market was projected to reach 308.8 billion New Taiwan dollars (NT$) in gross written premiums (US$9.8 billion), with a compound annual growth rate of nearly 8% expected through 2029. Motor insurance is the largest segment, accounting for almost half of all non-life premiums, followed by property insurance, which has seen a surge in demand due to recent natural disasters and heightened risk awareness. The life sector, meanwhile, is facing difficulties from currency volatility and capital pressures but remains a key pillar of Taiwan’s financial system.

Despite these challenges, the market is well-capitalised, with total insurance sector assets exceeding NT$21 trillion(US$670 billion) by mid-2025. The sector is also highly internationalised, with significant foreign investment and a large proportion of assets held in overseas securities, particularly by life insurers. Taiwanese life insurers face substantial currency mismatches, as a majority of their NT$ liabilities are backed by US-dollar assets. Approximately 70% of their invested assets are in foreign currency, predominantly US dollar-denominated bonds. This imbalance in the denomination of invested assets therefore renders Taiwanese insurers highly vulnerable to future appreciation of the NT$.

Regulatory Architecture

The regulatory environment in Taiwan is designed to ensure both market stability and openness to international participation. The sector is split between life and non-life insurers — composite licences are permitted for reinsurers but are not available for direct insurers.

Taiwan is open to both domestic and foreign investment in insurance, with no formal restrictions on foreign direct investment. Both subsidiaries and branches of foreign insurers can operate in Taiwan, subject to strict entry requirements and ongoing supervision from the FSC. A foreign insurer that has been in operation for more than three years must have sound business and financial ability and have no record of material violation of laws and regulations in the past three years in order to be permitted to establish a branch. If the foreign insurer has been in operation for less than three years, it must establish a representative office within Taiwan for at least one year before establishing a branch, and shall have no record of material violation of laws and regulations since its establishment, and shall either (i) have a paid-in capital of more than NT$2 billion (US$63 million) or (ii) meet the FSC’s credit rating requirements.

The foreign insurance enterprise shall set aside minimum working capital in Taiwan for each branch in accordance with its business plan, amounting to not less than NT$50 million (US$1.6 million) and post bond with the national treasury in Taiwan in an amount equal to 15% of its working capital.

The Taiwanese licensing process itself is comprehensive, typically taking six months to a year, and requires submission of a detailed business plan, proof of financial soundness and evidence of qualified management. Prior to licensing, promoters must contribute at least 20% of the minimum paid-in capital at the time of application and a bond equal to 15% of paid-in capital should be deposited with the national treasury. Then, within three months after the registration of the incorporation of its Taiwan branch is granted, the insurance enterprise shall submit the documents stipulated under Article 11 of the Regulations for Establishment and Administration of Insurance Enterprises and apply to the FSC for the business licence, which would usually take around one to two months. Unless explicit consent from FSC has been received, the insurance enterprise may not engage concurrently in any other business apart from that for which it has applied.

Once the insurer or reinsurer is established and licensed, it must also adhere to detailed control and ownership rules. Any acquisition of more than 10%, 25% or 50% of an insurer’s voting shares requires prior FSC approval and any holding above 5% must be reported to the regulator within 10 days. Any subsequent and cumulative increase or decrease of more than 1% must similarly be notified to the FSC. These thresholds apply to both direct and indirect holdings, including those by related parties. Shares held by nominees and related parties are aggregated for the purpose of assessing whether the limits have been reached.

Capital Requirements

Minimum Capital Requirements

The minimum paid-up capital requirements in Taiwan differ based on the specific entity and the activities carried out, and are summarised as follows:

  • Insurance companies (life insurers or non-life insurers): NT$2 billion (US$63 million).
  • Insurance or reinsurance brokers: NT$20 million (US$630,000).
  • Brokers operating both insurance and reinsurance businesses: NT$30 million (US$950,000).
  • Insurance agents: NT$10 million (US$320,000).

As noted above, for foreign insurers with less than three years of operation, the minimum paid-up capital is also NT$2 billion (US$63 million), or they must meet the FSC’s credit rating requirements. A foreign insurance enterprise has to have a credit rating of at least A- from Standard & Poor’s, at least A3 from Moody’s, at least A from Fitch Ratings, at least twA+ from Taiwan Ratings Corporation, or an equivalent rating or better from any other credit rating agency recognised by the competent authority.

Capital Standards

Beyond minimum capital standards, Taiwan has implemented the Taiwan Insurance Capital Standard (TW-ICS), which aligns with the IAIS’s ICS 2.0. An insurance company must maintain a ratio of total adjusted net capital to its risk-based capital requirement of at least 100% (calculated pursuant to the TW-ICS) and a net worth ratio (calculated as owner’s equity divided by total assets, excluding separate accounts for investment-linked insurance specified in the financial report audited by a certified public accountant) of at least 3% in at least one of the last two periods.

