Hong Kong to tighten burgeoning premium financing market as red flags, risks emerge

Hong Kong’s insurance watchdog is tightening oversight of the city’s booming premium financing market, as the once-niche lending arrangement spreads to lower-tier insurance buyers, while also reviewing regulations, particularly on how insurers evaluate clients’ affordability, according to Insurance Authority executives.

Premium financing allows policyholders to borrow money from financial institutions to pay upfront premiums on large life insurance policies, which are commonly used as a wealth management tool for high-net-worth clients.

“Some insurers have promoted it too aggressively by lowering threshold requirements and using high leverage to attract middle-class buyers without fully ensuring that buyers fully understand the underlying risks,” said Marty Lui, the Insurance Authority’s executive director of long term business, at a media briefing on Friday.

He said premium financing was absolutely unsuitable for the general public. “If interest rates rise or currency exchange rates fluctuate, borrowers’ interest costs can jump sharply. They may face margin calls or be forced to surrender their policies early at a substantial loss.”

The authority highlighted severe risks in strategies combining “participating policies, premium financing and cross-currency arbitrage”.

It discovered that over the past year, some policyholders borrowed low-interest Swiss francs from offshore or online banks to purchase US dollar-denominated policies.

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“Premium financing activity moves inversely with interest rates. Once rates reverse, the risks will surface all at once,” Lui said.

“If the Swiss franc appreciates against the US dollar, buyers will face huge currency losses when converting currency to repay debt.”

Additionally, disputes involving offshore banks cannot be resolved within Hong Kong’s legal jurisdiction, creating immense legal hurdles for consumers, he added.

Lui warned that a further 0.5 percentage point increase in market interest rates could push some floating-rate participating policies into a negative carry – where borrowing costs exceed the policy’s actual return.

Alan Wu, acting head of conduct supervision at the Insurance Authority, said at the same briefing that a new joint inspection with the Hong Kong Monetary Authority (HKMA) uncovered three regulatory red flags, including certain insurers evaluating client assets while ignoring existing liabilities like home mortgages, artificially inflating financial resilience.

The second was that some intermediaries offered financing advice without proper training or authorisation, while insurers failed to follow up.

Thirdly, insurers approved applications where borrowing interest rates exceeded expected policy returns without intervening.

The Insurance Authority expected to complete the inspection by late 2026 and will discuss appropriate regulatory measures with the HKMA based on the findings.

“The authority has no intention of imposing a one-size-fits-all or overly tight regime as it could trigger a fire sale and cause unnecessary shock to the market,” Wu said.

Premium financing now drives significant growth for some insurers.

Life insurance sales in Hong Kong rose 58 per cent in the first half of this year to another record high, with premium financing accounting for 36 per cent of new business premiums by value – up from 12 per cent in 2024 and 19 per cent in 2025, according to data from the Insurance Authority.

Wu said complaints related to premium financing so far were not significant, mainly because those contracts typically ran for three or five years.

“Policyholders usually discover problems only when the financing matures or rates turn, so complaints are likely to rise as rates shift.”