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Following is a question by the Hon Bernard Chan and a written reply by the Secretary for Financial Services and the Treasury, Mr Frederick Ma, in the Legislative Council today (February 8):
Question:
With respect to the price war in non-life insurance market and the action taken by the Government in this regard, will the Government inform this Council of the cause of this price war, the current situation and the details of the actions taken by the authorities in this regard, as well as the results of the preliminary assessment conducted by the Office of the Commissioner of Insurance on the impact of the price war on the relevant market?
Reply:
Madam President,
The Office of the Commissioner of Insurance (OCI) is concerned about the significant premium rate cut in employees compensation (EC) insurance business in 2004 because of fierce competition. In the first half of 2005, the premium rate continued to fall, especially in construction EC business, and for certain individual EC insurers, the decline has exceeded 40% in comparison with 2004.
To enable early assessment of the impact of premium cut on the solvency position of insurers, OCI has, commencing from the second quarter of 2005, required EC insurers to submit quarterly, instead of yearly, returns on EC premium incomes and related information. Such returns, which provide a breakdown of the gross premium income on EC business of 10 trades together with the relevant amounts of wages or contract values, will enable OCI to assess the average premium in respect of each trade and the premium level of individual insurers for the purpose of ensuring their financial soundness.
Upon receipt of the relevant returns for the second quarter of 2005, OCI had immediately evaluated the impact of premium cut on the solvency position of insurers. So far, no insurers are found to have failed to meet the statutory solvency margin requirement because of the premium cut. Nevertheless, OCI considers it necessary to bring, and has brought, the matter to the attention of the board of directors of those insurers which have underwritten substantial EC business and with significant premium rate cut, in order to get a better understanding of their approach towards the formulation, implementation and supervision of their underwriting policies. The board of directors, being the ultimate policy makers of the insurers, are urged to strengthen the insurers' corporate governance and monitor the adequacy of their claims reserves. OCI will continue to closely monitor developments in the insurance market and take appropriate measures to safeguard the interests of policyholders.
Ends/Wednesday, February 8, 2006
Issued at HKT 12:21
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