Hong Kong Regulations

INSURANCE COMPANIES (MARGIN OF SOLVENCY) REGULATION - SECT 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)