Figure 2.1 Overall Performance of General Insurance Business

General insurance sector recorded moderate growth and significant profit in 2009. Whilst total gross premiums increased by 6.9 to $28,565 million, the underwriting profit boosted by 87.4 to $2,408 million in 2009. The gross and net premiums of general insurance business increased by 6.9 to $28,565 million and 9.1 to $20,530 million respectively in 2009, with the overall retention ratio increased slightly from 70.5 to 71.9. The business growth in 2009 was largely led by General Liability business, of which the gross premiums surged by 16.4 to $7,129 million attributable to the robust expansion of construction-related Employees' Compensation ( EC ) business brought about by the MTR West Island Line and Guangzhou-Shenzhen-Hong Kong Express Rail Link (Hong Kong Section) construction projects. Accident & Health business (comprising Medical business) also recorded an increase in gross premiums from $7,226 million in 2008 to $7,684 million in 2009. For other major classes of business, gross premiums for Pecuniary Loss business (comprising Mortgage Guarantee business) rose by 8.9 to $2,177 million while that for Property Damage business and Motor Vehicle business stood at $5,689 million and $2,796 million respectively, comparable with the level in 2008. The overall underwriting performance of general insurance business showed a significant increase in profit from $1,285 million in 2008 to $2,408 million in 2009, mainly attributable to premium growth and favourable claims experience. Net claims incurred ratio ( NCIR ) dropped from 57.1 for 2008 to 52.8 for 2009. Property Damage business posted an underwriting profit of $779 million in 2009 and became the largest contributor while Accident & Health business continued to register strong profit which rose from $515 million in 2008 to $567 million in 2009. As regards the two major classes of compulsory insurance business, the underwriting loss for direct EC business and Motor Vehicle business significantly contracted from $489 million to $125 million and from $292 million to $56 million respectively due to better claims experience. The improvement for Motor Vehicle business was partly due to the exclusion of the claims incurred figures of a local insurer placed in liquidation. Figure 2.1 Overall Performance of General Insurance Business

2005 2006 2007 2008 2009 $m $m $m $m $m Gross 22,545.8 22,958.0 24,271.0 26,715.7 28,565.0 Net 15,641.7 16,198.1 17,058.1 18,825.3 20,529.5 Technical Reserves 26,617.1 26,898.7 26,693.0 27,877.1 28,622.3 Results: Earned 15,647.8 16,100.0 16,607.4 18,210.0 18,943.0 Expenses 1 5,502.8 5,821.8 5,969.8 6,536.0 6,538.7 Net Claims Incurred Profit/(Loss) 7,647.8 8,211.2 8,239.4 10,389.2 9,996.8 2,497.2 2,067.0 2,398.2 1,284.8 2,407.5 Growth of Gross -1.4 1.8 5.7 10.1 6.9 Retention Ratio 69.4 70.6 70.3 70.5 71.9 Commission Payable Ratio Net Claims Incurred Ratio 20.2 20.4 19.9 19.5 17.9 48.9 51.0 49.6 57.1 52.8 Margin 2 16.0 12.8 14.4 7.1 12.7 Technical Reserve Ratio 3 170.2 166.1 156.5 148.1 139.4 1 Expenses - Total of Net Commissions Payable, Management Expenses and Unexpired Risks Adjustment 2 Margin - Profit/(Loss) expressed as a percentage of Earned 3 Technical Reserve Ratio - Technical Reserves expressed as a percentage of Net Total gross premiums (comprising direct and reinsurance inward business) increased by 6.9 to $28,565 million. The increase was mainly driven by the surge of premiums in General Liability business. Net premiums also recorded a growth of 9.1 to $20,530 million. The retention ratio for 2009 was 71.9, compared to 70.5 for 2008. Figure 2.2 Growth of Premium Income for General Insurance Business

Click to enlarge photo The major classes of general insurance business, other than Motor Vehicle business, showed an increase in gross premiums in 2009. The gross premiums of General Liability business surged by 16.4 to $7,129 million. Pecuniary Loss grew by 8.9 to $2,177 million. Accident & Health, Property Damage and Miscellaneous (comprising Aircraft, Ships, Goods in Transit and Treaty Reinsurance) businesses registered modest growth and reached $7,684 million, $5,689 million and $3,090 million respectively. Figure 2.3 Growth of Gross for Major Lines of Business Miscellaneous Business mainly includes Ships and Goods In Transit Businesses Click to enlarge photo Direct business and reinsurance inward business accounted for 80.4 and 19.6 respectively of total gross premiums in 2009, showing a similar composition as in 2008. Accident & Health, General Liability and Property Damage businesses topped the general insurance sector, constituted 26.9, 25.0 and 19.9 respectively of the total gross premiums. Motor Vehicle business ranked fourth with its 9.8 share.

