ENG-2003 — Page 122

FINANCIAL AND MONETARY AFFAIRS

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A general business insurer is also required to maintain assets in Hong Kong to meet the claims of Hong Kong policy holders. For life insurance business, a fully-fledged appointed actuary system has been implemented to ensure that the insurer would be able to meet its obligations.

Prudential supervision of insurers is carried out mainly through examination of the financial statements, reports of actuaries and other returns submitted by insurers and regular on-site visits. The IA may take appropriate action against an insurer, under the ICO, 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 a manager appointed by the IA or petitioning for the winding-up of the insurer.

Insurance intermediaries have been brought under the regulation of the ICO since 1995. 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.

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

As a member of the International Association of Insurance Supervisors (IAIS), Hong Kong endeavours to ensure that its supervisory standards are in line with the principles and standards developed by the association. It has also established an Insurance Advisory Committee with representatives from the industry as members. The committee was set up pursuant to section 54 of the ICO for advising the Government on matters relating to the administration of the ICO and the carrying on of insurance business in Hong Kong.

Recent Developments

The IA reviews from time to time the regulatory regime of the insurance sector, in the light of operational experience, market development and the international trends to ensure its effectiveness. In the process, it maintains close liaison with industry bodies and overseas regulators. In 2003, the IA issued a number of guidelines for further enhancement of the different aspects of the regulatory regime. For instance, the IA issued in February a Guidance Note on Classification of Class C-Linked Long Term Business (GN11) and in June a Guidance Note on Reinsurance with Related Companies (GN12). GN11 was issued to clarify the classification of long term business between Class A (Life and Annuity) and Class C (Linked Long Term). GN12, on the other hand, was issued to specify the criteria for adequate reinsurance arrangements with related reinsurers and how to address the supervisory concern. arising from inadequate reinsurance arrangements.

Having regard to the latest international regulatory developments, the IA also issued in June 2003 a Supplement to the Guidance Note on Prevention of Money Laundering and a Guideline on the Combat of Terrorist Financing.

The existing self-regulatory system for insurance intermediaries has been in operation since 1995. In recent years, there have been rapid developments in the industry such as the growing numbers of insurance intermediaries and the increasing