FINANCIAL AND MONETARY AFFAIRS
Recent Developments
To enhance the risk management of intermediaries engaging in margin financing business, the SFC amended the Financial Resources Rules (FRR): raising the 'haircut' ratio (discount ratio to market value) on illiquid collateral stocks and warrants, and implementing a borrowing-to-margin loan ratio. The amendments became effective on October 1. The SFC also formed a Working Group on Review of Financial Regulatory Framework for Intermediaries. The Working Group aims to develop a robust risk-based financial and capital regulatory framework for Hong Kong's intermediaries. It will analyse intermediaries' major risk areas under the current regulatory framework, in particular risk inherent in securities margin financing.
On product development, Hong Kong is one of the first jurisdictions in the world to introduce hedge funds to the investing public. The SFC introduced the Hedge Funds Guidelines for authorisation in May and released the Guidelines on Hedge Funds Reporting Requirements in November. Several hedge funds have already been authorised.
On July 25, the HKEx issued a consultation paper on the proposed amendments to Listing Rules relating to initial listing and continuing listing criteria and cancellation of listing procedures. In response to strong market reaction, the Financial Secretary appointed an independent Panel of Inquiry to look into the circumstances relating to the preparation and release of the consultation paper.
On September 10, the Financial Secretary released the report of the Panel of Inquiry, which made various recommendations on the consultation process. The Financial Secretary also announced in September the appointment of a three-man Expert Group to review the operation of the three-tier regulatory structure, particularly in relation to listing-related matters. The Expert Group is expected to complete its review by March 2003.
Insurance Sector
Main Features
Hong Kong is one of the most open insurance centres in the world. At year-end, there were 195 authorised insurers, 96 of which were incorporated in Hong Kong and the remaining 99 were incorporated in 25 overseas countries or the Mainland, with the United States taking the lead to be followed by the United Kingdom.
Notwithstanding the economic slowdown, the total gross premiums of the insurance industry reached $76.3 billion in 2001, representing an 18.5 per cent growth over 2000. Gross premiums of the general insurance sector increased by 8.8 per cent to $19.4 billion in 2001. Accident and Health, Motor Vehicle and General Liability have attained significant premium growth. Underwriting performance continued to be unfavourable but has improved with overall loss narrowed from $872 million in 2000 to $473 million in 2001.
The long-term insurance business continued to attain a double-digit annual growth from 1991 to 2001, with office premiums increasing by 22.2 per cent to $56.9 billion in 2001. The office premiums in force of Individual Life business amounted to $41.9 billion, accounting for 73.8 per cent of the total office premiums. The number of Individual Life policies in force grew by 7.1 per cent to 4.9 million in 2001 when Hong Kong's population was approximately 6.8 million.
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