Cap only for implied rates, clarifies IA

Staff reporter

The Insurance Authority clarifies that the introduction of illustration rate caps only applies to implied rates of returns and aims to protect investors amid the intensified competition among insurers.

Last month, the insurance watchdog said insurers need to set rate caps for projected returns of 6 percent for Hong Kong dollar-denominated policies and 6.5 percent for non-Hong Kong dollar-settled policies when they are issue benefit illustrations for participating policies from July 1.

The new rule, however, was interpreted on social media that the caps are on return rates, and some posts urged policyholders to "catch the last train."

Insurers are racing to attract customers with exceptionally high expected returns on the non-guaranteed component of participating policies and there is a possibility that the companies fail to achieve the "overly optimistic return projections," IA explained.