ENG-2004 — Page 120

90 Financial and Monetary Affairs

The ICO, which prescribes a comprehensive regulatory framework for all classes of insurance business, has the two main objectives of ensuring the financial stability of all insurers authorised in Hong Kong and the fitness and propriety of their management. 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. For life insurance business, a full- 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 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 relation to operational experience, market development and international trends to ensure its effectiveness. In the process, it maintains close liaison with industry bodies and overseas regulators. In 2004, the IA also issued guidelines for enhancement of the regulatory regime. It issued in June a Guidance Note on Asset Management by Authorized Insurers (GN13). The Guidance Note aims to tighten up control over investment/asset risks and to ensure that the asset management system of authorised insurers complies with the minimum standard.

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