Insurance Authority of Hong Kong Issues Revised Guideline on Underwriting Long Term Insurance Business (other than Class C Business)

On 6 February 2026, the Insurance Authority (Insurance Authority) issued a revised Guideline 16 on Underwriting Long Term Insurance Business (Other Than Class C Business) (GL16). As noted in the Insurance Authority's letter issued on the same date, "the GL16 is revised to reflect the consequential amendments on removing the duplicates arising from the last update of the GL34; improve alignment with the prevailing Insurance Core Principles, Standards, Guidance and Assessment Methodology (ICP) promulgated by the International Association of Insurance Supervisors; and enhance overall readability, while the GL34 is revised to improve the clarity in respect of projected non-guaranteed returns". A discussion of the revised Guideline 34 on Governance and Management of Fund(s) of Participating Business (GL34) can be found in our recent client alert here.

GL16 sets out the Insurance Authority's expectations for authorised insurers regarding the conduct of long-term insurance business, with a primary focus on fair treatment of customers throughout the policy life cycle. GL16 takes effect on 31 March 2026, with the exception of the requirements relating to section 4 of GL34, which take effect on 30 June 2026.

This alert is intended to provide a summary of the key requirements introduced by the revised GL16. The full text is available here.

 

Governance Responsibilities

The revised GL16 imposes specific duties on the Board, the Controller(s), and the Appointed Actuary of an authorised insurer to ensure that policy holders' reasonable expectations, particularly regarding non-guaranteed benefits, are met. The Insurance Authority takes the view that policy holders reasonably expect to receive at least a fair proportion of the non-guaranteed part of illustrated benefits.

Accordingly, the Board, the Controller(s), and the Appointed Actuary of an authorised insurer each bear responsibility for ensuring that policy holders' reasonable expectations are fulfilled. The Appointed Actuary has a continuing duty to advise the Board on the interpretation of policy holders' reasonable expectations and must take all reasonable steps to ensure that the Board understands the implications for policy holders whenever there is a significant change in underlying assumptions.

The Insurance Authority has made clear that any attempt to circumvent the requirements of the revised GL16 will be regarded as acting in bad faith. For Controllers, this may affect their "fit and proper" status and for Appointed Actuaries, this may constitute non-compliance with professional standards under the Insurance Ordinance.

 

Product Design and Disclosure

Authorised insurers are required to integrate the principle of fair treatment of customers into each stage of an insurance policy's life cycle, from product design through to post-sale. This requires a diligent review to ensure that each product complies with the fair treatment of customers principle. In practical terms, products should deliver reasonably expected benefits, be sustainable, meet the needs and affordability of target customers, and clearly disclose all relevant risks. Complex products should also be assessed for their suitability across different distribution channels.

Clear and accurate product information must be provided. Brochures and benefit illustrations must be bilingual, clear, succinct, and easily understandable by average customers. Technical jargon should be avoided. Major product features and key risks must be clearly disclosed in product brochures and marketing materials, including information on factors for premium adjustments, consequences of non-payment of premiums, and conditions under which the authorised insurer may terminate the policy. Notably, products with premium adjustment features within the premium payment term cannot be labelled as "level premium".

For products with a policy loan facility, authorised insurers must provide clear information to policyholders regarding loan terms and interest rates before drawdown. Policyholders must be immediately notified when an automatic policy loan is first drawn down and of any subsequent changes to the interest rate. Regular account statements must highlight opening and ending loan balances in addition to information on interest charged.

 

Suitability Requirements

Authorised insurers must implement robust procedures to ensure that products are suitable for each customer. Before giving advice or concluding a contract, authorised insurers must obtain adequate information from customers to assess their insurance needs, including their financial knowledge, circumstances, affordability, and risk profile. This assessment should be performed through a Financial Needs Analysis as set out in the Guideline on Financial Needs Analysis (GL30 available here).

Importantly, advice given to a customer must be personalised to their disclosed needs and circumstances, going beyond simply providing product information. Authorised insurers and licensed insurance intermediaries should act with due skill, care, and diligence in this regard.

 

Participating and Universal Life Policy Disclosures

The revised GL16 sets out detailed disclosure requirements for participating and universal life policies, requiring specific information to be provided to customers throughout the insurance policy life cycle.

 

Participating Policies

For participating policies, in addition to providing benefit illustrations to customers, authorised insurers must make various disclosures regarding non-guaranteed benefits.

At the point of sale, authorised insurers must disclose key factors affecting dividend or bonus determination, including claims experience, interest rate, market risks, expenses, and persistency. Investment strategy and the philosophy of determining dividends or bonuses must also be disclosed in the product brochure and on the authorised insurer's website.

Authorised insurers must disclose fulfilment ratios (the average ratio of non-guaranteed dividends or bonuses declared against amounts illustrated at point of sale) for each product series with new policies issued since 2010 and in-force policies during the reporting year. These ratios must be published on the authorised insurer's website.

During the policy lifespan, authorised insurers must communicate at least annually with policyholders on actual non-guaranteed benefits declared and provide refreshed in-force re-projection illustrations. Any changes to dividends or bonuses, or to their determination philosophy, must be communicated with explicit reasons.

For premium offset options using non-guaranteed dividends or bonuses to pay a portion of future premiums, authorised insurers must present scenario analysis on situations where premiums cannot be fully offset. Terms such as "vanish" and "vanishing premium" are prohibited, as they suggest the policy is fully paid up. Where declared dividends are used to pay premiums for medical riders, authorised insurers must alert customers to the risks posed by medical inflation and premium increases, and dividend fluctuations. In addition, authorised insurers must update customers of the above risks regularly through effective means, for example, email or SMS alerts.

If a product offers a variety of premium payment terms, authorised insurers must warn customers that the sustainability of premium offset options depends on non-guaranteed dividends, and that premium payments may have to resume. Customers should also be made aware that other factors, including dividend withdrawals, changes in dividend options, and the addition of optional policy benefits, may affect sustainability.

 

Universal Life Policies

For universal life policies, authorised insurers must establish governance frameworks approved by the Board for the determination of crediting interest rates, cost of insurance charges, fees, and other discretionary benefits.

When illustrating benefits, all fees and charges (current and maximum scales) must be clearly stated. It should also be made explicit that current fees and charges may be subject to change. Authorised insurers must disclose on their websites the historical crediting interest rates for each product series with new policies issued since 2010 and in-force policies during the reporting year. Key risks in universal life policies must also be disclosed, such as fees and charges, and lapsation risk due to zero account value.

 

Conclusion and Way Forward

The revised GL16 represents a significant step by the Insurance Authority to entrench the principle of “fair treatment of customers” at the core of the entire life cycle of all (non-Class C) long-term insurance business. The enhanced requirements impose clear and direct responsibilities on the Board, Controllers and Appointed Actuaries of authorised insurers underwriting long term insurance business (other than Class C business), and mandate robust controls throughout the life cycle of such long term insurance policies.

Authorised insurers should review their product governance frameworks, sales processes, remuneration structures, and post-sale controls to ensure compliance by 31 March 2026.