HONG KONG - A REGIONAL INSURANCE CENTRE

Speech by Mr. Benjamin Tang,
Commissioner of Insurance, Hong Kong SAR Government
at the National Club in Toronto, Canada
8 May 2001

Ladies and gentlemen:

Rosanna, thank you for your warm welcome and kind introduction. I am delighted to visit Toronto again particularly in my new role as the Commissioner of Insurance.

Though we are thousands of miles apart, Canada links closely to Hong Kong. Over 150,000 Canadian citizens are Hong Kong residents. Hong Kong is undoubtedly an attractive place for overseas business entities. Over 100 Canadian companies have offices, branches or subsidiaries in Hong Kong. Canadian companies play an active role in Hong Kong's financial services industry. Apart from their strong presence in the banking and investment sectors, Canadian insurers are also leading players in our insurance and pension industry. There are 8 Canadian or Canadian-controlled insurers operating in Hong Kong, capturing about 16% of our life insurance market share.

Canadian insurers are well-known for their innovative financial products and unfailing pursuit of business expansion. It is exemplified by the successful demutualization of two long established Canadian insurers, "Manulife" and "Sunlife". "Manulife" has now become the highest-priced share (about HK$190 or US$ 24) in the Stock Exchange of Hong Kong, doubling its issue price (about HK$ 95 or US$ 12) in 1999. Both insurers have established their operations in Hong Kong for decades.

We are committed to developing Hong Kong as an international financial
and high-value-added services centre. In furtherance of this objective, I would like to share with you the latest developments of Hong Kong's insurance market, as well as the business opportunities that may arise from China's impending accession to the World Trade Organization.

Hong Kong's insurance market

According to the 2001 Index of Economic Freedom co-published by the Heritage Foundation and the Wall Street Journal, Hong Kong continues to rank the freest economy in the world for the seventh consecutive year. Our insurance market is governed by the Insurance Companies Ordinance, Chapter 41 of the Laws of Hong Kong. The Insurance Authority is conferred with the power under the Ordinance to regulate and supervise the insurance industry and for the protection of policyholders. Our regulatory philosophy can be crystallized into a maxim "Maximum Support, Minimum Intervention". We are staunch advocates of the free market economy. We subscribe to the belief that market competition is the best guarantee for economic efficiency and consumer welfare. As such we do not require pre-approval of new insurance products. Insurers have unfettered discretion in the setting of premiums, commissions, policy terms and conditions, etc.

In 1997, countries in the region were hit by the Asian financial crisis. Hong Kong has not escaped unscathed and we slipped into our first recession in recorded history. Fortunately, the impact on Hong Kong's insurance industry has been less devastating, notwithstanding that most insurers inevitably suffered loss in their asset values. The insurance market in Hong Kong is financially sound.

For the 9 years from 1991 to 1999, the total Hong Kong gross premium income increased from HK$ 22 billion (US$ 2.8 billion) to HK$ 58 billion (US$ 7.4 billion), representing an average annual growth of 13%, which was higher than the 8% average annual growth of our GDP for the same period. In 1999, the total gross premiums accounted for 4.6% of our GDP.
The provisional statistics for 2000 showed signs of recovery in the general business market, with gross premiums of HK$ 18 billion (US$ 2.3 billion), increased by 7% over 1999.

Long-term business enjoyed double-digit growth over the past 9 years. According to the statistics for 1999, the office premiums of long-term business reached HK$ 41 billion (US$ 5.2 billion), representing an increase of 14% over the previous year. In 1999, the number of individual life in-force policies reached 4.2 million, covering about 63% of the Hong Kong population. Compared with other developed countries such as the United States, United Kingdom and Japan, this market penetration rate is relatively low and there is ample room for further expansion. In 2000, the total office premiums of new long-term business increased by 33% to HK$ 15 billion (US$ 1.9 billion). The increase was mainly attributable to the growth in individual life and retirement scheme business. The commencement of Mandatory Provident Fund System in December 2000 is seen as the major impetus for the growth in retirement scheme business.

As at 24 April 2001, there were a total of 209 authorized insurers operating in Hong Kong. Of these 209 insurers, 144 were general business insurers, 46 were long-term business insurers and the remaining 19 were composite insurance players. These insurers included 28 professional reinsurers and a few specialist insurers engaging in mortgage, credit, marine and captive insurance business. Hong Kong's insurance market has a strong international presence. Over half of the authorized insurers are incorporated outside Hong Kong in 25 different countries, with the US companies taking the lead. There are 17 authorized insurers having Chinese equity interests.

