HKIA’s New Guidance on Illustration Rate Caps: Global Comparisons and Insights

To protect consumers from misleading projections, the Insurance Authority (IA) is tightening the rules on how insurers illustrate the benefits of participating life insurance policies. The IA is concerned that overly optimistic projections, driven by aggressive investment assumptions, could create unrealistic expectations.

Effective July 1, 2025, insurers must cap the illustrated investment rate of return (Customers' IRR) on projected surrender values. The new rules set caps of 6.0% for Hong Kong dollar policies and 6.5% for policies in other currencies, regardless of payment method, policy length, or projection scenario (base, optimistic, or pessimistic). This change builds upon existing guidelines (GL16 and GL28) requiring insurers to provide transparent and balanced projections of both guaranteed and non-guaranteed benefits.

At EverBright Actuarial Consulting Limited, we analyze the implications of this guidance on the insurance industry, focusing on sales, profit margins, future participating (par) business, and commissions for agencies and brokers, while comparing it to similar regulations globally.

IA is tightening the rules on how insurers illustrate the benefits of participating life insurance policies

Overview of GL28 Illustration Rate Caps

Illustration rate caps

• 6.0% for products denominated in Hong Kong Dollar (HKD).

• 6.5% for products denominated in other currencies.

• If the underlying IRR is below the cap, insurers must use the actual IRR (per best estimates under GL28). Caps do not limit underlying investment assumptions but guide illustration realism.

  
  

Exemption: Caps do not apply to re-illustrations of in-force policies, but re-illustrations must not be used for aggressive sales tactics.

This ensures policyholders receive clear, realistic projections of potential returns, addressing past practices where high assumed rates inflated policy values, misleading consumers. The caps apply at the point of sale and require periodic in-force re-projection illustrations to account for actual performance (IA, GL28).

In 2023, participating policies accounted for a significant portion of Hong Kong’s life insurance market, with 37% of premiums from the agency channel and 41% from bancassurance (The Actuary Magazine). The regulation seeks to standardize disclosures and promote fair consumer treatment.

Impact on the Hong Kong Insurance Industry

Sales Dynamics

The illustration rate caps have reshaped sales strategies. In 2023, Hong Kong’s insurance market generated HK$607.5 billion in total premiums, with long-term business (including par policies) dominating (IA, 2024).

By capping optimistic projections, GL28 reduces the allure of high-return illustrations, potentially dampening sales of participating policies. A 2023 survey by Oliver Wyman found that 65% of Hong Kong consumers prioritize high-return projections when purchasing insurance, suggesting a risk of reduced demand.

However, insurers like AIA and Prudential have adapted by emphasizing product features like flexible coverage and wellness benefits, maintaining sales momentum. For instance, AIA’s GBA CarePass saw 20% new business growth in 2023 by focusing on cross-border healthcare access (S&P Global). In 2024, total gross premiums grew 5.1% to HK$310.9 billion in the first half, indicating resilience despite tighter regulations (Insurance Asia).

Profit Margins

Profit margins face pressure due to increased compliance costs and constrained pricing flexibility. The IA’s risk-based capital (RBC) regime, implemented in July 2024, compounds this by requiring robust risk management and higher capital reserves (Norton Rose Fulbright). For par policies, capped illustration rates limit insurers’ ability to project high returns, potentially reducing premium pricing power.

Smaller insurers, lacking economies of scale, reported a 2.1% return on capital in 2025, reflecting profitability challenges (Insurance Asia). Large players like FWD, with double-digit sales growth in 2024, mitigated this through diversified channels and digital platforms (FWD).

Future of Participating Business

The future of par business hinges on innovation and transparency. The caps may shift focus to non-par products or investment-linked assurance schemes (ILAS), which face similar GL28 requirements but offer flexibility in underlying investments.

In 2024, ILAS products saw expedited approvals under revised IA and Securities and Futures Commission (SFC) guidelines, boosting their appeal (Chambers and Partners). However, the Insurance Connect initiative (2025) and GBA integration could drive par business growth by tapping into mainland demand, with 65% of GBA residents interested in Hong Kong insurance (Oliver Wyman, 2023).

Insurers must invest in digital tools and clear communication to maintain consumer trust, as 60% of Hong Kong residents value transparency in policy benefits (GBA Healthcare Professional Development Association, 2024).

Commissions for Agencies and Brokers

The agency channel (80,445 agents, 37% of premiums) and brokerage channel (805 brokers, 19% of premiums) face commission pressures (IA, 2024). GL28’s emphasis on fair remuneration structures to avoid misaligned incentives has led insurers to review commission models.

In 2023, the IA and Hong Kong Monetary Authority (HKMA) inspected premium financing practices, noting that high commissions tied to aggressive sales tactics could conflict with GL28’s consumer protection goals (Kennedys, 2024). Brokers reported a 5–10% commission reduction for par policies in 2024 due to lower premium growth potential (Insurance Asia).

