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Two new bills, the Insurance Amendment Bill and the Insurance Amendment (No. 2) Bill have recently been gazetted making significant changes to the regulatory regime for insurance companies.
Insurance Amendment Bill
Special purpose insurer
An amendment is made to allow registration of an insurance company which engages in special purpose business only. The salient provisions are as follows:
|(a)||Special purpose business relates to the issue by insurers of policies to investors under which the return to the investor is linked to the insurance contract on a fully funded basis. These insurance contracts are referred to in the Bill as insurance-linked securities.|
|(b)||A contract is fully funded if the value of the assets held under the terms of the insurance contract is not less than the amount of the insurer’s liabilities under the contract at any time and under all foreseeable circumstances taking into account the obligations of the insurer under the contract and the expenses which the insurer has to incur.|
|(c)||The assets and capital requirements applicable to insurers carrying on general and long term business do not apply to special purpose insurers.|
|(d)||The requirements for authorisation include:
|(e)||The company is also required to comply with special rules to be made by the Insurance Authority relating to the investor’s financial solvency and sophistication as well as other requirements. These rules will prohibit the sale or offering for sale of insurance-linked securities to persons other than those described in the rules, or the sale or making of an offer to sell insurance-linked securities lower than a prescribed limit.|
|(f)||The restrictions referred to in paragraph (e) above will apply to insurers and insurance intermediaries, and the penalties for breach will be severe including imprisonment for up to 2 years.|
Revised definition of ‘captive insurers’
The definition of ‘captive insurer’ is to be amended and will be widened in scope thereby increasing the types of business which may be conducted by a captive insurer that under the Insurance Ordinance is subject to lesser capital and asset requirements and other less onerous regulatory requirements.
The salient provisions are as follows:
|(a)||They allow the insurance or reinsurance of a proportional share of risks of another company to which the insurer or certain of its group companies is exposed, where the proportional share of risks insured is capped by reference to the highest of:
|(b)||They also include insurance of other risks the insurer or reinsurer or certain of its group companies has control, oversight or management of or to which the insurer or reinsurer or certain of its group companies is sufficiently connected.|
|(c)||The other risks referred to in paragraph (b) above will be elaborated in guidelines published by the Insurance Authority.|
|(d)||Certain technical changes are also made to the definition of a corporate group.|
Insurance Amendment (No. 2) Bill
Regulation of insurance groups
An amendment is to be made to the Insurance Ordinance to provide for the Insurance Authority to regulate a designated insurance holding company and thereby bring its corporate group within the scope of its regulation.
The salient provisions are as follows:
|(a)||The Insurance Authority may designate:
|(b)||After designation of a designated insurance holding company, its group companies and certain related companies will form part of the supervised group of the designated insurance holding company.|
|(c)||The designation may be withdrawn by the Insurance Authority if it considers that designation is no longer appropriate.|
|(d)||The principal effects of designation as a designated insurance holding company are:
|(e)||Extensive powers of intervention are given to the Insurance Authority in relation to a designated insurance holding company and its supervised group:
|(f)||The Insurance Authority also has powers of inspection, investigation and disciplinary action in relation to a designated insurance holding company and the supervised group.|
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