ENG-1999 — Page 110

FINANCIAL AND MONETARY AFFAIRS

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The ICO, which prescribes a comprehensive regulatory framework for all classes of insurance business, has two main objectives as regards protection of policy holders. Firstly, it aims at ensuring the financial stability of all insurers authorised in Hong Kong. Secondly, it aims at ensuring the fitness and propriety of the management of an insurer. These objectives are achieved through the prescription of, inter alia, the minimum share capital and the solvency margin requirements, and the requirement for directors and controllers of insurers to be fit and proper persons.

A general business insurer is also required to maintain assets in Hong Kong to meet the claims of Hong Kong policy holders, which is particularly important when the insurer is involved in cross-border insolvency proceedings. The solvency margin required of a life insurer, however, is calculated on the amount of the insurer's mathematical reserves and capital at risk.

As a member of the International Association of Insurance Supervisors, Hong Kong endeavours to comply with the principles and standards developed by the association to bring Hong Kong in tandem with the international regulatory standards. Prudential supervision is carried out mainly through examination of the annual financial statements, actuary's reports and other returns submitted by insurers and regular on-site visits. The IA may take interventionary action against an insurer, if considered appropriate, to safeguard the interests of policy holders. These measures include the limitation of premium income, placing of assets in the IA's custody, assumption of control by the IA or petitioning for the winding-up of the insurer.

In 1999, the ICO was amended to upgrade the supervision over Lloyd's by subjecting it to similar financial and reporting requirements as applicable to other insurers. Amendments have also been made to enhance the supervision by IA through advancing the submission of insurers' Hong Kong insurance business returns from six to within four months after the close of the financial year, and by requiring insurers to provide claims development statistics over a longer period of time.

Self-regulatory measures are in place to strengthen the market discipline in the insurance industry. These measures, which were formulated by the insurance industry in consultation with the IA, include the adoption by the industry of a Code of Conduct for Insurers governing the writing of insurance contracts of life and general insurance business, and the illustration standards for both linked and non-linked life insurance policies.

Insurance intermediaries, i.e. insurance agents and brokers, have been brought under the regulation of the ICO since 1995. No person may act as an insurance intermediary unless he is an appointed insurance agent or an authorised insurance broker. An insurance agent must be properly appointed by an insurer and an insurer is required to comply with the Code of Practice for the Administration of Insurance Agents in appointing and controlling its agents. An insurance broker must meet certain minimum requirements before he can be authorised. To enhance the professionalism and standard of service of insurance intermediaries, an Insurance Intermediaries Quality Assurance Scheme will be implemented from January 2000. Under the scheme, all insurance intermediaries, their chief executives and technical representatives, unless otherwise exempted, will be required to pass a qualifying examination before they can be registered or authorised as appropriate. They will also be required to attend continuing professional development programmes thereafter to ensure that the required standard of professionalism can be maintained.