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SFST's speech at Annual Dinner of Actuarial Society of Hong Kong (English only)
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    Following is a speech by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, at the 2nd Annual Dinner of the Actuarial Society of Hong Kong today (November 14):

Ms Chiu, Distinguished Guests, Ladies and Gentlemen,

     I am honoured to be invited to address you this evening. The Actuarial Society of Hong Kong (ASHK) is one of the largest actuarial bodies in Asia so it is a distinct pleasure for me to be here in this hall tonight and to share the joy of celebrating this important occasion of the Annual Dinner of the ASHK.

     As the saying goes, "The only certainty in this world is uncertainty."  There is however one profession that prospers on uncertainty and that is the actuarial profession.  In a fast-changing world and particularly in the financial markets today, we are not only facing increased competition arising from globalisation and across sectors, but also increased challenges and risks evolving from the sophistication of financial products and services.  We need to have greater capacity to assume and manage risks and there is a constant demand for actuaries to satisfy our risk management needs.

     The "actuary" profession has been consistently rated one of the best jobs, above that of accountant and lawyer, in a series of popular job survey in the United States.  In Hong Kong, a recent study by one of our universities shows that the admission scores of undergraduate students admitted to its Department of Statistics and Actuarial Science top all other faculties for 11 years in a row.  The popularity of the actuary profession nowadays and the respect it commands can be explained, to some extent, by the fact that those who are qualified as actuaries tend to be mathematically gifted.  But more importantly, I believe it is a reflection of the growing importance of the insurance industry in the financial market landscape, and the trust which the insuring community places on the actuarial profession to protect their interests and safeguard their investments.  

     The Hong Kong insurance industry has experienced rapid growth since the late 1970s when insurance has gradually become better understood and received by the community.  It grows in tandem with the transformation of Hong Kong into a service economy. In the past decade, our insurance industry has continued to sustain an enviable double-digit growth every year.  In 2004, total gross premiums reached HK$123 billion.  With some 180 insurance companies, with roots from all over the world, Hong Kong has the highest concentration of insurance companies in Asia.  As one of the key pillars of our financial services, the Hong Kong insurance industry reinforces our position as a leading international financial centre.  With an abundance of insurance and financial professionals, coupled with our sound infrastructural strengths, we also see Hong Kong's prominent development as a wealth management centre in the region. This is also a testimony to the effective and robust insurance regulatory and supervisory system that we have in Hong Kong, which is essential to the healthy growth of the industry.

Role of the Insurance Regulator and Collaboration with Actuaries
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     Central to our prudential supervisory framework is the appointed actuaries system.  Under this system, actuaries perform a dual function.  Apart from advising the management on product pricing and reserving valuation, the appointed actuaries are responsible for monitoring the financial soundness of an insurer, reporting to its board of directors and whistle-blowing to the Insurance Authority if they become aware of any circumstances that may threaten the insurer's financial health.

     The effectiveness of this appointed actuaries system depends on the support of the ASHK which provides not only the required professional code of conduct, but also the technical guidance to actuaries so that they can discharge their professional and statutory responsibilities properly.  I would like to take this opportunity to pay tribute to the ASHK for the successful development of the "Dynamic Solvency Testing", a comprehensive actuarial guidance note which will come into effect by the end of the year.  Dynamic solvency testing is a useful management tool in analyzing and projecting the capital base of an insurer, ensuring that its financial strength is robust enough to withstand risks and vulnerabilities under the most adverse scenarios.  More importantly, the promulgation of this actuarial guidance note bears the fruit of the collaboration between the Insurance Authority and the actuarial profession to enhance prudential regulation of the Hong Kong insurance industry.

Insurance Regulatory Policy
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     I see and take pride in our role to protect interests of policyholders through the promotion of a sound and sustainable insurance industry.  To do so, our policy is to promote an open, transparent and competitive business environment, encourage diversity but development of high quality insurance products, and ensure that insurers are financially able to honour their contractual promises.  Let me make use of this occasion to share with you some thoughts as to how we could both honour this role of insurance supervision.  I would like to summarise my thoughts under four guiding principles.

Minimum Interference in Commercial Decisions
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     First, I am a believer of a market-oriented approach in the financial services supervision.  This approach seeks to minimize interference in commercial activities except for prudential reasons and in the public interest.  Consistent with our free market economic policy, any insurers, whether local or overseas, who meet the authorization requirements are welcome to operate in Hong Kong.  As for the premium rates or the kind of insurance products to be promoted, I believe that they should be best left to the interplay of market forces. In the course, I expect our actuaries to perform a proactive role in giving their advice on the premium rates and products design to make them both competitive and sustainable.