The FSC also enforces a capital adequacy ratio of 100% or above, with a tiered intervention ladder for lower ratios: (i) inadequate capital (50%-100%); (ii) significantly inadequate capital (25%-50%); and (iii) seriously inadequate capital (lower than 25%). Depending on the level of the capital adequacy, the FSC may take measures such as:

  • ordering the insurance enterprise or its responsible person to propose a plan for the capital increase;
  • ordering the insurance enterprise to cease selling insurance products or restrict its launch of new insurance products;
  • restricting the scope of the capital utilisation;
  • restricting the remuneration pay to its responsible person, assuming conservatorship or receivership over the insurance enterprise;
  • ordering the enterprise to suspend and wind up the business; or
  • liquidating the enterprise.

Fitness and Propriety Requirements

The FSC imposes strict fit-and-proper requirements for responsible persons, including directors and general managers. General managers must possess good moral character, leadership and the ability to effectively manage the insurance enterprise and meet the education and experience requirements. For example, a general manager should have at least graduated from a domestic or foreign school at junior college level or have completed equivalent education, have work experience in insurance enterprises for not less than nine years and have served as a manager for not less than three years.

All appointments require FSC approval and the regulator can remove or sanction individuals for breaches of conduct or regulatory failures. The insurance enterprise shall submit the minutes of its board meeting for the appointment of its general manager and the documents to prove their qualifications to act as a general manager. The FSC must review and approve these before the relevant individual can take up the position.

In addition to robust governance standards for senior management, Taiwan’s insurance regulatory framework places significant emphasis on safeguarding the interests of consumers and maintaining market stability. Policyholder protection is another cornerstone of Taiwan’s regime.

In addition, the National Financial Stabilisation Fund, a private organisation sponsored by insurers, is designed to safeguard policyholders’ interests. It can provide loans to troubled insurers, advance claims payments if an insurer is unable to pay and make other payments as approved by the FSC. All insurers are required to contribute to the fund, and the FSC can intervene in cases of insolvency, including placing insurers into receivership or ordering liquidation. The functions of the National Financial Stabilisation Fund, among others, include advancing the payment of insurance claims which the insureds or the beneficiaries are entitled to under the effective insurance contracts where the insurance enterprise is placed into receivership, ordered to suspend business and undergo rehabilitation, or ordered to dissolve, or when a receiver of the insurance enterprise applies to a court for reorganisation.

There is also a robust consumer protection framework under the Financial Consumer Protection Act, which mandates fair contract terms, prohibits unfair or misleading practices and provides for ombudsman-led dispute resolution. If a financial consumer dispute arises, the insurer must respond within 30 days, and unresolved cases can be escalated to the ombudsman body. The liability of an insurance enterprise to a financial consumer shall not be limited or exempted by parties’ in-advance stipulation. If an insurance enterprise set a regulation to limit or exempt its liability, then such stipulation at issue shall be invalid. Contractual provisions entered into by an insurance enterprise and a financial consumer which are clearly unfair shall be also invalid. If there is a disagreement over the meaning of any contractual provision, there is a presumption that the provision shall be interpreted in favour of the financial consumer.

Reinsurance and Risk Management

Taiwan’s regulations require insurers to establish risk-management mechanisms for retained, ceded reinsurance and assumed reinsurance business in consideration of its risk bearing capacity. Insurers must also draft a reinsurance risk management plan, including, but not limited to the following particulars: (i) retained risk management; (ii) ceded reinsurance risk management; (iii) assumed reinsurance risk management; and (iv) intra-group reinsurance risk management.

Reinsurance can only be placed with reinsurers meeting strict credit rating criteria — typically BBB or higher from S&P, B++ from A.M. Best, Baa2 or higher from Moody’s, BBB or higher from Fitch, twA+ or higher from the Taiwan Ratings Corporation, or an equivalent rating from any other rating agency recognised by the competent authority.

There are also restrictions on cross-segment reinsurance. A non-life insurance enterprise shall not assume reinsurance ceded by a life insurance enterprise and a life insurance enterprise shall not assume reinsurance ceded by a non-life insurance enterprise, except for pure reinsurers.

Investments for Insurers

Insurers face detailed restrictions on asset allocation. Apart from bank deposits, funds can be invested in government and financial bonds, real estate, loans, public utilities, foreign investments, investment in insurance-related businesses, derivatives transactions and other allocations as approved by the competent authority. There are further restrictions on each of these categories under the Insurance Act. The FSC closely supervises investment activities, especially given the high proportion of foreign currency assets held by life insurers, with about 70% of their portfolios in foreign currency, mainly constituting US dollar-denominated bonds.

