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Speech by SFST: "Hong Kong: A Premier Insurance Centre in Asia"


Following is the speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the third CEO Insurance Summit this morning (March 25) (English only):

Ladies and Gentlemen,

I am honoured to be invited here this morning, and delighted to see Hong Kong host such a distinguished gathering of insurance regulators, CEOs and senior management of the insurance industry. To all of you from overseas, who have adhered to your travel plans in these turbulent times, a big thank you, and a very warm welcome to Hong Kong, Asia's world city.

This is the third CEO Insurance Summit co-organized by the Geneva Association and the Asia Insurance Review. The occasion provides an excellent opportunity for all of us to share our experience; and how timely this opportunity is. The past two years have been particularly challenging for the global insurance industry. We all need to take time out to reflect on the industry's outlook and regulatory challenges ahead.

You have chosen for this Summit the theme: "Eyeing World Class Standards - the Asian Approach". So I would like to take this opportunity to share with you a little of the Hong Kong experience, accompanied, if you will forgive me, by a few modest notes on our trumpet.

Insurance Industry in Hong Kong


With over 190 insurance firms operating in Hong Kong, we have the highest concentration of insurers in Asia. And impressive numbers are matched by impressive variety: direct insurers, professional reinsurers, and specialist insurers, engaging in captive, mortgage, credit, marine and other insurance businesses, all have a presence and that presence has an impressively international flavour. More than half of the world's top 20 insurers are authorized to carry out insurance business in Hong Kong, either directly or through a group company. More than half of the authorized insurers are incorporated outside Hong Kong, with the US and UK companies taking the lead.

Despite a rather troubled global economy, we are fortunate that the insurance industry in Hong Kong has achieved sustained growth over the past few years. According to the provisional statistics for 2002, total gross premiums of the insurance industry surged to $91.7 billion (US$11.8 billion), representing 20 per cent growth over the previous year.

Hong Kong's Distinctive Advantages


Not bad for this speck on the map measuring barely 1 100 square kilometres. What, you may ask, is our recipe for success? I would highlight four ingredients:

First, Hong Kong is the world's freest economy. According to the 2003 Index of Economic Freedom published by the Heritage Foundation, Hong Kong continues to rank the freest economy in the world for the ninth consecutive year. Our economy is built on free enterprise, free trade and open markets. Government sees its role as that of facilitator, providing effective and efficient infrastructure, which is vital for business development, but leaving business alone to do what business does best. Thus on the insurance front, Hong Kong is probably the most open insurance centre in the world.

Second, Hong Kong is a world-class business centre. This open environment has encouraged the emergence of all the business-support services necessary for the operation of insurance business. Almost all internationally renowned accounting and legal firms have set up offices here. First class insurance intermediary services, including captive management and reinsurance brokerage expertise, are also readily available.

Third, Hong Kong has superb infrastructure. Hong Kong's tax system is renowned for its simplicity and low rates. We intend to keep it that way. Hong Kong's common law legal system is familiar, well established and upheld by an independent Judiciary. Freedom of information has also made us a regional news media and broadcasting hub, providing the latest international business information at your fingertips. Whichever way you look at it, our financial services infrastructure is excellent.

Fourth, Hong Kong is strategically located. Conveniently located between major markets in Europe and America, Hong Kong gives you the perfect time zone for your global network. More than this, we are within a 5-hour flying radius of virtually all the other key business centres in Asia. Set up here and you are perfectly placed to network and to tap the potential of the growing Asian insurance market.

For the future, I will add a fifth ingredient to tempt your palates, the China market. Take for example our neighbouring Province, Guangdong, which by itself is larger than the United Kingdom and has a population of 85 million. That is a major market in itself, and it includes the burgeoning Pearl River Delta, which enjoys the highest per capita GDP in the Mainland.

