Chapter:
41F
INSURANCE COMPANIES (MARGIN OF SOLVENCY) Gazette Number Version Date
REGULATION
30/06/1997
Empowering section
(Cap 41, section 59)
[27 October 1995] L.N. 485 of 1995
(Originally L.N. 328 of 1995)
Section:
1
(Omitted as spent)
30/06/1997
(Enacted 1995)
Section:
2
Interpretation
30/06/1997
In this Regulation, unless the context otherwise requires"deposit back arrangement" (回存安排), in relation to any contract of reinsurance, means an arrangement whereby an
amount is deposited by the reinsurer with the cedant;
"first calculation" (第一計算法) and "second calculation" (第二計算法) have the meaning given in section 4(1) to
(3);
"margin of solvency" (償付準備金) means the excess of the value of an insurer's assets over the amount of its
liabilities;
"mathematical reserves" ( 數理儲備金 ) means the provision made by an insurer to cover liabilities (excluding
liabilities which have fallen due and liabilities arising from deposit back arrangements) arising under or in
connection with contracts for long term business;
"pure reinsurer" (純再保險人) means an insurer whose insurance business is restricted to reinsurance;
"required margin of solvency" (規定償付準備金) means a margin of solvency the amount of which shall constitute
the amount to be prescribed or determined for the purposes of section 8(3)(a)(ii)(B) and (iii)(B) of the
Ordinance.
(Enacted 1995)
Section:
3
Determination of margins of solvency
30/06/1997
(1) Where an insurer carries on long term business and owing to the nature of that business more than one
margin of solvency is produced in respect of that business by the operation of this Regulation, the margins in question
shall be aggregated as regards the insurer in order to arrive at the insurer's required margin of solvency for long term
business.
(2) The amount of liabilities of an insurer arising under or in connection with contracts for long term business
for the purpose of calculating the required margin of solvency shall be determined in accordance with the Insurance
Companies (Determination of Long Term Liabilities) Regulation (Cap 41 sub. leg. E).
(Enacted 1995)
Section:
4
Long term classes A and B
30/06/1997
(1) For long term business of class A or B, the required margin of solvency shall be determined by taking the
aggregate of the results arrived at by applying the calculation described in subsection (2) ("the first calculation") and
the calculation described in subsections (3), (4), (5), (6) and (7) ("the second calculation").
(2) For the first calculation(a) there shall be taken a sum equal to 4% of the mathematical reserves for direct business and reinsurance
acceptances without any deduction for reinsurance cessions;
(b) the amount of the mathematical reserves at the end of the last preceding financial year after the
Cap 41F - INSURANCE COMPANIES (MARGIN OF SOLVENCY) REGULATION
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deduction of reinsurance cessions shall be expressed as a percentage of the amount of such
mathematical reserves before any such deduction; and
(c) the sum mentioned in paragraph (a) shall be multiplied(i) where the percentage arrived at under paragraph (b) is greater than 85% (or, in the case of a pure
reinsurer, 50%), by that greater percentage; and
(ii) in any other case, by 85% (or, in the case of a pure reinsurer, 50%).
(3) For the second calculation(a) there shall be taken, subject to subsections (4), (5), (6) and (7), a sum equal to 0.3% of the capital at
risk for contracts on which the capital at risk is not a negative figure;
(b) the amount of the capital at risk at the end of the last preceding financial year for contracts on which
the capital at risk is not a negative figure, after the deduction of reinsurance cessions, shall be
expressed as a percentage of the amount of that capital at risk before any such deduction; and
(c) the sum arrived at under paragraph (a) shall be multiplied(i) where the percentage arrived at under paragraph (b) is greater than 50%, by that greater
percentage; and
(ii) in any other case, by 50%.
(4) Subject to subsections (5), (6) and (7), the percentage to be taken for the purposes of subsection (3)(a) shall
be(a) zero for the financial year immediately preceding 1 January 1996; and
(b) 0.1% for the financial year immediately preceding 1 January 1997; and
(c) 0.2% for the financial year immediately preceding 1 January 1998.
(5) Where, in a case other than that of a pure reinsurer, a contract provides for benefits payable only on death
within a specified period and is valid for a period of not more than 3 years from the date when the contract was first
made, the percentage to be taken for the purposes of subsection (3)(a) shall be 0.1%; and where the period of validity
from that date is more than 3 years but not more than 5 years, the percentage to be so taken shall be 0.15%.
(6) For the purposes of subsection (5), the period of validity of the contract evidencing a group policy is the
period from the date when the premium rates under the contract were last reviewed for which the premium rates are
guaranteed.
(7) In the case of pure reinsurers, the percentage to be taken for the purposes of subsection (3)(a) shall be 0.1%.
(8) For the purposes of the second calculation, the capital at risk is(a) in any case in which an amount is payable in consequence of death other than a case falling within
paragraph (b), the amount payable on death; and
(b) in any case in which the benefit under the contract in question consists of the making, in consequence
of death, of the payment of an annuity, payment of a sum by instalments or any other kind of periodic
payments, the present value of that benefit,
less in either case the mathematical reserves in respect of the relevant contracts.
