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Business of insurance industry
Following is a question asked by the Hon Chim Pui-chung and a written reply by the Secretary for Financial Services, Mr Rafael Hui, in the Legislative Council today (Wednesday):
Question:
In view of the significant decline in the business of the insurance industry in the past year, will the Government inform this Council:
Reply:
(a)
(b)
(a)
(b)
whether the above situation is caused by vicious competition within the industry; and
whether it has assessed the impact of any serious incident (such as the closing down of an insurance company) on the entire insurance industry and the reasonable protection of the insured will be ensured?
We believe that the decrease in gross insurance premiums written in the past year is mainly attributable to the slowing down of economic growth during that period. For instance, the poor car sales in 1996 has led to a drastic fall in motor premiums. Keen competition has been a regular feature of the industry for a long time. Cyclical downturns from time to time cannot be directly attributable to competition, 'vicious' or otherwise.
Our insurance regulatory framework aims at ensuring the financial soundness of authorised insurers. The Insurance Companies Ordinance prescribes, among other things, financial requirements such as minimum capital and solvency margin requirements and asset valuation method to be complied with by insurers, thus protecting the insuring public. In addition, general business insurers are required to maintain assets in Hong Kong to match the liabilities pertaining to their Hong Kong business, and long term business insurers are required to segregate the assets and liabilities attributable to long term business to form a separate life fund. The assets within the life fund are protected by law against any claim by third parties outside the life fund. The law also empowers the Insurance Authority to take actions to safeguard the interests of the policy holders where he considers appropriate e.g. to appoint a manager to manage the affairs, business and property of an insurer where there appears to be a risk of the insurer's insolvency.