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Following is the speech by the Chief Executive, Mr Donald Tsang, at the opening ceremony of the 41st Annual Seminar of the International Insurance Society today (July 11):

"Hong Kong: A Premier Insurance Hub"

Mr Apps, Mr Wittman, Distinguished Guests, Ladies and Gentlemen,

It is indeed a great pleasure to welcome you to Hong Kong. I am delighted to see Hong Kong host such a distinguished gathering of CEOs and senior management from the insurance industry. Many of you have travelled half-way round the globe to be here. I know you will not be disappointed. I am sure you will find Hong Kong one of the most competitive, dynamic and successful markets in the world ? whether that be insurance, banking or other financial services. And here I must congratulate the International Insurance Society for making the perfect choice to hold your 2005 seminar here in Hong Kong, Asia's world city.

Insurance industry in Hong Kong

Your theme this year - "A New World of Opportunity" - could not be more relevant or topical. China's breathtaking development presents enormous opportunities for enterprises around the world. The insurance industry is one sector with exceptional potential for growth in the China market.

Over the past 100 years, Hong Kong's insurance industry has grown and matured in tandem with Hong Kong's transformation from an economy driven by manufacturing, to one that is now 90% driven by services. Hong Kong is now a leading trade and services hub for a world-wide web of commercial activities, including air, sea, road and rail transport, freight and logistics, trade and tourism, and international finance. We have also become a major insurance and reinsurance hub, and the global financial platform for investing in the Mainland.

And here, I'd just like to give you a snapshot of how much the insurance industry in Hong Kong has developed. At the moment, we have about 180 insuring firms operating in Hong Kong. This is the highest concentration in Asia. They include direct insurers, professional reinsurers, and specialist insurers engaging in captive, mortgage, credit, marine and other businesses. More than half of the authorised insurers in Hong Kong are from overseas, that makes Hong Kong the most open and internationalised insurance market in Asia. Twelve of the world's top 20 insurers do business in Hong Kong, along with 11 of the world's top 25 reinsurers.

Total gross premiums grew by 20% to HK$123 billion, or US$16 billion last year. And, for the first time, insurance premiums last year reached the HK$100 billion mark. The insurance sector accounts for about 9% of our GDP, which underscores its importance to our economic makeup. Internationally, insurance penetration in Hong Kong is among the highest in the world, sharing the same ranking as the United States.

What is more significant is that Hong Kong's insurance industry has maintained double-digit growth throughout the past decade, even when we were hit by the Asian financial crisis in 1997 and 1998. This strong growth highlights not just the underlying strength and potential of the Hong Kong insurance market, but also the world-class regulatory system which buttresses that development.

Strengths of Hong Kong as a Premier Insurance Hub

As you may know, Hong Kong maintains its own insurance market and insurance regulatory system. We are a separate and founding member of the International Association of Insurance Supervisors (IAIS). This is made possible under the 'One Country, Two Systems' formula implemented since Reunification with our country in 1997.

Hong Kong is committed to the highest standards and best international practice in insurance regulation. Our regulator, the Office of the Commissioner of Insurance (OCI), is tasked by law to maintain "the general stability of the insurance market and protect the interests of policyholders and prospective policyholders".  And, as we have always done elsewhere in our economy, we adhere strictly to the policy of maintaining a free market for insurance in Hong Kong. The guiding principles of our insurance regulation are openness, consistency, and transparency. Openness has always been the greatest strength of our insurance industry. It has enabled the industry to adjust quickly to new developments. Our standards on solvency, corporate governance, market transparency and all other regulatory issues are on par with the highest international benchmarks.

Hong Kong is also home to more than 3,600 international companies with regional headquarters or offices. Among them are many of the world's major international insurers and reinsurers. They are drawn here by a number of factors that make Hong Kong the ideal base from which to manage their Asian operations.

I would like to highlight four distinct strengths:

First, Hong Kong is the world's freest economy. The Heritage Foundation of the United States has ranked Hong Kong the world's freest economy for the past 11 consecutive years, ever since they started their annual rankings. Our economy is built on free enterprise, free trade and open markets. The Government sees its role as that of a facilitator, providing effective and efficient infrastructure, which is vital for business development.

