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(Cap 41, section 59) [27 October 1995] L.N. 485 of 1995 (L.N. 328 of 1995) Cap 41F s 1 (Omitted as spent) (Omitted as spent) (Enacted 1995) Cap 41F s 2 Interpretation 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" (第一计算法) and "second calculation" (第二计算法) have the meaning given in section 4(1) to (3); "margin of solvency" (偿付准备金) means the excess of the value of an insurer's assets over the amount of its liabilities; "mathematical reserves" (数理储备金) 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" (纯再保险人) means an insurer whose insurance business is restricted to reinsurance; "required margin of solvency" (规定偿付准备金) 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) Cap 41F s 3 Determination of margins of solvency (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.). (Enacted 1995) Cap 41F s 4 Long term classes A and B (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 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) Cap 41F s 5 Long term class C (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%. (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) Cap 41F s 6 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) Cap 41F s 7 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) Cap 41F s 8 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) Cap 41F s 9 Additional business of the nature of general business *(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 Table- (*See 35 of 1996 s. 34.) TABLE Case Amount Applicable 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. 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. 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. 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" (有关保费收入) has the meaning as it has in section 10(4) of the Ordinance. (3) In this section, "relevant claims outstanding" (有关未决申索) has the same meaning as in section 10(4)(d) of the Ordinance. (35 of 1996 s. 35) (Enacted 1995) Cap 41F s 10 Prescribed levels of solvency margin (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. (Enacted 1995) Cap 41F s 11 Maintenance of funds 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)