XN000022-1978-01-27 — Page 5

FRIDAY, JANUARY 27, 1978

BILL TO CONTROL NEW INSURANCE COMPANIES

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NEW INSURANCE COMPANIES WILL NOT BE ABLE TO SET UP IN HONG KONG AFTER JANUARY 31 UNLESS THEY CAN SATISFY THE REGISTRAR OF COMPANIES THAT THEY HAVE ISSUED SHARE CAPITAL OF NOT LESS THAN $5 MILLION FULLY PAID IN CASH.

COMPREHENSIVE LEGISLATION IS PROPOSED TO CONTROL INSURANCE COMPANIES AND IT IS EXPECTED TO BE BROUGHT INTO EFFECT WITHIN TWO YEARS. MEANWHILE, IN ORDER TO CONTROL THE PROBLEM PRESENTED BY UNDER-CAPITALISED COMPANIES THE GOVERNMENT HAS GAZETTED THE INSURANCE COMPANIES (CAPITAL REQUIREMENTS) BILL 1978.

THE PURPOSE OF THIS BILL, WHICH WILL BE INTRODUCED INTO THE LEGISLATIVE COUNCIL NEXT MONTH (FEBRUARY), IS TO PREVENT FURTHER EFFORTS TO ANTICIPATE THE COMPREHENSIVE LEGISLATION.

THERE IS AN INCREASING NUMBER OF INSURANCE COMPANIES BEING ESTABLISHED IN HONG KONG IN THE HOPE, IT IS THOUGHT, OF GAINING SOME ADVANTAGE THROUGH BEING IN BUSINESS AHEAD OF THE PROPOSED COMPREHENSIVE LEGISLATION,

A TOTAL OF 19 NEW COMPANIES RECEIVED AUTHORISATION TO CARRY ON REGULATED CLASSES OF BUSINESS IN 1975, 17 IN 1976, AND 43 DURING 1977, OF WHOM MANY HAD A PAID UP CAPITAL OF LESS THAN $5 MILLION,

IT IS CONSIDERED THAT THE MARKET HAS NOW REACHED SATURATION POINT WITH A TOTAL OF 316 LOCALLY INCORPORATED COMPANIES AND FOREIGN COMPANIES CARRYING ON ONE OR MORE OF THE FOUR REGULATED CLASSES OF INSURANCE BUSINESS - FIRE, MARINE, LIFE OR MOTOR VEHICLE.

A GOVERNMENT SPOKESMAN SAID THE COMPANIES RANGED FROM OLD ESTABLISHED CONCERNS TO RECENTLY INCORPORATED COMPANIES WITH SMALL CAPITAL AND DOUBTFUL MANAGEMENT EXPERIENCE.

COMPETITION WAS FIERCE AND, WHILE THIS MAY APPEAR TO BENEFT CONSUMERS, IT COULD HAVE DISASTROUS LONG TERM CONSEQUENCES BECAUSE IN THE STRUGGLE TO SURVIVE SOME COMPANIES OFFERED SUCH LOW RATES OF PREMIUM AND SUCH LARGE DISCOUNTS THAT THEY RISKED INSOLVENCY.

THE SPOKESMAN SAID THE PRESENT REQUIREMENTS UNDER EXISTING LEGISLATION ARE FAIRLY EASILY MET, EVEN DY COMPANIES WITHOUT A STRONG FINANCIAL BASE.

HE ADDED THE COMPREHENSIVE LEGISLATION WAS UNDER PREPARATION IN CONSULTATION WITH THE INDUSTRY. BESIDES THE REQUIREMENT OF A MINIMUM PAID UP CAPITAL, COMPANIES WOULD ALSO NEED TO HAVE A SATISFACTORY MARG IN OF SOLVENCY.

THE LEGISLATION WOULD GIVE THE REGISTRAR GENERAL MUCH WIDER POWERS, INCLUDING THE POWER TO INTERVENE IN THE EVENT OF CAUSE FOR SERIOUS CONCERN.

/THE SPOKESMAN OBSERVED