Office of the Commissioner of Insurance

The Commissioner of Insurance, appointed as the Insurance Authority
(IA), administers the Insurance Companies Ordinance (ICO) and
exercises prudential supervision over the insurance industry in Hong
Kong. The ICO prescribes a comprehensive regulatory framework for all
classes of insurance business.

The ICO has two main objectives for the 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 solvency margin
requirements, and the requirement for all persons acquiring a position of
influence in relation to an insurer, e.g. directors and shareholders, to be fit
and proper.

Prudential supervision is carried out mainly through examination of the
annual financial statements and other periodic returns submitted by the
insurers. The ICO empowers the IA to take precautionary or remedial
measures against an insurer, if considered appropriate, to safeguard the
interests of policy holders. These measures may include 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
concerned.

A general business insurer is required to value its assets and liabilities in
accordance with a prescribed basis. It is also required to maintain assets
in Hong Kong to meet the claims of Hong Kong policy holders in the event
of its insolvency, which is particularly important when the insurer is
involved in cross-border insolvency proceedings.

A life insurer is required to maintain a solvency margin which relates to
the risk base of its business. Apart from the annual audit of its financial
statements, a life insurer is, in addition, subject to an annual actuarial
review of its operations by an appointed actuary.

During 1997, legislative amendments were made to the ICO, inter alia, to
promote the development of captive insurance business in Hong Kong by
offering various regulatory concessions to captive insurers. The IA was
also empowered to make regulations specifying the standards to be
observed by the appointed actuary of a life insurer in carrying out his
duties under the ICO.

Self-regulatory measures to strengthen professional discipline in the
insurance market have been formulated by the insurance industry, after
consultation with the IA. These measures include the adoption by the
industry of two Statements of Insurance Practice governing the writing
of insurance contracts of life and general insurance business, and the
establishment of an Insurance Claims Complaints Bureau to provide an
independent avenue for resolving claims disputes arising from personal
insurance policies. More recent developments include the introduction of
a cooling-off period for life insurance policies and a disclosure standard
for investment-linked life insurance policies.

Insurance intermediaries, i.e. insurance agents and brokers, were brought
under the regulation of the ICO in 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. Regulation of
insurance intermediaries enhances the professionalism of this part of the
industry and, in turn, the protection of policy holders.

The government is committed to promoting reinsurance and captive
insurance business in Hong Kong. A working group has been set up to
assess market potential and identify promotional measures. The
promotional measures identified are to enhance tertiary insurance
education, to co-ordinate overseas publicity efforts, and to introduce tax
incentives. The IA is working closely with relevant government
departments, tertiary institutions and industry bodies in implementing the
promotional measures.

Hong Kong is a charter member of the International Association of
Insurance Supervisors, which is a forum for insu蓷nce supervisors from
all territories to develop supervisory standards, share experiences and
exchange information on insurance supervision. It has 86 members from
countries around the world.

The Commissioner of Insurance, as the Registrar of Occupational
Retirement Schemes, is also responsible for the regulation of private
sector retirement schemes. The governing legislation is the Occupational
Retirement Schemes Ordinance (ORSO) which provides a registration
system for voluntarily established occupational retirement schemes. Its
objective is to provide greater certainty that retirement scheme benefits
promised to employees will be paid when they fall due. It requires all
schemes operating in or from Hong Kong to be either registered with, or
exempted by, the Registrar.

All registered schemes must meet certain basic requirements, including
asset separation (the assets of a scheme must be kept separate and
distinct from the assets of the employer or the scheme administrator);
independent trusteeship (there should be at least one independent trustee
who must not be the employer, his employee or his associate); restricted
investments (any loan to the employer of the scheme or his associate out
of the scheme's assets is prohibited, as is any excessive investment in the
business undertaking of the employer); funding (the assets of the scheme
must be sufficient to meet its aggregate vested and past service liabilities
and the scheme shall be funded in accordance with the terms of the
scheme); independent audit; actuarial reviews (for defined benefit
schemes); and the annual submission of audited financial statements to
the Registrar. There are also requirements for disclosure of information
regarding the operation of the scheme to its members.

As at December 31, 1997, there were 16 324 registered schemes which
covered an aggregate of 861 576 employees, and 1 935 exempted
schemes.

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