(Cap 41, section 59(a)) [29 December 1995] (L.N. 598 of 1995) Cap 41G s 1 Application (1) Subject to subsection (2), this Regulation applies with respect to the determination of the value of any assets and the amount of any liabilities of an insurer whose business includes or will include general business, other than those assets and liabilities in respect of which an account is required to be maintained pursuant to section 22 or 22A of the Ordinance. (2) In the case of a company or an association of underwriters which is, immediately before the commencement of this Regulation, an insurer authorized under section 8 of the Ordinance or approved under section 6(1)(c) of the Ordinance to carry on insurance business (which includes general business), this Regulation applies with respect to the determination of the value of its assets and the amount of its liabilities after the expiration of 12 months beginning on the commencement of this Regulation. (3) For the avoidance of doubt, it is declared that in the case of a company or an association of underwriters which has, immediately before the commencement of this Regulation, submitted an application for authorization under section 8 of the Ordinance or for approval under section 6(1)(c) of the Ordinance to carry on insurance business (which includes general business), this Regulation applies immediately on such commencement with respect to the determination of the value of its assets and the amount of its liabilities. (Enacted 1995) Cap 41G s 2 Interpretation In this Regulation- "adjusted gross premium income" (经调整的毛保费收入) means the sum obtained by dividing the amount of gross premium income in a financial year by the number of days in that financial year and multiplying the result by 365; "deferred acquisition costs" (递延取得成本) means that part of the costs of acquisition of an asset which relates to the unexpired period of risk which is carried forward from one accounting period to the next; "gross premium income" (毛保费收入), in relation to a financial year, means the premiums paid or payable to an insurer in respect of contracts written or renewed in that financial year before deducting commissions of agents or brokers payable thereon but after deducting any discounts specified in policies or refunds of premiums made in respect of any termination or reduction of risks; "gross premiums receivable" (可收取毛保费) means the premiums payable to an insurer in respect of contracts written or renewed by an insurer as at the end of a financial year before deducting commissions of agents or brokers payable thereon; "independent qualified valuer" (独立合格估价师) means a person- (a) holding a professional qualification in valuing properties recognized by the Insurance Authority and having post-qualification experience in valuing properties in the location and category of the property which is the subject of valuation within 3 years before the relevant date of the relevant valuation; and (b) who is not employed by the insurer whose property is the subject of valuation, a subsidiary or associate company of the insurer, or the holding company of the insurer;"insurer" (保险人) means- (a) a company which is seeking authorization or which is authorized under section 8 of the Ordinance to carry on insurance business; or (b) an association of underwriters which is seeking approval or which is approved under section 6(1)(c) of the Ordinance;"listed" (上市) means listed on a recognized stock market as defined in section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap 571) or on a stock exchange outside Hong Kong which is recognized by the Insurance Authority as being of a standing not lower than that of such a recognized stock market, and "unlisted" (非上市) shall be construed accordingly; (23 of 1998 s. 2; 5 of 2002 s. 407(2)) "market value of the holding of a unit, or other beneficial interest, in a unit trust or mutual fund" (单位信讬或互惠基金中的单位权益或其他实益权益的市值) means the price at which the manager under the trust scheme or mutual fund scheme would purchase the holding of a unit or other beneficial interest if he is required to do so; "middle market quotation" (中间市场报价), in relation to a listed share or security- (a) for which 2 closing prices are quoted on the relevant stock exchange, means the average of the 2 closing prices so quoted for the relevant date or, if no closing prices are quoted on that day, the most recent day prior to that day for which closing prices for the share or security have been quoted; and (b) for which 1 closing price is quoted on the relevant stock exchange, means the closing price so quoted for the relevant date or, if no closing price is quoted on that day, the most recent day prior to that day for which a closing price for the share or security has been quoted,and for the purpose of this definition, "relevant stock exchange" (有关证券交易所) means the stock exchange where the share or security is listed and where the share or security is listed in more than one stock exchange, the principal place of listing of the share or security;"net book value" (帐面净值), in relation to an asset, means the cost of acquisition of the asset less its accumulated depreciation; "net