Future Challenges

So much for the latest developments of Hong Kong's insurance industry. Now, let me expand the industry perspectives into the global arena.
In the new millennium, there will be a number of new challenges to be faced by insurers and their regulators. Fueled by globalization and advancement of information technology, the financial markets are undergoing rapid changes worldwide. There has been an increasing trend for convergence of the financial services sectors, particularly with the emergence of one-stop shop services whereby a full range of insurance, banking and investment products are offered. The demarcation lines among traditionally distinct and separate financial services are blurring.

As prudential insurance regulators, we are committed to modernizing our insurance regulation to meet the challenges of an increasingly dynamic and competitive marketplace. International co-ordination in the area of supervision and surveillance is not just desirable but necessary. On our part, Hong Kong is a charter member of the International Association of Insurance Supervisors (IAIS), which aims at enhancing co-operation among insurance supervisors, developing practical standards for insurance supervision and safeguarding the integrity of insurance markets. We are stepping up our participation in the IAIS and its sub-committees. Through the IAIS, we are also involved in the Financial Stability Forum, which strengthens surveillance for promoting financial sector stability and facilitates exchange of information. The Forum was created in February 1999 by the Group of Seven (G7) industrialized countries (Britain, Canada, France, Germany, Italy, Japan and the United States) to promote enhanced financial market supervision and surveillance as part of efforts to improve global financial stability in the wake of the Asian and Russian financial crises.

With the increasing popularity of e-commerce, direct sales through electronic means will be employed by insurers in marketing their products. It is encouraging to note that a number of insurers in Hong Kong are already conducting online insurance activities. To ensure the healthy development of the insurance industry in the new information technology era, we have promulgated guidelines on the use of Internet for insurance activities. Under the guidelines, insurance service providers are required to explicitly state in the websites their respective authorization status in a jurisdiction. They are further required, among others, to take precautionary measures to safeguard transaction security, data integrity and protection of privacy of their clients' personal information.

China's impending accession to the Word Trade Organization
I wouldn't be excused if I talk about Hong Kong's insurance industry without mentioning the latest development of China's insurance market, in particular her impending accession to the World Trade Organization.
According to the World Bank, China's GDP in 1999 ranked the seventh in the world and China might rise to the second or the third place in 2020. In 2000, China's GDP grew strongly by 8.0% in real terms, appreciably faster than the official target of 7%. The total premium income of China for 2000 reached RMB 160 billion (US$ 18.8 billion), an increase of 15% over 1999. China has also maintained her rapid growth of premium income for the first quarter of 2001 to RMB 44.4 billion (US$ 5.2 billion), an increase of 34% over the corresponding quarter of 2000. Notwithstanding the impressive growth in the insurance sector, China's per capita annual premium remains very low by international standards. There are, therefore, enormous business potentials for life insurance, pension, as well as other lines of insurance business in China.

The milestone in China's regulatory development is the establishment of the China Insurance Regulatory Commission (CIRC) on 18 November 1998. It fully reflects the determination of the Central People's Government to reform China's insurance industry in preparation for the market liberalization. The Insurance Authority of Hong Kong has reached a mutual understanding with the CIRC on the matters in relation to information exchange and staff training. The CIRC has recently set up a new office in Shenzhen, our intimate neighbour across the border.
I strongly believe that Canadian business entities will continue to keep an eye on the business opportunities brought about by China's open door policy. The bilateral agreements with the US and the EU have brought a closer step for China's accession to the World Trade Organization. Top on China's agenda of reform includes, among others, lifting of geographic limits and reinsurance restrictions, as well as relaxation of foreign ownership of insurers.

Hong Kong's distinctive advantages

We are well poised to develop Hong Kong into a regional insurance centre having regard to our free market philosophy, well-developed infrastructure, advanced telecommunications, rule of law, independent judicial power and efficient workforce.

Talents are Hong Kong's most treasured assets. We have a pool of resourceful insurance professionals who are conversant with China's business affairs. Hong Kong also has the highest concentration of actuaries in Asia, many of them are Canadian trained. I have just recruited a senior Canadian trained actuary from the private sector into my office.

China is changing and so is Hong Kong. With our distinctive advantages of geographical and cultural proximity to the Mainland, Hong Kong is definitely your ideal choice as your working partner to tap into the huge fast-growing market of China.

Before I close, I just wish to quote Charles Darwin: "It is not the strongest of the species that survives, not the most intelligent, but the one most responsive to change"

Thank you.