Statutory Valuation Basis for Assets and Liabilities

The Insurance Companies (General Business) (Valuation) Regulation ("Valuation Regulation") made under section 59(1)(a) of the Insurance Companies Ordinance (Cap.41) provides a standard and prudent basis for the valuation of the assets and liabilities of an insurer carrying on general business, other than a captive insurer. The Valuation Regulation prescribes the valuation methods for different types of assets commonly found in an insurer's balance sheet. To ensure a prudent spread of investments, the Valuation Regulation also stipulates admissibility limits for different categories of assets. The admissibility limits, however, do not apply to assets maintained in Hong Kong pursuant to the local asset requirement.

The Insurance Companies (Determination of Long Term Liabilities) Regulation sets out the bases for the determination of the amount of long term business liabilities. An insurer is required to adopt prudent provisions and assumptions, particularly on the rate of interest, when valuing the amount of long term business liabilities. Among others, valuation methods are specified for calculating the yields on assets and the amount of future premiums payable under an insurance contract.