********************************************

    Following is a question by the Hon Bernard Chan and a written reply by the Secretary for Economic Development and Labour, Mr Stephen Ip (when the Secretary for Financial Services and the Treasury is on duty visit), in the Legislative Council today (June 22):


Question:

    It has been reported that keen competition and increasing payments of claims resulted in a plunge in profits of the general insurance business by over 80% in the first quarter of this year, and this also prompted the Office of the Commissioner of Insurance to introduce new measures which require insurance companies to provide information concerning their incomes from employees' compensation insurance premiums.  In this connection, will the Government inform this Council of the details and purposes of these measures, and whether it has assessed the impact of such measures on the trade and the general public?


Reply:

Madam President,

Background
----------

    The premium income from employees' compensation insurance ("EC insurance") business has significantly decreased since the first half of 2004.  The decrease of the gross premium income for the whole year 2004 (Note 1) was 26%, compared with that for the year 2003.  In the first quarter of 2005, there was a decrease of more than 22% in gross premium income compared with the same period in 2004 (Note 2).  The Office of the Commissioner of Insurance (OCI) is very concerned about the situation.

New Measures
------------

    In the past, insurance companies were required to provide information on premium income from EC insurance to the OCI every year.  The information includes the breakdown by 10 sectors of gross premium income from EC insurance and total amount or value of the relevant wages or works contracts.  The purpose of providing such information is to let the OCI know the average premium level of the various sectors and the pricing level of individual insurance companies.  The new measures change the requirement of submission of the information from an annual to a quarterly basis.  

    The OCI had consulted the insurance industry and obtained their support before implementing the new measures.  On March 31 this year, the OCI wrote to all insurance companies, requiring them to submit the above-mentioned information on premium income from EC insurance within a month after the end of each quarter.  The new measures have been introduced, starting with the information for the second quarter this year.  Therefore, insurance companies have to submit the information for the second quarter to the OCI by the end of July.  So far, no insurance companies have indicated to the OCI that they have any difficulty in submitting the information.

Purpose
-------

    The purpose of the new measures is to enable the OCI to know earlier whether the pricing of an individual insurance company has deviated from the average level in the market and make early assessment of the impact of such pricing on the solvency and financial integrity of the insurance company.  If necessary, the OCI will take follow-up actions, such as requiring the company to increase its margin of solvency.  We believe that in this way the OCI can regulate insurance companies more effectively, thereby enhancing protection for the insured.  Besides, the new measures have no impact on the general public.  


Note 1:  The data for 2004 are provisional data subject to audit.

Note 2:  The data for the 1st quarters of 2004 and 2005 are provisional data subject to audit.

Ends/Wednesday, June 22, 2005
Issued at HKT 13:55

NNNN