The Insurance Authority said on Thursday that it is currently conducting the third joint inspection on premium financing with the Hong Kong Monetary Authority, warning of the risky trend of using foreign currency as loan currency, expanding retail participation, and rising policy leverage.
As lower Hong Kong dollar interest rates drove the proportion of premium financing activities to 36 percent of new business premiums in the first half of 2026, the IA noted that it will consider appropriate regulatory measures with the HKMA in light of the inspection findings.
The regulator said the market has seen arrangements under which offshore banks offer loans in other low-interest-rate currencies, such as the Swiss franc, for premium financing, warning that interest rates and exchange rates for these currencies can be highly volatile, which could lead to increasing borrowing costs.
Policy holders may also face hurdles if the loans are provided by offshore banks, which will make them difficult to seek assistance in Hong Kong, while cross-border complaints or legal proceedings may be extremely challenging and costly.
Meanwhile, some individual insurers recently appear to be lowering the entry threshold for premium financing to attract middle-class customers. The authority reminded policy holders not to be misled by the illusion of becoming "high-net-worth" through premium financing, thereby overestimating their financial strength and debt repayment capacity, and consequently taking on leveraged risks beyond their means.
Moreover, products with leverage ratios exceeding nine times were shown in the market, allowing policy holders to purchase high-value policies by contributing only 10 percent of the premium upfront, indicating amplified risks, the IA noted.
Policy holders are exposed not to a single risk, as these risks may happen simultaneously, with fluctuations in policy returns, loan interest rates, and exchange rates that can turn an arbitrage opportunity into a negative carry, the IA said.
The IA urged the public to fully understand the features and risks of the relevant products, including non-guaranteed benefits fluctuations, loan interest rate fluctuations, exchange rate fluctuations, and to carefully assess their own financial circumstances and risk tolerance.
