On 13 Mar 2025, the HKMA mandated a standardized Important Facts Statement and Applicant’s Declarations template for IUL products sold exclusively to Professional Investors in Hong Kong, requiring insurers and intermediaries to disclose critical risks including non-guaranteed returns, asset ownership limitations, detailed charge structures, and intermediary remuneration. The template enforces mandatory suitability declarations covering financial needs analysis, affordability, and explicit acknowledgment of product misalignment, ensuring Professional Investors receive comprehensive risk transparency before purchasing complex IUL products.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
Hong Kong Grant Scheme for Insurance Linked Securities
A new grant scheme aims to position Hong Kong as a global hub for the issuance of insurance linked securities by subsidising issuance costs
Insurance M&A – Updates to Change of Control Requirements for Hong Kong Insurers
Updates to change of control provisions in the Insurance Ordinance require approvals for minority and majority shareholder controller changes
SPOTLIGHT ON
FAMILY OFFICES
Introduction
On 13 Mar 2025, the Hong Kong Monetary Authority (HKMA) issued a template for an Important Facts Statement and Applicant’s Declarations to govern the design and offering of Indexed Universal Life (IUL) insurance products exclusively to Professional Investors in Hong Kong, mandating specific disclosures to ensure investor awareness of product complexities.
Mandatory Disclosure Requirements
The template requires authorized insurers and licensed insurance intermediaries to provide Professional Investors with comprehensive disclosures covering: (1) a Statement of Purpose requiring customers to specify their investment rationale; (2) a 21-day cooling-off period for policy cancellation; (3) explicit disclaimers that customers have no ownership of underlying assets, bear credit risk of the insurer, and receive no guaranteed returns; (4) detailed charge structures (upfront and early surrender/withdrawal charges) with policy-year-specific percentages; (5) transparency on floor/cap rates for index-linked returns; (6) warnings about premium holiday impacts on policy value; and (7) full remuneration disclosure to customers (e.g., average HK$X.X per HK$100 premium).
Professional Investor Suitability Framework
The document mandates three critical declarations from applicants: (1) a Financial Needs Analysis Disclosure confirming the intermediary assessed suitability against the customer’s stated needs; (2) an Affordability Declaration verifying sufficient disposable income for full premium payment; and (3) a Suitability Declaration requiring either explicit agreement that the product aligns with the customer’s risk profile or a written acknowledgment of proceeding despite misalignment, with a clear statement that the final purchase decision rests solely with the customer.
Regulatory Significance
This template operationalizes the HKMA’s existing guidelines by standardizing disclosures for IUL products targeted at Professional Investors, ensuring consistent communication of complex product features and risks. It reinforces that IULs are unsuitable for retail investors due to their intricate structures, non-guaranteed returns, and significant fee impacts, while mandating transparency on intermediary remuneration to mitigate conflicts of interest.
View the full article:Source