tangible assets" (有形资产净额), in relation to an insurer or a company, means the surplus of the total tangible assets value of the insurer or company over the amount of its total liabilities (including contingent and prospective liabilities, but excluding liabilities in respect of its share capital), and for the avoidance of doubt, it is declared that intangible assets (including deferred acquisition costs) are to be excluded in the calculation of net tangible assets; "ready market price" (现有市场价格), in relation to an unlisted share or security- (a) for which 2 closing prices are quoted on a secondary market or a market acceptable to the Insurance Authority, means the average of the 2 closing prices so quoted for the relevant date or, if no closing prices are quoted on that day, the most recent day prior to that day for which closing prices for the share or security have been quoted; and (b) for which 1 closing price is quoted on a secondary market or a market acceptable to the Insurance Authority, means the closing price so quoted for the relevant date or, if no closing price is quoted on that day, the most recent day prior to that day for which a closing price for the share or security has been quoted;"recent audited accounts" (近期审计帐目) means audited accounts and statements relating to a period ending on a day within 2 years before the relevant date; "recent valuation" (近期估值) means a valuation made within 3 years before the relevant date; "relevant date" (有关日期), in relation to the valuation of any asset or liability for any purpose for which this Regulation applies, means the date when the asset or liability falls to be valued for that purpose; "security" (证券) means any debenture, loan stock, bond or note of, or issued by, any body, whether incorporated or unincorporated, or of any government or local government authority, but does not include any share or any unit, or other beneficial interest, in any unit trust or mutual fund; "total eligible asset value" (合资格资产总值), in relation to an insurer, means the total value of the assets of the insurer (the values of which are qualified to be admitted under this Regulation) as assessed in accordance with this Regulation other than section 14. (Enacted 1995) Cap 41G s 3 Land and buildings (1) Subject to subsection (2), the value of any land or building must be not greater than- (a) its net book value where- (i) its open market value as assessed by an independent qualified valuer or as assessed under subsection (2) in the latest recent valuation of the land or building does not fall below its net book value; or (ii) there is no recent valuation of the land or building commissioned by the insurer who holds the land or building or under subsection (2); or(b) its open market value as assessed by an independent qualified valuer or as assessed under subsection (2) in the latest recent valuation where such open market value falls below its net book value; or (c) its net book value plus up to 75% of the surplus of its open market value as assessed by an independent qualified valuer or as assessed under subsection (2) in the latest recent valuation over its net book value.(2) The Insurance Authority may require an insurer to have the open market value of its land or building assessed by the Commissioner of Rating and Valuation, if the Insurance Authority is of the opinion that the open market value of the land or building as assessed by an independent qualified valuer or the net book value thereof does not reflect the true value. (Enacted 1995) Cap 41G s 4 Listed shares or securities, unit trusts or mutual funds (1) The value of the following listed share, listed security, holding of a unit, or other beneficial interest, in a unit trust or mutual fund must be not greater than 100% of the middle market quotation of the share or security or, as the case may be, 100% of the market value of the holding of the unit, or other beneficial interest, in the unit trust or mutual fund, on the relevant date- (a) listed security issued or guaranteed by the Hong Kong Government or the Exchange Fund established under the Exchange Fund Ordinance (Cap 66); (b) listed share, listed security, unit trust or mutual fund with- (i) a current credit rating appraised by a credit rating agency set out in column 1 of Table 1 which is not lower than- (A) in the case of long term rating, the rating specified in column 2 in relation to that credit rating agency; and (B) in the case of short term rating, the rating specified in column 3 in relation to that credit rating agency; or(ii) a current credit rating appraised by a credit rating agency approved by the Insurance Authority which rating is considered by him to be a rating equivalent to a rating in Table 1. TABLE 1 Column 1 Credit rating agency Column 2 Long term rating Column 3 Short term rating Moody's Investors Service, Inc. Aaa or aaa Prime-1 Standard and Poor's Corporation AAA A-1+ (2) The value of a listed share, listed security, holding of a unit, or other beneficial interest, in a unit trust or mutual fund with the following credit rating must be not greater than 90% of the middle market quotation of the share or security