Hong Kong's Strategic Shift: Allocating Insurance Capital to Crypto and Infrastructure

Hong Kong's insurance sector is undergoing a transformative shift as regulators and institutions increasingly explore allocations to cryptocurrencies and infrastructure projects. This pivot reflects a broader ambition to position the city as a global digital finance hub while navigating the complex interplay of risk-adjusted returns and institutional adoption.

Regulatory Framework and Risk Profiles

The cornerstone of this shift is the newly implemented Risk-based Capital (RBC) regime, which took effect on 1 July 2024. This three-pillar framework mandates that insurers maintain capital levels aligned with their risk profiles, with Pillar 1 requiring compliance with quantitative thresholds such as the prescribed capital amount (PCA) and minimum capital amount (MCA) according to the RBC regime. While the RBC regime does not explicitly address crypto or infrastructure assets, it sets the stage for future regulatory flexibility.

In Q3 2025, the Hong Kong Insurance Authority proposed rules allowing insurers to invest in cryptocurrencies and infrastructure, albeit with stringent risk charges. Volatile assets like Bitcoin and Ethereum would require a 100% risk capital allocation, effectively treating them as high-risk exposures. Stablecoins, however, may offer a more capital-efficient alternative, with risk weightings tied to the stability of their underlying fiat reserves according to research.

These proposals aim to balance innovation with prudence, ensuring insurers can diversify their portfolios without compromising solvency.

Risk-Adjusted Returns: A Double-Edged Sword

The allure of crypto and infrastructure lies in their potential to enhance risk-adjusted returns, particularly in a low-yield environment. Cryptocurrencies, despite their volatility, have demonstrated resilience in attracting institutional capital. For instance, Hong Kong's digital asset trading volumes surged 233% year-on-year in Q3 2025, driven by regulated infrastructure such as blockchain-based settlement services. However, the 100% risk charge for volatile crypto assets raises questions about their cost-effectiveness. Insurers must weigh the potential for outsized gains against the need to maintain robust capital buffers, a challenge exacerbated by the lack of historical data on crypto's long-term performance.

Infrastructure projects, by contrast, offer more predictable cash flows and alignment with government priorities such as the Northern Metropolis development. Yet, these investments often require long-term horizons and face execution risks, including regulatory delays or cost overruns. The Insurance Authority's proposed framework seeks to mitigate these risks by channeling capital into government-backed initiatives, thereby leveraging public-private partnerships to enhance returns according to Bloomberg.

Institutional Adoption: Momentum and Hurdles

Hong Kong's institutional adoption of digital assets is accelerating, with 22 banks now distributing crypto products and 13 offering tokenized securities according to research. This integration into traditional finance is bolstered by regulatory clarity, as evidenced by the Hong Kong Monetary Authority's (HKMA) oversight of stablecoin issuers. Family offices, too, are pivoting: one-third of global private wealth firms plan to allocate 6–10% of assets under management (AuM) to digital assets within five years according to research.

However, the insurance sector lags behind. While the proposed rules signal openness, insurers remain cautious. The 100% risk charge for volatile crypto assets may deter immediate adoption, as capital efficiency is paramount for insurers balancing solvency and profitability. Stablecoins, if regulated effectively, could bridge this gap by offering crypto exposure with lower capital demands.

Strategic Implications and Challenges

Hong Kong's strategic shift underscores its ambition to rival Singapore and Dubai as a digital finance hub. By aligning insurance capital with crypto and infrastructure, the city aims to attract institutional investors and redirect capital toward high-growth sectors. Yet, success hinges on resolving key challenges:

1. Regulatory Uncertainty: The public consultation period (February–April 2026) will test stakeholders' appetite for risk. Delays in finalizing rules could stifle momentum.
2. Market Volatility: Crypto's price swings remain a wildcard. Insurers must develop robust risk management frameworks to navigate this turbulence.
3. Infrastructure Readiness: Tokenization and blockchain-based settlement require matured infrastructure. While Hong Kong banks are advancing, scalability and interoperability remain hurdles.

Conclusion

Hong Kong's foray into crypto and infrastructure represents a bold recalibration of its financial ecosystem. By balancing regulatory prudence with innovation, the city aims to unlock new avenues for risk-adjusted returns while fostering institutional adoption. Yet, the path forward demands careful navigation of regulatory, market, and operational risks. As the Insurance Authority moves toward finalizing its proposals, the global market will watch closely to see if Hong Kong can cement its status as a digital finance leader.