Navigating the risk-based capital regime: Strategic insights for portfolio allocation by insurers and asset managers

As global financial markets are intrinsically interconnected, the Risk-Based Capital (RBC) regime has emerged as a global regulatory requirement. (See our recent blog: Risk-based Capital Regulatory Changes Create Fresh Challenges in 2024 for Hong Kong and Singapore Insurers). Most recently, in 2024, the Hong Kong Insurance Authority implemented HK RBC. Since its implementation, RBC has presented challenges and opportunities for insurers that are subject to the regulation, and the asset managers that serve them. The RBC regulatory regime is a set of rules designed by financial service regulators that require insurance and financial institutions to hold a minimum amount of capital based on the level of risk associated with their assets. Developed with European and international standards, the RBC regime has level set risk management and asset performance equivalence across jurisdictions and facilitated the flow of investment allocation between APAC, Europe and the US. In this article, we explore how RBC compliance is reshaping cross-regional investments and highlight the need for strategic adjustments for firms in Europe and APAC. We will also analyse how Clearwater‘s expertise can facilitate compliance and improve operational efficiency for firms with regulatory requirements, using Hong Kong as an example.