or, as the case may be, 90% of the market value of the holding of the unit, or other beneficial interest, in the unit trust or mutual fund, on the relevant date- (a) a current credit rating appraised by a credit rating agency set out in column 1 of Table 2 which is not lower than- (i) in the case of long term rating, the rating specified in column 2 in relation to that credit rating agency; and (ii) in the case of short term rating, the rating specified in column 3 in relation to that credit rating agency; or(b) a current credit rating appraised by a credit rating agency approved by the Insurance Authority and considered by him to be a rating equivalent to a rating in Table 2. TABLE 2 Column 1 Credit rating agency Column 2 Long term rating Column 3 Short term rating Moody's Investors Service, Inc. Aa3 or aa3 Prime-2 Standard and Poor's Corporation AA- A-1 (3) The value of any other listed share, listed security, holding of a unit, or other beneficial interest, in any other unit trust or mutual fund must be not greater than 75% of the middle market quotation of the share or security or, as the case may be, 75% of the market value of the holding of the unit, or other beneficial interest, in the unit trust or mutual fund, on the relevant date. (Enacted 1995) Cap 41G s 5 Shares in investment subsidiaries (1) Where an insurer is the holding company of another company whose principal business is investment in lands or buildings, listed shares or securities, unlisted shares or securities, unit trusts or mutual funds, or any combination of these investments, the value of the holding of the shares held by the insurer in such a subsidiary must be determined and reported in accordance with the following provisions of this section and not in accordance with section 4 or 7. (2) The assets and liabilities of such a subsidiary must be classified into classes in accordance with this Regulation and in accordance with the classification of the assets and liabilities of the insurer and of any other subsidiary of the insurer to which this section applies, where applicable, and valued on the same date as the assets and liabilities of the insurer are valued. (3) Subject to subsections (4) and (5), the value of each item of asset or liability of the subsidiary in each class must be determined in accordance with this Regulation (excluding section 14) and the total value of the assets or liabilities in each class attributable to the shares in the subsidiary held by the insurer must be consolidated with the total value of the same class of assets or liabilities held by the insurer itself or by another subsidiary of the insurer to which this section applies or by both, and where there is no corresponding class of assets or liabilities held by the insurer itself or by another subsidiary of the insurer to which this section applies, the value of that class of assets or liabilities of the subsidiary must be shown as a separate class. (4) The value of each class of assets or liabilities of each subsidiary, whether or not it has been consolidated under subsection (3) with the assets or liabilities of the same class of the insurer or another subsidiary, must also be disclosed- (a) where it has been so consolidated, either in a separate note or following the consolidated sum; or (b) where it has not been so consolidated, in a separate note or following the value of that class of assets or liabilities.(5) The value of any sum owing by the insurer to the subsidiary or vice versa, so far as it is attributable to the shares in the subsidiary held by the insurer, must be deducted from the value of that class of assets or liabilities held by the insurer and the subsidiary. (6) For each subsidiary the values of whose assets and liabilities have been determined and reported under this section, the following must be disclosed- (a) the name of the subsidiary; (b) the proportion of the nominal value of the issued shares of each class of shares held by the insurer; (c) the nature of business of the subsidiary; and (d) the place of incorporation of the subsidiary. (Enacted 1995) Cap 41G s 6 Shares in other insurers (1) Where an insurer is the holding company of another company whose principal business is insurance business, the value of the holding of the shares held by the insurer in such a subsidiary must be determined in accordance with the following provisions of this section and not in accordance with section 4 or 7. (2) Subject to subsections (3) and (4), the value of the holding of the shares held by the insurer in such a subsidiary must be not greater than that part of the net tangible assets of the subsidiary, which would be payable in respect of the shares in the subsidiary held by the insurer if the subsidiary were in liquidation and that net tangible assets were the amount distributable to the shareholders in the winding up. (3) The value of the assets and liabilities of the subsidiary must be determined in accordance with any regulation (including this Regulation) made under section 59(1)(a) of the Ordinance for the valuation of assets and liabilities of an insurer carrying on- (29 of 1997 s. 16) (a) general business, if