Insurance sector safe
Last year's slowdown in the economy has hit premium growth at insurance companies hard but the Government says it does not believe the rough patch will affect the soundness of the industry.
Secretary for Financial Services Rafael Hui Si-yan was responding in a written reply yesterday to questions by legislator Chim Pui-chung, asking if a decline in insurance business last year was caused by vicious competition within the industry.
He also questioned whether the Government had assessed the impact of a serious incident, such as the failure of an insurance company, on the entire industry.
Mr Hui said the slowdown in the insurance business was mainly attributable to the slowdown in economic growth. For example, poor car sales had led to a drastic drop in motor premiums.
He said keen competition had been a regular feature of the industry for a long time.
'Cyclical downturns from time to time cannot be directly attributable to competition, 'vicious' or otherwise,' Mr Hui said.
He said the insurance regulatory framework was aimed at ensuring the financial soundness of authorised insurers.
'With proper and prudential supervision of the insurance industry, we believe that the likelihood of major mishaps affecting the entire industry or of the closure of an individual insurance company having a knock-on effect on the entire industry is remote,' he said.
The insured public was protected by an Insurance Companies Ordinance that required companies to meet minimum capital and solvency margin requirements and comply with specified asset valuation methods.
Hong Kong Federation of Insurers chairman Steven Lau confirmed the slow growth in insurance premiums last year and estimated that general insurance premium revenue fell by about 10 per cent.
Premium revenue in motor and employment benefits insurance fell an estimated 20 per cent.
Mr Lau blamed falling new car sales and the closure of businesses last year for the downturn.
He said the general insurance business would improve this year as the economy recovered.
He dismissed concerns about the health of the industry, saying the insurance commissioner was monitoring the reserve levels of some insurance companies and asking them to increase capital to make sure they had adequate reserves to pay claims.
Frank Chan, chairman of the federation's life insurance council, said life premiums were 8 per cent higher last year, far below the 22 per cent growth in 1995.
He said the slowdown in life insurance was also due to the economy, coupled with the fact that some large insurance agents had tax problems with the Inland Revenue and they lost focus during the year.