IA warns on premium financing risks as new business contributions hit 36pc in H1 2026

Hong Kong’s premium financing business accounted for approximately 36 percent of new business premiums in the first half of 2026, up 15 percentage points from the same period last year, as the Insurance Authority warns insurers of potential risks.

The Insurance Authority noted that the growing use of such facilities to fund the purchase of long-term insurance policies has become a major source of new business sales in Hong Kong. But premium financing policies, common in wealth management, may have different customer objectives and lapse behavior than non-premium financing policies. 

An insurance policy lapses when the policyholder fails to meet obligations, such as paying premiums on time. This can lead to the loss of coverage and, in some cases, higher premiums or stricter terms upon reinstatement. 

It highlighted a few risks of premium financing policies, including sensitivity to interest rates and economic volatility, and how leveraging amplifies these risks for policyholders and insurers, increasing lapse risk and affecting liquidity in sectors such as private credit, private equity, and other alternative assets. In stressed scenarios, concentrated premium financing may cause correlated asset sales at low prices.

IA noted that the insurance industry has been attracting customers through enhanced premium discounts, while banks have been offering higher loan-to-value ratios and other incentives, further amplifying the leverage risks associated with premium-financed policies.

It said higher policy leverage may lead to sales practices that overemphasize short-term high-yield gains while neglecting the commensurately magnified risks. If such sales practices are not continuously and closely monitored to ensure compliance, they may easily deviate from or violate the principle of "fair treatment of customers.

IA has therefore issued a circular outlining its observation and reminding insurance companies to ensure robust internal procedures to comply with regulatory standards and requirements related to premium financing. It has also scheduled another round of joint inspections with the Hong Kong Monetary Authority on premium financing in the second half of 2026.
 

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