the subsidiary carries on general business; or (b) long term business, if the subsidiary carries on long term business,as if the regulation applied to the subsidiary, and for the avoidance of doubt, it is declared that subsection (2) does not require the assets of a subsidiary to be valued on the basis that the subsidiary were in liquidation. (4) The liabilities of the subsidiary are deemed for the purpose of this section to include the relevant amount in the case of the subsidiary. (5) For each subsidiary which has the value of its shareholding held by the insurer determined under this section, the name and place of incorporation of the subsidiary and the proportion of the nominal value of the issued shares of each class of shares held by the insurer must be disclosed. (6) Where the Insurance Authority is satisfied that it is impracticable for an insurer to value its shares in its subsidiary in accordance with this section (other than this subsection), the insurer may, with the approval of the Insurance Authority, value its shares in the subsidiary at up to 75% of the attributable share value of the shares. (7) Subject to subsection (9), for the purpose of subsection (6), the attributable share value of a share in a subsidiary is that part of the surplus of the net tangible assets of the subsidiary as disclosed in its most recent audited accounts audited by an auditor qualified to be appointed under section 15 of the Ordinance (as if that section applied to the subsidiary) over the relevant amount in the case of the subsidiary, which would be payable in respect of the share in the subsidiary held by the insurer if the subsidiary were in liquidation and that surplus were the amount distributable to the shareholders in the winding up. (8) The "relevant amount" (有关数额) referred to in this section- (a) in the case of a subsidiary carrying on general business only, is the relevant amount as determined in accordance with section 10(1) of the Ordinance as if that section applied to the subsidiary; (b) in the case of a subsidiary carrying on long term business only, is an amount equal to the greatest of the following amounts- (i) the relevant amount specified in section 10(2) of the Ordinance as if that section applied to the subsidiary; (ii) the amount prescribed by section 11 of the Insurance Companies (Margin of Solvency) Regulation (Cap 41 sub. leg.) as if that section applied to the subsidiary; or (iii) the amount prescribed by or determined in accordance with regulations made under section 59(1)(aa) of the Ordinance for the purposes of section 8(3)(a)(ii)(B) and (iii)(B) of the Ordinance as if the regulations applied to the subsidiary, reduced by the future profits and hidden reserves of the subsidiary to the extent allowed by the Insurance Authority under section 35AA(3) of the Ordinance as if that section applied to the subsidiary; (29 of 1997 s. 16)(c) in the case of a subsidiary carrying on both general business and long term business, is an amount equal to the aggregate of the 2 amounts referred to in paragraphs (a) and (b) having regard, respectively, to its general business and long term business.(9) For the avoidance of doubt, it is declared that subsection (7) does not require the assets of a subsidiary to be valued on the basis that the subsidiary were in liquidation, and the assets may be valued on the basis that the subsidiary is a going concern, or on any other basis which, in the opinion of the Insurance Authority, is appropriate. (Enacted 1995) Cap 41G s 7 Other unlisted shares (1) The value of any other unlisted share- (a) must be not greater than 75% of- (i) its ready market price, if there is a ready market price; or (ii) if there is no ready market price, that part of the net tangible assets of the company that issues the share as disclosed in its most recent audited accounts audited by an auditor qualified to be appointed under section 15 of the Ordinance (as if that section applied to the company) which would be payable in respect of the share in the company held by the insurer if the company were in liquidation and that net tangible assets were the amount distributable to the shareholders in the winding up; or(b) must not be admitted where there is no ready market price for the share and there are no recent audited accounts referred to in paragraph (a)(ii) of the company that issued the share.(2) For the avoidance of doubt, it is declared that subsection (1)(a)(ii) does not require the assets of a company to be valued on the basis that the company were in liquidation, and the assets may be valued on the basis that the company is a going concern, or on any other basis which, in the opinion of the Insurance Authority, is appropriate. (Enacted 1995) Cap 41G s 8 Unlisted securities The value of an unlisted security must be not greater than 75% of the ready market price of the security or, if there is no ready market price, must be not greater than 75% of the cost of acquiring that security. (Enacted 1995) Cap 41G s 9 Premiums receivable (1) The value of any gross premiums receivable in respect of contracts of insurance (not being reinsurance contracts) entered into