Opportunities with China's Accession to the WTO


With our increasingly efficient links, we are thus well placed to capitalize on the opportunities offered by China's accession to the WTO. According to the World Bank, China's GDP ranks the sixth in the world and may well rise to the second place within the next 20 years. China's total premium income grew to RMB 305 billion (US$ 37 billion) in 2002, an impressive increase of about 45% over 2001. Moreover, China's per capita annual premium remains low by international standards, indicating potential for further growth. China's accession to the WTO will provide foreign insurers not only with easier access to a potential market of 1.3 billion people, but also a better operating environment, where WTO rules apply in matters such as foreign ownership of insurers and reinsurance restrictions.

Ladies and gentlemen, the question today is not whether you should enter the Mainland market, but how to do so. Historically, Hong Kong has been the international gateway to China. This role is set to grow, to the advantage of both parties, as China's domestic economy expands. Hong Kong is an international financial centre, providing a full range of world-class financial services to the Mainland market. With the expertise and experience accumulated in doing business with the Mainland, Hong Kong is ideally placed to serve foreign insurers who wish to enter the mainland market. If you are not already here and you are looking to set up a new regional headquarters, look no further: Hong Kong is the place to be.

Business Environment


In enumerating Hong Kong's strengths and advantages, I have left one factor for separate discussion. I have done so because it deserves separate treatment, because it is vital for any world-class insurance centre, and that is a world-class regulatory regime. Hong Kong's regulatory regime is business-friendly, transparent, open, efficient and effective, and in line with international standards. Nevertheless, we cannot be complacent. We must keep our regulatory regime under constant review and strive constantly to improve. And in this context I would like to say a few words about Corporate Governance.

Corporate Governance


In common with other leading international financial centres, we are working hard to enhance our corporate governance standards. Insurance is a key component of our financial services sector, so I cannot emphasize enough the importance of good corporate governance to maintain our competitiveness. Thus our Insurance Authority issued a Guidance Note on the Corporate Governance of Authorized Insurers in August last year. The Notes sets out the minimum standard of corporate governance that is expected of an authorized insurer. It covers matters such as the structure of the senior management, the role and responsibilities of the board of directors, internal controls, compliance with laws and so on. As a matter of good practice, we have involved the insurance industry in developing the Guidance Note and the Note will come into force on 1 September 2003. I commend it to your attention.

Quality of insurance intermediaries


Intermediaries play an important role in the insurance industry, and we place much emphasis on enhancing the professionalism of intermediaries. Thus we have put in place an "Insurance Intermediaries Quality Assurance Scheme" in Hong Kong, under which insurance agents and brokers are required to pass a qualifying examination before they can practise. They are also required to participate in Continuing Professional Development programmes, to ensure that they are on the cutting edge of industry developments.



In line with Hong Kong's status as one of the world's most open insurance centres, the Insurance Authority also works closely with the industry to enhance transparency of the market. Thus you will find our requirements for timely disclosure of information and market performance by insurers on par with best international practice.

Market Development


In his Policy Address 2003, the Chief Executive of the HKSAR spelled out "big market, small government" as the underlying principle of the HKSARG's philosophy of governance. We see our mission as continuing to facilitate market development, or put another way, helping you to do better business. On the insurance front, we will continue our efforts in promoting the establishment of captive insurance and reinsurance business, and further the development of marine insurance. Government cannot and does not claim to be the expert in market development. You, the industry, know best. So you should expect us to maintain our tradition of working closely with the industry in mapping out future plans. I look forward to cooperating with you and listening to your views in this regard.



Ladies and gentlemen, I am grateful to you for this opportunity to share my views on the Hong Kong experience with you. I am sure the challenges faced by the insurance industry will feature in the discussions in the coming two days. I am a believer in looking at things positively. So, looking at things from a positive perspective, the challenges facing the global insurance industry represent opportunities for all of us. Let us not forget that insurers are experts in prudently assessing risks and capitalizing on, i.e. profiting from, such assessments!

With that thought, I wish you all the best in what I am sure will be two days of lively and fruitful discussions. In between your busy schedules, I hope you will have time to enjoy some of the other pleasures that Hong Kong has to offer. So spoil your spouses, burn the plastic, and enjoy your stay in Hong Kong.

Thank you.

End/Tuesday, March 25, 2003


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