Observations from Review on Premium Financing Activities for Insurance Policies

55th Floor, Two International Finance Centre, 香 港 中 環 金 融 街 8 號 國 際 金 融 中 心 2 期 55 樓 8 Finance Street, Central, Hong Kong 網 址：www.hkma.gov.hk Website: www.hkma.gov.hk Our ref: B1/15C C2/5C 19 November 2025 The Chief Executive All Authorized Institutions Dear Sir / Madam, Observations from Review on Premium Financing Activities for Insurance Policies In light of the elevated interest rate environment leading up to early 2025, the Hong Kong Monetary Authority (“HKMA”) conducted a review on premium financing activities engaged by authorized institutions (“AIs”) and their subsidiaries (the “Review”). The Review focused on the practices of AIs and their subsidiaries in handling customers who have entered into premium financing facilities and expressed financial distress in respect of the premium financing loans. This circular serves to share with AIs key observations and good practices from the Review, as well as to clarify the HKMA’s expected standards for the offering of premium financing facilities, including relevant information and risk disclosures. For the avoidance of doubt, in addition to AIs with a dual capacity as licensed insurance intermediary and premium financing facility provider, this circular is also applicable to AIs and their subsidiaries that solely provide premium financing facilities, where appropriate. The Review has found that AIs had generally put in place operational procedures and/or protocols to handle customers who have expressed distress or made complaints, or have indicated that they were unable to repay the interest and/or principal of a premium financing loan. However, improvement areas have been

found in several aspects, including providing clearer explanations of the features and operation of premium financing loans, and enhancing the disclosure of potential risks associated with premium financing arrangements. The HKMA has also identified some good practices adopted by AIs in assisting customers who have expressed financial distress in respect of the premium financing loans. These include offering alternative solutions to alleviate customers’ interest burden and providing grace periods for overdue repayments to mitigate customers’ financial distress. AIs are reminded to take note of the observations from the Review and the corresponding expected standards. AIs are also reminded to exercise due care towards customers, particularly with regard to the increased risks associated with the use of premium financing, and to take prompt remedial action when deficiencies are identified. Details of the observations, expected standards and good practices can be found in the Annex. The HKMA would like to use this opportunity to remind AIs that in line with the existing suitability requirements, premium financing facilities should have appropriate tenors and repayment terms that align with the needs of policyholders/borrowers. Using overdraft or other short-term loan facilities while looking to renew the loan facilities continuously to finance premiums of long-term insurance policy may cause uncertain repayment burden to the borrowers and could raise consumer protection concerns. AIs are therefore reminded to take into account the financial situation and repayment ability of the policyholders/borrowers in this regard. This circular shall apply to new premium financing facilities entered into between AIs and their customers on or after 1 January 2026. The HKMA will continue to monitor the compliance of AIs with the relevant regulatory requirements in respect of premium financing activities for insurance policies in the course of its supervision.

If you have any questions on this circular, please contact Ms Kathy Wong at 2878- 1734 or Ms Amy Wong at 2878-8830. Yours faithfully, Alan Au Executive Director (Banking Conduct) Encl. c.c. Insurance Authority (Attn: Mr Marty Lui, Executive Director (Long Term Business) Mr Alan Wu, Acting Head of Conduct Supervision)

Annex
Key findings of the review on premium financing activities engaged by AIs and their subsidiaries and expected standards on premium financing AIs with a dual capacity as licensed insurance intermediary and premium financing facility provider are expected to observe all the standards set out in this Annex. For AIs and their subsidiaries that solely provide premium financing facilities, only paragraphs 1.5, 1.7, 2.3, and 2.4 shall be applicable.

1. Offering of premium financing facilities
   Key Observations
   1.1 Certain frontline staff of AIs were found to have bundled the premium
   financing facility together with the application of the insurance policy.
   1.2 Premium financing was at times promoted as a means to achieve higher
   returns when interest rates were low, with AIs’ staff suggesting that customers could benefit from stable returns even when the insurance policy was financed by borrowing.
   1.3 Some transactions involved using overdraft or other short-term loan facilities
   to fund insurance policy premiums, subject to regular reviews and renewals of loan facilities by the lending AIs. Given that it usually takes a number of years for insurance policies to generate adequate return to meet policyholders’ financial needs, any unsuccessful renewal of loan facilities could burden policyholders with repayment obligations if they do not wish to surrender their policies. Expected Standards
   1.4 Premium financing must be clearly presented as a payment option and a
   separate arrangement from the insurance policy. Frontline bank staff should avoid bundling premium financing with insurance policy applications. Customers must be given a clear understanding that they may proceed with the policy without taking up any financing. When customers express interest in using premium financing to take out the insurance policy, AIs should provide balanced information, including the relevant terms and conditions, features and potential risks associated with the premium financing arrangement.

1.5 AIs should not promote premium financing as a strategy to enhance returns.
Premium financing involves borrowing risks, including interest rate fluctuations and repayment obligations, which should be properly disclosed to customers. AIs should not imply that premium financing could be a leveraging tool to potentially earn higher returns in low interest rate environments.
1.6 AIs should review their sales practices, ensure clear and balanced product
disclosures, and provide adequate training to all relevant staff members. AIs are expected to ensure that both the insurance product and the financing arrangement are suitable for the customer and presented in a well-balanced manner.
1.7 Premium financing facilities should have appropriate tenors and repayment
terms that align with the needs of policyholders.
2. Disclosure of premium financing-related information and risks
Key Observations
2.1 Some bank staff failed to provide accurate and adequate information on the
key aspects of premium financing, including but not limited to the following:
‑ The fact that premium financing interest rates are subject to fluctuation; ‑ The potential for significant financial loss in the event of early surrender of the insurance policy and repayment of the premium financing loan; ‑ The importance of understanding premium financing-related risks, such as interest rate risk, early surrender risk, risk of non-guaranteed benefit fluctuation, and risk of payment timing mismatch.
2.2 Certain bank staff members did not clearly disclose and highlight the changes
in the basis for calculating interest rates or the exercise of discretionary rights under the cost of funds arrangement of AIs in premium financing documents to customers at the point of premium financing application. Expected Standards
2.3 AIs should ensure that customers are provided with clear, accurate, and
sufficient information on all material aspects of premium financing. AIs should clearly explain key risks associated with premium financing at the time of application for premium financing, such as interest rate risk, credit risk, early surrender risk, risk of non-guaranteed benefit fluctuation, and risk

of payment timing mismatch, to enable customers to make informed decisions.
2.4 AIs are reminded to refer to the HKMA circular1 dated 16 October 2023 to
ensure that all the building blocks for determining the applicable interest rates under premium financing facilities have been disclosed to customers at the point of application, with adequate and equal prominence under the same part of the facility letters. Any changes to the basis for calculating premium financing interest rates, including the exercise of discretionary rights (e.g. under a cost of funds arrangement), must be fully disclosed and appropriately highlighted.
3. Good practices of AIs on handling customers who have expressed financial
distress in respect of premium financing
3.1 Certain AIs would assess customers’ financial situation and review their
portfolio to determine whether alternative solutions could be offered to help the customer repay interest and alleviate their interest burden.
3.2 In view of rising interest burdens, some AIs have reviewed and considered
interest rate adjustments for customers’ existing premium financing loans on a case-by-case basis.
3.3 Some AIs provide grace periods for overdue repayments under premium
financing arrangements, allowing customers additional time to regularise their obligations, thereby mitigating their financial distress. “Premium Financing Activities for Insurance Policies” issued by the HKMA on 16 October 2023.