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Similarly, the minimum amount of solvency margin will be raised from $5 million, or $10 million where the general business includes compulsory business, to $10 million or $20 million respectively. This increase will not only compensate for the effect of inflation but will bring the solvency margin requirement more into line with equivalent requirements in Australia, Singapore and Malaysia.
As any increase higher than 100% at this stage would be considered excessive by the insurance industry, we propose to review the need for a further increase within 12 months' time.
The solvency margin required of a general business insurer is also deficient in that it is determined solely by the premium income of an insurer without regard to his claim liabilities. Hence policy holders of an insurer which has no premium income but has outstanding claims are exposed to considerable risks represented by the absence of a solvency margin commensurate with the amount of his claim liabilities. To remedy this, we propose that a general business insurer be required to maintain a solvency margin determined on a "premium basis" or "claim liabilities basis", whichever is the higher.
The bill also proposes to increase by 100% the level of fines set in 1983 for contraventions of the Insurance Companies Ordinance, so as to maintain their deterrent effect.
We further propose to prohibit use of the word "insurance" or "assurance" in business names without the consent of the Insurance Authority, unless the user is an authorised insurer, an appointed insurance agent or an authorised insurance broker regulated under the Insurance Companies Ordinance. The purpose is to prevent the public from being misled as to the authorised status and true nature of the business carried on by persons not regulated under the Ordinance. The proposal is in line with the Banking Ordinance, which restritts use of the word "bank" by persons other than banks.
To allow time for insurers to comply with the proposed capital and solvency margin requirements, a transitional period up to 31st October 1997 is proposed. For restriction on the use of the word "insurance" or "assurance", a transitional period of one year from enactment of the Amendment Ordinance is proposed, since some companies not engaged in the insurance business may be using these words in their business names. Other proposed provisions will apply with effect from the date of enactment.
End
Thank you, Mr President.