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The Commissioner of Insurance, Mr Benjamin Tang, in his capacity as the Insurance Authority (IA), has today (April 2, 2001) appointed Messrs Peter Whalley and Jan Blaauw of PricewaterhouseCoopers as Managers (jointly and severally) to take full control of the affairs and property of three Hong Kong insurers pursuant to section 35(2)(b) of the Insurance Companies Ordinance on the grounds that these insurers appear to be technically insolvent.
The three insurers are HIH Insurance (Asia) Limited (HIH Asia), HIH Casualty and General Insurance (Asia) Limited (HIH C&G), and FAI First Pacific Insurance Company Limited (FAI). They are all incorporated in Hong Kong and are subsidiary companies of HIH Insurance Limited of Australia (HIH Australia). HIH Australia and its 17 group companies in Australia have been put into provisional liquidation on March 15, 2001.
"The appointment of the Managers will best secure the assets of the three insurers to meet their liabilities and hence safeguard the interests of the policy holders", said Mr Tang.
The appointment of Managers does not apply to another local subsidiary company of HIH Australia, Asian Area Reinsurance Company Limited (AA Re), which is a professional reinsurer.
HIH Australia went into provisional liquidation after disclosing A$800 million in losses, which has significantly depleted its shareholders' funds. Its parlous financial situation is attributable to heavy losses from its business operations in the UK and US, and substantial write-downs of its investment in the FAI Group. As home regulator for the above Group, the Australian Prudential Regulation Authority announced on March 16, 2001 that it has appointed an inspector to HIH Australia for the purposes of ascertaining its up-to-date financial position.
Of the four subsidiary companies in Hong Kong, HIH Asia is the major underwriting vehicle. Based on the provisional statistics for the first eight months of the current financial year commencing July 1, 2000, the insurer has a gross premium income of HK$326 million. HIH Asia's major line of business is General Liability. It has a total of 23,000 policyholders as at March 30, 2001.
The gross premium incomes of the other three subsidiary companies are relatively small for the same eight-month period. The gross premium of AA Re was HK$24.5 million while HIH C&G and FAI have been in the run-off for a certain period.
The Hong Kong insurers have operated independently of their holding company HIH Australia except that it handled some reinsurance arrangements on behalf of the Hong Kong insurers as well as being one of their reinsurers. Immediately following the provisional liquidation of HIH Australia, the IA has required the Hong Kong insurers to commission an independent accountant to carry out an urgent assessment of the impact of the provisional liquidation on their latest financial positions.
On April 2, 2001, the independent accountant submitted its report to the IA. The report shows that a significant portion of the assets of the Hong Kong insurers have been tied up in accounts receivable, including reinsurance recoveries, from HIH Australia. As a result of the provisional liquidation of HIH Australia, these receivables might not be recoverable in full. If these receivables were to be discounted, all but one of the Hong Kong insurers (i.e. AA Re) would be technically insolvent, i.e. unable to meet the solvency margin requirement of the Insurance Companies Ordinance.
Given the findings of the independent accountant's report, the IA considers it necessary and appropriate that the Managers be swiftly appointed to take over management of the affairs and property of the three Hong Kong insurers.
The measure, which is different from a provisional liquidation, is required to bring the insurers' business and assets immediately under proper control for protection of the interests of policyholders and claimants. It complements and reinforces the series of regulatory measures taken earlier by the IA to require the insurers to freeze their assets and stop issuing new or renewal policies.
The IA is liaising with the Hong Kong Federation of Insurers to facilitate the affected policyholders in obtaining replacement covers from other authorized insurers in the event that termination of the insurers' policies is considered necessary.
Policy holders who are concerned with the status of their policies and claims are advised to contact the Managers (Tel: 22365531 Fax: 28908345).
End/April 2, 2001 (Monday)
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