XN000022-1996-02-14 — Page 8

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Insurance Companies (Amendment) Bill 1996

Following is the speech by the Secretary for the Financial Services, Mr Rafael Hui, in moving the second reading of the Insurance Companies (Amendment) Bill 1996 in the Legislative Council today (Wednesday):

Mr President,

I move the Insurance Companies (Amendment) Bill 1996 be read the second time. The Bill seeks to amend the Insurance Companies Ordinance to enhance protection for the insuring public.

The three main objectives of the Bill are -

(a) to update the minimum capital requirements for general and long term insurers and the minimum solvency margin requirements for general insurers;

(b) to ensure that the solvency margin is commensurate with the level of risk covered by the insurer; and

(c) to restrict use of the words "insurance" and "assurance" to persons regulated under the Insurance Companies Ordinance.

A number of other relatively minor or technical amendments are proposed to improve the operation of the Ordinance.

The purpose of the minimum amount of paid-up capital is to ensure that the insurer has a minimum level of financial resources with which to pre-finance its operations and to provide a reasonable safeguard against the risk that its assets may be inadequate to meet liabilities arising from unpredictable events. These minimum requirements are important safeguards of the interests of policy holders.

The current levels of these minimum requirements have not been updated since the Insurance Companies Ordinance was enacted in 1983. Aggregate inflation since then has been about 146%. The real value of these requirements has therefore been eroded and is now inadequate to provide the level of protection for policy holders originally intended. The Administration therefore proposes a 100% increase for the two requirements. The minimum paid-up capital requirement for an insurer intending to carry on or carrying on either general or long term business will be increased from $5 million to $10 million, whilst that for both general and long term business or general business alone but including compulsory business (for instance, employees' compensation insurance business) will be raised from $10 million to $20 million.