CURRENT PERFORMANCE INDICATORS

The insurance industry provides general and long term risk cover, as well as investment management services, for private and corporate policy holders.

• Hong Kong has the highest number of authorised insurance companies in Asia. In December 1995, Hong Kong had 223 authorised insurers, of which 123? were incorporated overseas. Among the 223, there were 22einsurers, of which six were incorporated locally and 16 were branch offices of overseas companies. They provide a wide range of insurance services at competitive prices.

• Of the world's top 10 insurance companies in terms of assets, five have branch offices or subsidiaries in Hong Kong.

• Premium income is the fifth highest in Asia (after Japan, South Korea, Taiwan and China) and the 27th highest in the world. Gross premium income increased by 20% from $32.6 billion in 1993 to $39.2 billion in 1994. The average annual growth rate between 1991 and 1994 was 21%.

• In 1995, the industry employed about 22?00 people, accounting for about 0.7% of the total working population.

• In 1994, the insurance industry generated $11 billion in terms of value added, representing 1.2% of Hong Kong's Gross Domestic Product.

• 16 insurers operate some 8?00 of Hong Kong's 15?00䰄ccupational retirement schemes, covering some 420?00 employees (or about 15% of the workforce) and investing some $22.3 billion (or about 19% of Hong Kong's retirement funds).

• Hong Kong has 86 qualified actuaries, the highest number in Asia.

THE GOVERNMENT'S COMMITMENT

The Government's objective is to ensure the financial health and integrity of the insurance industry in order to?

• provide adequate protection for insurance policy holders; and

• maintain Hong Kong's position as a reputable, international insurance centre.

• We have enacted legislation to require general insurers to maintain sufficient assets in Hong Kong to back their liabilities.

• We have given statutory backing to the industry's self-regulation of its agents and brokers.

• We will update the minimum capital and solvency margin requirements for insurers.

• We will provide legal backing to the professional standards adopted by the Actuarial Society of Hong Kong in agreement with the Insurance Authority for assessing the financial soundness of life insurance business.

• We will continue to participate in regional and international forums where the industry and national regulatory bodies can share experiences in formulating a sound and professional regulatory framework. For example, Hong Kong :
  • is now a signatory to the "Recommendation Concerning Mutual Assistance, Cooperation and Sharing Information" of the International Association of Insurance Supervisors; and

  • has participated regularly in the East Asian Insurance Congress, the National Association of Insurance Commissioners, the Pacific Insurance Conference and International Association of Insurance Supervisors.

POLICY DIRECTIONS

We propose to :

• work with the industry to develop a customer-friendly culture, for example, by promoting bilingual insurance policy documents and distributing publicity materials on insurance policies in general;

• review regularly the criteria for authorising insurance business in Hong Kong to promote new entrants and to provide an attractive environment for both local and international insurance companies to operate here whilst maintaining the highest standards of prudential supervision to ensure Hong Kong's position as an important and reputable insurance centre;

• identify measures to encourage the development of "captive" insurance businesses whereby multinationals or conglomerates set up subsidiary companies in Hong Kong to carry on insurance business to cater for the specific insurance needs of the group. We believe that the further development of captive insurance in Hong Kong will promote competition in the market place and provide a wider range of insurance options;

• encourage the development of the reinsurance market. This will enable Hong Kong to service the reinsurance requirements of Hong Kong and of the region, currently estimated at $4.8 billion and $45 billion respectively, with the latter growing rapidly; and

• explore the case for establishing the Insurance Authority as an independent regulatory body outside the civil service, thereby enhancing the professionalism of the regulator and the industry.

THE PRIVATE SECTOR'S CONTRIBUTION

Whilst the Government will seek to ensure that the regulatory framework is of the highest international standards, the insurance industry must continue to take the lead in providing new and improved services to the insuring public both in Hong Kong and in Asia at large. The private sector makes its vital contribution by?

• maintaining the highest standards of business integrity;

• improving the transparency of operations;

• strengthening the system of self-regulation, in particular for insurance agents and brokers;

• exploring market potential in the region, particularly in China; and

• launching publicity programmes to raise the level of insurance consciousness in Hong Kong.

LONG TERM ISSUES

Hong Kong faces strong competition from other regional and international centres, particularly when customers can conveniently look beyond the territory to seek the highest quality services at competitive prices. To compete effectively in this market, Hong Kong must continue its efforts to develop into Asia's largest and most reliable insurance, reinsurance and captive insurance centre. The Government will continue to maintain a professional regulatory regime which ensures that the insurance industry operates on a sound financial basis. At the same time, the private sector will need to ensure that its business is conducted in a professional and ethical way.

Secretary for Financial Services

March 1996