Second, Hong Kong is a world-class business centre. Our open environment has encouraged the development of all the business-support services needed for the insurance business to flourish. We are home to a large concentration of international banks, accounting and legal firms. Hong Kong is also one of the most prominent asset management, debt financing and capital formation centres in Asia. First-class insurance services, including captive management and reinsurance expertise, are readily available here.

Third, Hong Kong has superb hard and soft infrastructure. Hong Kong's tax system is renowned for its simplicity and low rates. Our common law legal system, upheld by an independent judiciary, is well established, well trusted, well understood and best suited for the development of financial services. We cherish the free flow of news and information, and are the regional base for a number of major media organisations. We have a clean and efficient civil service. We have a level playing field for business. And we have some of the best transport and communications infrastructure in the world.

Fourth, Hong Kong is strategically located. Hong Kong fits neatly between the time zones of Europe and America. We are perfectly positioned to meet the needs of businesses with a global reach. We are within a 5-hour flight time of all other key business cities in Asia ? and half the world's population. Setting up an insurance business here will provide the best strategic platform to tap the potential of the expanding Asian market, particularly the Chinese Mainland market.

New Opportunities

China's total premium income grew to RMB 432 billion (US$52 billion) in 2004, 11% higher than a year before. Assets held by the Mainland's insurance industry now stand at US$145 billion.  However, even with such impressive growth, China's insurance penetration rate, at 3.3% of GDP, remains low by international standards. Increasing affluence, a growing public awareness of insurance, and greater attention to risk management by Mainland corporations means that the demand for insurance service on the Mainland is set to grow at a very fast rate. Naturally, this will offer new opportunities for the international insurance industry.  

I believe the best place to explore and develop those opportunities is Hong Kong. We have the decades of experience, the insight, the contacts, as well as the language and cultural links that can smooth the way for you. And since January last year we have another tool in our briefcase to boost Hong Kong's role as the best place in Asia to do business. We call it CEPA for short, which stands for Closer Economic Partnership Arrangement.

CEPA is a free-trade pact between Hong Kong and the Mainland of China. It is made possible because Hong Kong remains a separate Customs territory under the 'One Country, Two Systems' policy I mentioned earlier. CEPA provides enhanced market access to China's massive market ahead of its WTO commitments. In other words, companies making use of CEPA can get a head start on the competition. In business, you always look for the first-mover advantage. CEPA offers that opportunity. CEPA now covers 26 service sectors, including insurance, banking, securities, legal and accounting services. On the insurance side, it allows insurers authorised and incorporated in Hong Kong to form strategic alliances and to pool their assets and business experience to meet the Mainland's market entry requirements. CEPA provides a platform for continuous access by the Hong Kong insurance industry, which is not provided in any other places on earth.

Apart from more multi-national corporations setting up in Hong Kong, we also expect capital and insurance funds to flow into our financial markets to leverage on the impressive growth of China's economy. As China?s economy develops, Hong Kong has become the premier international market formation centre for Mainland enterprises. The inflow of capital from Mainland insurance companies and the National Social Security Fund into international financial market, as recently allowed by the Mainland authorities, will undoubtedly further enhance the strength and role of our financial markets.

Insurance is vital to protecting the safety and security of a modern society. It provides peace of mind for families and enables companies to manage and control risks. Hong Kong has a vibrant and successful insurance industry that is poised to grow. Our strategic location, world-class infrastructure, excellent financial and supporting services, free flow of information, a large pool of insurance professionals, wealth of experience in the Mainland market, and our cultural and language ties, makes Hong Kong the very best location from which international insurers/reinsurers to tap into the Mainland insurance market, as well as invest in either the Mainland's market or Mainland enterprises. By serving as the best gateway for international insurers wishing to access the Mainland market, we are not only creating more opportunities for the Hong Kong insurance industry but also contributing to the further economic development of the Mainland.

Concluding Remarks

Ladies and gentlemen, I am sure you will find plenty to talk about on your chosen theme. And I hope that during those discussions you will come to understand more deeply our strengths as an economy and the prospects we offer to international insurance companies.

I wish you all a very fruitful and inspiring seminar. And of course a most pleasant stay in Hong Kong, Asia's world city.

Thank you.

Ends/Monday, July 11, 2005
Issued at HKT 11:40

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