Introducing illustration rate caps to enhance policy holder protection

On March 30, 2025, the Insurance Authority (IA) addressed misunderstandings about its recent Practice Note, which sets illustration rate caps of 6% for Hong Kong dollar-denominated participating policies and 6.5% for non-Hong Kong dollar-dominated policies, effective July 1, 2025. Some social media posts inaccurately portrayed the initiative as capping return rates, prompting the IA to clarify that these caps only apply to the internal rates of return used in benefit illustrations at the point of sale and do not affect actual policy returns, which can exceed these caps. The IA aims to prevent overly optimistic return projections that fail to consider the inherent risks and volatility of non-guaranteed returns. The industry has welcomed the initiative, with insurers preparing for compliance and the IA continuing discussions on regulatory measures related to participating policies. The IA emphasizes the importance of public education on these products and encourages prospective policyholders to understand the associated risks before purchasing. Resources: https://www.ia.org.hk/en/infocenter/speeches_articles/20250330.html