(9) When the amount of the mathematical reserves referred to in subsection (2)(a), or the amount of the capital
at risk referred to in subsection (3)(a), is to be calculated for the purposes of determining the required margin of
solvency, the day as on which that amount is calculated shall be the same as that as on which the margin of solvency is
determined; and the mathematical reserves referred to in subsection (8) shall also be calculated as on that day when
the capital at risk in question is that referred to in subsection (3)(a), but shall be calculated as at the end of the last
preceding financial year when the capital at risk in question is that referred to in subsection (3)(b).
(Enacted 1995)
Section:
5
Long term class C
30/06/1997
(1) For long term business of class C, the required margin of solvency shall be determined in accordance with
subsections (2) to (5).
(2) In so far as an insurer bears an investment risk, the first calculation shall be applied.
(3) In so far as(a) an insurer bears no investment risk;
(b) the total expired and unexpired term of the relevant contract exceeds 5 years; and
(c) the allocation to cover management expenses in the relevant contract has a fixed upper limit which is
effective as a limit for a period exceeding 5 years,
the first calculation shall be applied, but as if section 4(2)(a) contained a reference to 1% instead of 4%.
Cap 41F - INSURANCE COMPANIES (MARGIN OF SOLVENCY) REGULATION
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(4) If neither subsection (2) nor (3) applies, then, subject to subsection (5), the required margin of solvency is
zero.
(5) Where an insurer covers a death risk, a sum arrived at by applying the second calculation (section 4(5) and
(6) being disregarded) shall be added to any required margin of solvency, including a required margin of solvency of
zero, arrived at under subsection (2), (3) or (4).
(Enacted 1995)
Section:
6
30/06/1997
Long term classes D and F
For long term business of classes D and F, the required margin of solvency shall be determined by applying the
first calculation.
(Enacted 1995)
Section:
7
30/06/1997
Long term class E
For long term business of class E, the required margin of solvency shall be equal to 1% of the assets of the
relevant tontine.
(Enacted 1995)
Section:
8
30/06/1997
Long term class I
For long term business of class I, the required margin of solvency shall be equal to the aggregate of the required
margins of solvency that would have applied if the business had not been retirement scheme business and had
accordingly been classified, as appropriate, under the relevant classes of long term business in Part 2 of the First
Schedule to the Ordinance instead of under class I.
(Enacted 1995)
Section:
9
Additional business of the nature of general business
30/06/1997
(1) For additional business regarded as long term business by virtue of paragraph 3 of Part 1 of the First
Schedule to the Ordinance, the required margin of solvency shall be the amount applicable to the insurer according to
the following TableTABLE
Case
1. The relevant premium income relating to the
additional business of the insurer in its last preceding
financial year, or the relevant claims outstanding of
the insurer as at the end of its last preceding financial
year relating to the additional business, whichever is
the greater, did not exceed $200 million or its
equivalent.
2. The said income in that year, or the said claims
outstanding as at the end of that year, whichever is
the greater, exceeded $200 million or its equivalent.
Amount Applicable
One-fifth of the said income in that year, or one-fifth of
the said claims outstanding as at the end of that year, as
the case may be.
The aggregate of $40 million and(a) one-tenth of the amount by which the said income in
that year exceeded $200 million; or
(b) one-tenth of the amount by which the said claims
outstanding as at the end of that year exceeded $200
million,
as the case may be, or its equivalent. (35 of 1996 s. 35)
In the case where the additional business is not ancillary to the principal risk of long term business, the amount
applicable shall not be less than $10 million or its equivalent. (35 of 1996 s. 35)
(2) In this section, "relevant premium income" (有關保費收入) has the meaning as it has in section 10(4) of
Cap 41F - INSURANCE COMPANIES (MARGIN OF SOLVENCY) REGULATION
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the Ordinance.
(3) In this section, "relevant claims outstanding" (有關未決申索) has the same meaning as in section 10(4)(d)
of the Ordinance. (35 of 1996 s. 35)
(Enacted 1995)
Section:
10
Prescribed levels of solvency margin
30/06/1997
Expanded Cross Reference:
4, 5, 6, 7, 8
(1) For the purposes of section 35AA(1) of the Ordinance, the prescribed amount shall be the required margin
of solvency or $2000000, whichever is the greater.
(2) For the purposes of section 35AA(2) of the Ordinance, the prescribed amount shall be the aggregate of the
following amounts(a) the required margin of solvency as determined by section 9; and
(b) $2000000 or one-third of the required margin of solvency as determined by sections 4 to 8, whichever
is the greater. <*Note-Exp. x-Ref: Sections 4, 5, 6, 7, 8 *>
(Enacted 1995)
Section:
11
Maintenance of funds
30/06/1997
For the purposes of sections 22(3)(b)(ii) and 23(2)(b)(ii) of the Ordinance, the amount required to be held in the
funds shall be one-sixth of the required margin of solvency.
(Enacted 1995)
Cap 41F - INSURANCE COMPANIES (MARGIN OF SOLVENCY) REGULATION
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