Licensing and Continuous Monitoring
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     Second, I take that prudential insurance supervision should be characterized by an appropriate licensing system and due procedures for solvency monitoring. At present, the Insurance Authority assesses every application for new authorization of insurers diligently and upon authorization, continuously monitors them through regular financial reporting and examination of audited annual accounts, actuarial reports and quarterly returns.  In this respect, I will continue to count on the actuarial profession's support in discharging your regulatory functions and whistle-blowing to the Insurance Authority when you become aware of any circumstances that may jeopardize an insurer's solvency or policyholders' reasonable expectation.  

Consumer Protection
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     Third, I am convinced that we all play a vital role in protecting consumer interest.  Transparency, accountability and policyholder education form the basis of this consumer protection.  By publishing newsletters and series of information pamphlets, the Insurance Authority attaches significant importance to educate the policyholders and potential policyholders.  To this end, we strive to promote information disclosure for a fair deal between insurance buyers and sellers.  The establishment of an efficient system of complaints handling and enforcement of best market practices have embraced an enhanced regime for consumer protection.  Many complaints from policyholders on product pricing or policy charges could be avoided if disclosure is enhanced.  I would encourage the actuarial profession and through the ASHK to work with the Insurance Authority to step up consumer education and enhance market transparency.

Ensuring Good Corporate Governance
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     Last, but definitely not least, good corporate governance is of paramount importance to the insurers in instilling public confidence.  This is indispensable for long term development of the insurance industry.  To enhance market integrity, the Insurance Authority has promulgated a guidance note which sets out the minimum standard of corporate governance expected of an insurer.  The checks and balances provided by actuaries on the affairs of an insurer are vital to upholding proper corporate governance.  And I am glad to know that safeguards are already well in place among actuaries, insurers and the regulator.  

Collaboration with the Regulator
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     Looking ahead, I see the need for continued collaboration between various professions of the industry, particularly that with the actuarial profession, and our Insurance Authority in the further development of Hong Kong's insurance industry. The global insurance industry has gone through some turbulence over recent years, with decreasing investment returns and shrinking capitals. These are being aggravated by escalating natural catastrophes and the emergence of new infectious diseases.  Coupled with fierce competition, globalisation and convergence of financial services, there has been constant pressure on insurers to formulate more aggressive, strategic plans for maintaining their market shares and boosting their business growth. In the course, it would be of paramount importance for them to manage their risks properly and duly, in full compliance with the regulatory requirements. As appointed actuaries, all of you will have an increasing role to play in coping with these challenges.  Actuaries are the leading professionals in our society to help us manage and control risks.  The community will continue to look to actuaries to provide the financial safeguards that protect us from the shocks of life's catastrophes.

     Apart from working in collaboration with the professionals of the industry, as a premier insurance centre in the region and one of the most open economies in the world, the Insurance Authority also maintains close liaison and co-operation with other insurance regulators. We participate actively in international initiatives to promote the development of international principles and standards for insurance supervision and foster harmonization of regional and global insurance supervision.  As one of the founding members of the International Association of Insurance Supervisors, Hong Kong is committed to adhering to the best international supervisory principles and practice.

     On the other hand, globalisation and convergence of financial services have underlined the need for the banking, insurance and securities sectors to co-operate on regulatory issues.  Today many multinational conglomerates are active across various financial sectors.  Regulators must keep themselves abreast of these cross-sectoral developments to provide effective regulatory responses.  To promote cross sector co-operation, the Insurance Authority has signed a memorandum of understanding (MOU) on mutual assistance and exchange of information with the Hong Kong Monetary Authority and the Mandatory Provident Fund Schemes Authority respectively.  I also encourage the Insurance Authority to sign a similar MOU with the Securities and Futures Commission and I am delighted to learn that it will be so shortly.  The purpose of these MOUs is to promote closer co-operation between the regulators, harmonise regulatory supervision and ensure a level playing field for the competing industrial sectors and practitioners.

     So, we are working from all fronts to tackle the challenges ahead. Yet, above all, it is the existence of our rich pool of financial services talent who would lead us to overcome and ride on these challenges. To foster better co-ordination of efforts made by the Government, the industry and the academia on financial services manpower development, we have set up the Advisory Committee on Human Resources Development for the Financial Services Sector in June 2000.  The Committee comprises members from respective government bureaux, regulators, industry and professional associations and training providers.  And that I believe the ASHK could certainly help the Committee through in the further development and grooming of our talent in the actuarial field.  I was told that in 1999, we had only about 150 qualified actuaries.  But through continued efforts over the past five years, now we have about 270 of them serving in different financial services sectors, and of course, particularly in the insurance industry.  Meanwhile, I look forward to the continued contribution and support of the ASHK to promote the highest standard of professional practice and uphold integrity for the profession.  I am confident that, building on the close working relationship between the actuarial profession and the Insurance Authority, together we can achieve this goal and contribute towards the continued prosperity and development of the Hong Kong insurance industry and maintaining Hong Kong's position as an international financial centre.

Conclusion
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     Before closing, let me wish you all a very enjoyable evening and a fruitful and productive symposium tomorrow.  Thank you.

Ends/Monday, November 14, 2005
Issued at HKT 20:18

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