by an insurer after deducting the commissions of agents or brokers payable thereon and the necessary provision for bad and doubtful debts in respect thereof must be not greater than 25% of the gross premium income (where the relevant financial year is a period of 12 months) or the adjusted gross premium income (where the relevant financial year is not a period of 12 months) of the relevant financial year after deducting the commissions of agents or brokers payable on the gross premium income or the adjusted gross premium income, as the case may be. (2) The value of any gross premiums receivable in respect of reinsurance contracts accepted by an insurer after deducting the commissions of agents or brokers payable thereon and the necessary provision for bad and doubtful debts in respect thereof must be not greater than 75% of the gross premium income (where the relevant financial year is a period of 12 months) or the adjusted gross premium income (where the relevant financial year is not a period of 12 months) of the relevant financial year after deducting the commissions of agents or brokers payable on the gross premium income or the adjusted gross premium income, as the case may be. (Enacted 1995) Cap 41G s 10 Intangible assets and deferred acquisition costs No value is to be given to any intangible asset, including deferred acquisition costs, or implied deferred acquisition costs deducted in arriving at unearned premiums. (Enacted 1995) Cap 41G s 11 Discounting of claims Except with the prior approval of the Insurance Authority, a liability reported under paragraph 16(p)(ii) to (v) of Part 4 of the Third Schedule to the Ordinance must not be discounted in its valuation. (Enacted 1995) Cap 41G s 12 Additional amount for unexpired risks Any additional amount for unexpired risks as referred to in paragraph 16(p)(ii) of Part 4 of the Third Schedule to the Ordinance must be valued for each separate class of general business having regard to the experience, if any, of the insurer in carrying on the relevant insurance business or of other persons carrying on the same or similar insurance business. (Enacted 1995) Cap 41G s 13 Other asset or liability Where an asset or a liability of an insurer is to be valued under this Regulation and no provision is made in this Regulation in respect of its valuation, the value of the asset or the amount of the liability must be determined having regard to section 8(4)(c) of the Ordinance. (Enacted 1995) Cap 41G s 14 Asset value to be admitted not exceeding a specified extent for each category of assets (1) Notwithstanding the foregoing provisions of this Regulation, in determining and reporting the value of the assets of an insurer- (a) subject to paragraph (c), the total value of the assets comprising land and buildings held by the insurer and its subsidiaries must be not greater than 30% of the insurer's total eligible asset value; (b) subject to paragraph (c), the total value of the assets comprising listed shares, holdings of units, or other beneficial interests, in unit trusts and mutual funds held by the insurer and its subsidiaries must be not greater than 30% of the insurer's total eligible asset value; (c) the total value of the assets comprising land and buildings, listed shares, holdings of units, or other beneficial interests, in unit trusts and mutual funds held by the insurer and its subsidiaries must be not greater than 40% of the insurer's total eligible asset value; (d) the total value of the assets comprising listed securities held by the insurer and its subsidiaries must be not greater than 50% of the insurer's total eligible asset value; and (e) the total value of the following assets held by the insurer and its subsidiaries must be not greater than 10% of the insurer's total eligible asset value- (i) unlisted shares (excluding those shares in a subsidiary whose values are determined and reported under section 6) and unlisted securities; and (ii) debts (excluding insurance debts) due from individuals or unlisted companies, including the balance of debts due from unlisted subsidiaries after offsetting inter-company balances pursuant to section 5(5).(2) This section does not apply to the assets of an insurer required to be maintained in Hong Kong under section 25A or 25B of the Ordinance for determining and reporting their values for the purposes of those sections. (3) For the avoidance of doubt, a debt due from an individual referred to in subsection (1)(e)(ii) does not include a loan which is secured by a contract of insurance issued by the insurer. (4) In this section (except in subsection (1)(e)(i)), "subsidiary" (附属公司) means a subsidiary the value of whose shares held by the relevant insurer is determined and reported in accordance with section 5. (Enacted 1995) Cap 41G s 15 Asset to be admitted at lower value Notwithstanding that the value given to an asset of an insurer is permissible under this Regulation, if, in all the circumstances of the case, it appears that the asset is of a lesser value than that given, such lesser value is to be the value of the asset. (Enacted 1995)
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