LC Paper No. LS154/98-99
Paper for the House Committee MeetingObjects of the Bill
of the Legislative Council
on 30 April 1999
Legal Service Division Report on
Insurance Companies (Amendment) Bill 1999
To amend the Insurance Companies Ordinance (Cap. 41) (the Ordinance) to :-
LegCo Brief Reference
- strengthen the regulation of the Lloyd's insurance business in Hong Kong;
- shorten the period within which the insurers are required to submit the statutory financial information relating to their Hong Kong general business; and
- extend the number of development years required for the submission of claims statistics by insurers relating to their Hong Kong general business.
2. C 2/2/38C(99)II issued by the Financial Services Bureau on 14 April 1999.
Date of First Reading
3. 28 April 1999.The Regulation of Lloyd's Insurance Business in Hong Kong
4. Lloyd's is an association of insurers which was first incorporated in 1871 as a society of individual underwriters who have formed amongst themselves syndicates that carry on a wide variety of insurance business. It claims that its members in aggregate have capital, surplus and conditional reserve funds in excess of US$2,000 million (Lloyd's webpage : www.lloydsoflondon.co.uk).
5. Lloyd's is being supervised by the relevant authority in the United Kingdom under, inter alia, the Insurance Companies Act 1982. It is not subject to the provisions of the Ordinance except section 50 which requires the appointment of an authorised representative in Hong Kong and the annual deposit of a statement summarising the extent and character of the insurance business done by its members as required by the law applicable to it in the United Kingdom.
The New Regulatory Regime
6. Section 50 of the Ordinance would be repealed and substituted by seven new sections which provide as follows :-
7. The members of Lloyd's taken together shall at all times maintain a solvency margin not less than the aggregate of the amount required under section 10(1) and the greater of :-
- the aggregate of the amount of their liabilities and $2,000,000 or its equivalent; or
- the aggregate of the amount of their liabilities and such amount as prescribed by the Insurance Companies (Margin of Solvency) Regulation (Cap. 41 sub. leg.) (proposed section 50A).
8. Lloyd's shall appoint an authorised representative (not being a body corporate) who shall reside in Hong Kong and be responsible for its overall operation here. It shall be responsible for accepting service of notice on behalf of Lloyd's and its members; servicing Lloyd's policy holders in Hong Kong with a view to protecting their interests; and ensuring compliance by Lloyd's and its members of the provisions of the Ordinance (proposed section 50B).
9. Lloyd's shall submit to the Insurance Authority annually a copy of the accounts, statements and information specified in the proposed section 50C(1) within the time periods stipulated in section 50C(4). It shall also submit to the Insurance Authority quarterly a list showing the name of all persons in Hong Kong who have been given binding authority by Lloyd's members to underwrite insurance business on their behalf and the type of business carried on by each of those persons (proposed section 50C(5)).
10. Part IVA and Part X of the Ordinance, which respectively govern requirement for assets in Hong Kong and insurance intermediaries, would also apply to Lloyd's (proposed sections 50D and 50E). The Insurance Authority would be empowered to exercise all its powers of intervention under Part V (except section 40) of the Ordinance in relation to Lloyd's (proposed section 50F).
11. Consequential amendments would be made to section 55(c), Part 9 of the Third Schedule, and the Fourth Schedule of the Ordinance (Clauses 6(b) and 7).
Provisions Concerning All Insurers
Time Limit for Submission of the Statutory Financial Information
12. Section 20 would be amended by inserting a new subsection (1A) which stipulates that information specified in Parts 8 and 9 of the Third Schedule and required to be submitted to the Insurance Authority under section 17 of the Ordinance shall be submitted within 4 months (instead of the original 6 months) after the close of the period to which the account or the statement relates. Subsection (1) would be subject to the new subsection (1A) (clause 2).
13. Section 25A(9) would be amended so that an insurer is required to file the required statement within 4 months (instead of the original 6 months) after the end of each financial year. Section 25A(11) would be consequentially amended (clause 3).
Extend the Number of Development Years for Claims Statistics
14. Forms 6, 7, 8 and 9 in Part 8 of the Third Schedule would be repealed and substituted a by new forms to accommodate the proposed new requirement that the number of development years required for the submission of claims statistics by the insurers relating to their Hong Kong general business is extended from 8 to 12 years (clause 6(a)). "Development years" is an insurance jargon for the period in terms of years during which an insurance claim "develops" starting from the making of the claim to its settlement or discharge.
15. Paragraph 1(c) of the Eighth Schedule would be amended so that for any sum of money in any monetary unit to qualify as assets in Hong Kong, it must not only be deposited at an authorised institution as defined in the Banking Ordinance (Cap. 155) but also be kept there.
16. The proposed amendments to sections 20 and 25A of the Ordinance would only have effect in respect of any financial year of an insurer that ends on or after the first anniversary of the coming into operation of the amendments.
17. Section 50(2) and (3) of the Ordinance would continue to have effect for one year after the repeal of section 50. Sections 50C, 50D and 50E would only take effect after the first anniversary of the day the enacted Bill comes into operation.
18. The requirement of the additional 4 years of claims statistics will only be fully effective after the 4th anniversary of the coming into operation of the relevant provisions of the Bill. Hence, the insurers need not dig into records prior to the existing requirement of 8 years in order to comply with the new requirement.
19. According to the LegCo Brief, the Insurance Advisory Committee, the Hong Kong Federation of Insurers, the Actuarial Society of Hong Kong, the Hong Kong Society of Accountants and Lloyd's have been consulted on the proposals and have indicated their support. The Hong Kong Society of Accountants has also confirmed that the new time limit for submission of accounts and statements will not present any difficulty to the auditing profession.
Consultation with the LegCo Panel
20. The members of the Financial Affairs Panel have been briefed on the legislative proposals on 13 April 1999.
21. The Legal Service Division is seeking clarification from the Administration on some drafting points. After the clarification of those points, subject to Members' views, the Bill will be ready for resumption of Second Reading.
Assistant Legal Adviser
Legislative Council Secretariat
26 April 1999