This creates significant currency risk, as highlighted by the sharp appreciation of the Taiwan dollar in 2025, which exposed insurers to large potential losses. In response, the FSC introduced new rules allowing insurers to use additional reserves to offset foreign-exchange losses and many insurers have increased their hedging ratios and shifted to more conservative investment strategies. The updated rules permit insurers to utilise additional reserves to counteract losses from currency fluctuations, particularly those resulting from the appreciation of the Taiwan dollar. The FSC reported that 10 insurers have adopted the new reserve rules, which are designed to help offset foreign-exchange losses.

Innovation in the Taiwanese Insurance Market

Digital innovation is an area of rapid development in the Taiwanese Insurance Market. The FSC has encouraged the growth of online insurance sales, regulatory sandboxes and the use of blockchain for claims and policy management. Internet-only insurers are now permitted, subject to a minimum capital of NT$500 million (US$16 million) for non-life and NT$1 billion for life (US$32 million), and must have a technology-focused promoter and a robust business model. The business plan submitted by an internet-only insurance company shall include customer identity verification mechanisms, information technology system, security controls, backup operations and business continuity plan, an assessment to ensure the budget is sufficient to meet the needs of information system and to operate business properly in the next five years, plans for the business model and insurance products and a market exit plan.

Taiwan’s insurance market is expected to continue growing, driven by demographic trends, increased risk awareness and digital transformation. The general insurance sector is forecast to reach NT$418 billion (US$13.3 billion) in gross written premiums by 2029, with motor, property and health insurance as key growth engines. However, the sector will need to navigate ongoing challenges around currency risk, capital adequacy and regulatory change.

Conclusion

The five prudential solvency regimes examined in this chapter reflect a region in active regulatory modernisation. Each jurisdiction has pursued a distinct reform pathway — Hong Kong through its comprehensive three-pillar risk-based framework, Malaysia through its forthcoming RBC2 overhaul and Singapore with the continued refinement of its application of the RBC2 regime. Vietnam has tracked growth through its phased transition towards a more open insurance market, and Taiwan through the adoption of TW-ICS aligned with the ICS 2.0. The direction of travel in the region is convergent: movement toward risk-sensitive capitalisation, enhanced governance expectations and greater alignment with international prudential standards.

For international insurers and reinsurers considering or expanding operations in East and Southeast Asia, the wider trend of these reforms is threefold:

  • First, there is increasing convergence between regional prudential standards and Solvency II, most pronounced in Hong Kong and Singapore but now clearly developing in Malaysia and Taiwan.
  • Second, there is the emergence of specialist market-entry frameworks within the region, such as Hong Kong’s Approved Special Purpose Insurer regime.
  • Third, companies can consider the rising capitalisation thresholds and increasing regulatory sophistication across the jurisdictions.

The broader trajectory, from Vietnam’s ambitious International Financial Centres initiative to Hong Kong’s Greater Bay Area cross-boundary strategy, underscores both the dynamism and the opportunity for market participants prepared to navigate the regulatory complexity of the region.

*      *      *

With special thanks to Timothy Loh LLP (Hong Kong), Christopher & Lee Ong (Malaysia), Rajah & Tann (Singapore), Frasers Law Company (Vietnam) and Lin & Partners (Taiwan) for their assistance with research for this publication.

The authors of this article are not licensed to practice law in Malaysia, Taiwan or Vietnam, or to provide legal advice on local laws. This article is for informational purposes only; it is not intended to be legal advice. Local counsel should be consulted on legal questions under laws of the respective jurisdictions.

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1 https://www.iais.org/about-the-iais/iais-members.

2 Insurance Ordinance (Cap 41) [HK] s 4A.

3 https://www.ia.org.hk/en/legislative_framework/files/GL5.Eng.30.6.2022.v1.pdf.

4 Insurance Ordinance, Sch. 1.

5 https://www.ia.org.hk/en/infocenter/files/rbc_consultation_faq.pdf.

6 https://www.ia.org.hk/en/supervision/reg_insurers_lloyd/an_overview_of_the_risk_based_capital_regime.html.

7 Insurance (Valuation and Capital) Rules, s. 4.

8 https://www.ia.org.hk/en/legislative_framework/files/GL21.pdf. 

9 Insurance Ordinance, s. 13AE.

10 Insurance Ordinance, s. 13AA and Insurance (Valuation and Capital) Rules, s. 6.

11 Insurance Ordinance, s. 35AA.

12 https://www.ia.org.hk/en/legislative_framework/files/GL32_En.pdf. 

13 Guideline 21.

14 https://www.ia.org.hk/en/reinsurance_specialty/ILS_HK.html.

15 https://www.info.gov.hk/gia/general/202603/02/P2026030200210.htm.

16 https://www.asianinvestor.net/article/hong-kong-looks-to-expand-ils-beyond-natural-disasters/503125.

17 Article 15.1 of Decree No. 97/2026/ND-CP.

18 Article 24 of Decree No. 97/2026/ND-CP.

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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