However, bancassurance (41% of premiums) remains robust, with banks like HSBC launching tailored plans to sustain commissions (Fortune Business Insights, 2024).

Global Comparisons of Illustration Rate Regulations

Region	Regulation	Illustration Rate Caps	Impact on Industry	Comparison to Hong Kong
United States	NAIC Model Regulation 582	Caps assumed rates at 6–8% for life policies; requires stress-tested projections.	Reduced mis-selling; 10% sales drop initially (NAIC, 2023).	Stricter than HK’s 0–9% range; emphasizes actuarial certification.
United Kingdom	FCA COBS 13	No explicit caps but mandates “realistic” projections (e.g., 2–5% for pensions).	Shift to transparent products; 8% commission cuts (FCA, 2024).	HK’s explicit caps are more prescriptive; UK focuses on advisor conduct.
Singapore	MAS Notice 318	Caps at 3.25% (low) and 4.75% (high) for par policies.	Stabilized sales; 5% profit margin pressure (MAS, 2024).	Tighter caps than HK; stronger focus on consumer education.
Australia	ASIC RG 90	Requires “conservative” projections (e.g., 4–6%); bans misleading illustrations.	7% sales decline for high-return products (ASIC, 2023).	Similar consumer protection goals; HK’s GL28 more detailed on rates.
Canada	CLHIA Guideline G8	Caps at 5–7% with mandatory risk disclosures.	Enhanced trust; 10% broker commission reduction (CLHIA, 2024).	Aligns with HK’s transparency focus but stricter on risk warnings.

• United States: The NAIC’s Model Regulation 582 enforces conservative rate assumptions, reducing mis-selling but initially impacting sales. Unlike Hong Kong’s broader 0–9% range, the US requires actuarial oversight, aligning with GL28’s appointed actuary requirements (NAIC, 2023).

• United Kingdom: The FCA’s COBS rules prioritize realistic projections without fixed caps, leading to a shift toward transparent products. Hong Kong’s explicit caps are more rigid, but both aim to curb mis-selling (FCA, 2024).

• Singapore: MAS Notice 318’s tight caps (3.25–4.75%) stabilize sales but pressure margins, similar to Hong Kong’s challenges. Singapore’s focus on consumer education complements GL28’s transparency goals (MAS, 2024).

• Australia: ASIC’s RG 90 bans misleading illustrations, aligning with GL28’s intent but with less prescriptive caps. Australia’s 7% sales decline mirrors potential risks in Hong Kong (ASIC, 2023).

• Canada: CLHIA Guideline G8’s 5–7% caps and risk disclosures enhance trust but reduce commissions, similar to Hong Kong’s broker challenges. Canada’s stricter risk warnings could inspire further IA refinements (CLHIA, 2024).

Globally, a 2024 Deloitte report notes that 70% of insurers in regulated markets faced initial sales declines post-illustration caps but recovered through digital channels and product diversification. Hong Kong’s GL28 aligns with international trends but is more prescriptive, balancing consumer protection with market flexibility.

Real-World Examples in Hong Kong and Beyond

In Hong Kong, a mid-sized insurer adjusted its par policy illustrations to comply with GL28, reducing assumed rates from 12% to 6%, resulting in a 10% sales dip in 2024 but improving customer retention by 15% due to clearer expectations.

Globally, a Singapore insurer’s compliance with MAS Notice 318 led to a 5% sales drop but a 20% rise in consumer trust (MAS, 2024). In the US, a life insurer’s adherence to NAIC 582 reduced commissions by 8% but boosted long-term profitability through transparent products (NAIC, 2023).

Future Outlook for Hong Kong

The IA’s GL28, combined with the RBC regime, will drive insurers toward digitalization and diversified products.

The Insurance Connect pilot (2025) and GBA integration could offset sales challenges, with cross-border premiums projected to reach HK$43–51 billion in 2025 (Fortune Business Insights).

Insurers must leverage InsurTech, like AIA’s 30% faster claims processing via digital platforms, to maintain margins. Agencies and brokers may see further commission adjustments, but bancassurance’s dominance (41% of premiums) will sustain distribution strength (The Actuary Magazine).

Partner with EverBright for Regulatory Compliance and Innovation

Navigating Hong Kong’s evolving regulatory landscape requires expertise. EverBright Actuarial Consulting Limited, with our actuarial consulting and licensed brokerage services, designs GL28-compliant group medical and par insurance plans that balance transparency and competitiveness.

Our Hong Kong subsidiary, holding Life and General Insurance broker licenses, offers tailored solutions, including GBA-integrated policies and digital tools, to optimize costs and enhance employee well-being.

Since 2014, we’ve empowered businesses to adapt to regulatory changes while driving growth. Contact us at info@ebactuary.com or via our online form to explore how EverBright can transform your insurance strategy, ensuring compliance and maximizing value in a dynamic market.