Figure 2.4 Composition of Gross Class of Business Direct & Reinsurance Inward Business Direct Business Reinsurance Inward Business 2008 2009 2008 2009 2008 2009 Accident & Health 27.0 26.9 32.6 32.2 5.0 5.2 Motor Vehicle 10.6 9.8 12.4 11.4 3.5 3.2 Property Damage 21.2 19.9 14.6 13.6 47.4 45.8 General Liability 22.9 25.0 24.3 26.7 17.5 17.7 Pecuniary Loss 7.5 7.6 6.9 7.1 9.8 10.0 Miscellaneous 10.8 10.8 9.2 9.0 16.8 18.1 The overall claims experience for general insurance business improved in 2009. Overall NCIR decreased by 4.3 percentage points to 52.8. On direct business, overall NCIR decreased from 61.9 to 55.2 in 2009. The star performer was Property Damage business which recorded a NCIR of 15.2. Figure 2.5 Net Claims Incurred Ratio Click to enlarge photo

Figure 2.5 Net Claims Incurred Ratio Click to enlarge photo Technical reserves, comprising outstanding claims provision (including provision for incurred but not reported claims), unearned premiums and unexpired risks provision, rose by 2.7 to $28,622 million. Overall technical reserve ratio (i.e. technical reserves expressed as a percentage of net premiums written) decreased from 148.1 in 2008 to 139.4 in 2009. The technical reserve ratio of General Liability business remained the highest in 2009, albeit it declined from 286.6 to 241.2. Such ratio for Motor Vehicle business also reduced from 194.6 to 181.2, whilst that for Property Damage business slightly edged down from 110.2 to 108.1, and that for Accident & Health business remained at 49.4. As regards Pecuniary Loss business, the technical reserve ratio increased from 183.1 to 199.4 in 2009. Figure 2.6 Technical Reserve Ratio Class of Business UPR & UER Ratio 1 Outstanding Claims Provision Ratio 2 Technical Reserve Ratio 3 2008 2009 2008 2009 2008 2009 Accident & Health 31.3 32.3 18.1 17.1 49.4 49.4 Motor Vehicle 45.3 44.3 149.3 136.9 194.6 181.2 Property Damage 45.2 43.5 65.0 64.6 110.2 108.1

General Liability 52.6 58.1 234.0 183.1 286.6 241.2 Pecuniary Loss 127.6 147.5 55.5 51.9 183.1 199.4 Miscellaneous 18.4 16.3 120.8 107.6 139.2 123.9 Overall 44.8 47.5 103.3 91.9 148.1 139.4 1 UPR & UER Ratio Aggregate of Unearned and Unexpired Risks Provision expressed as a percentage of Net 2 Outstanding Claims Provision Ratio Outstanding Claims Provision expressed as a percentage of Net 3 Technical Reserve Ratio Technical Reserves expressed as a percentage of Net The overall underwriting profit increased from $1,285 million in 2008 to $2,408 million in 2009, representing a significant gain of 87.4. With the exception of Motor Vehicle and Aircraft businesses that incurred underwriting losses of $35 million and $1 million respectively, all other business classes recorded underwriting profits in 2009. Property Damage business became the largest contributor to the overall underwriting profit of the general insurance business in 2009, achieving a profit of $779 million. This was followed by Accident & Health business which registered $567 million in underwriting profit. General Liability, Pecuniary Loss and Goods in Transit businesses recorded underwriting profits of $334 million, $288 million and $244 million respectively in 2009. However, a major component of General Liability business, i.e. EC business, sustained an underwriting loss. On direct business, the underwriting profit increased significantly from $404 million to $1,650 million. This was mainly attributable to improved claims experience recorded. Accident & Health business registered the highest underwriting profit of $545 million, followed by Property Damage business of $495 million, Pecuniary Loss business of $243 million, and Goods in Transit business of $225 million. As for General Liability (non-ec) business and Ships business, underwriting profits of $183 million and $142 million were recorded respectively. On the other hand, EC business was the worst performer reporting an underwriting loss of $125 million in 2009, followed by Motor Vehicle business of $56 million and Aircraft business of $1 million. On reinsurance inward business, the underwriting profit decreased from $881 million to $758 million. All classes of reinsurance business recorded underwriting profits. Property Damage business continued to be the best performer, reporting an underwriting profit of $284 million, followed by General Liability business of $276 million. Figure 2.7 Results

Click to enlarge photo Figure 2.8 Margin of Major Lines of Business Click to enlarge photo Statutory business comprises three classes of direct business - Motor Vehicle, EC (classified as General Liability-Statutory business) and Local Vessel Liability businesses (classified as Ships-Statutory business). In 2009, they altogether contributed $6,692 million in gross premiums to the general insurance business market, representing 29.2 of total direct business gross premiums. EC business took second place in terms of gross premiums for direct business in 2009, while its market share in the direct business market grew from 14.2 in 2008 to 17.6 in 2009. Motor Vehicle Business Gross premiums for direct Motor Vehicle business slightly decreased by 1.3 to $2,614 million in 2009, with the number of vehicles covered edged down by 0.8 to 615,759. Due to improved claims experience with NCIR decreasing from 66.9 to 58.6, the underwriting loss reduced from $292 million to $56 million in 2009. Figure 2.9 Motor Vehicle Business Unit 2005 2006 2007 2008 2009 Gross $m 2,741.8 2,542.3 2,485.4 2,648.9 2,614.0

Profit/(Loss) $m 384.1 158.3 10.8 (291.7) (55.9) Growth of Gross Net Claims Incurred Ratio Margin -3.3-7.3-2.2 6.6-1.3 42.1 48.6 52.4 66.9 58.6 17.0 7.2 0.5-13.4-2.7 Number of Vehicles Covered 587,659 592,517 601,507 621,009 615,759 Employees' Compensation Business Gross premiums of EC business increased by 33.5 to $4,037 million in 2009, with the number of EC policies in force increased by 3.8 to 364,156. With improved claims experience, the underwriting loss for EC business dropped from $489 million in 2008 to $125 million in 2009. Figure 2.10 Employees' Compensation Business Unit 2005 2006 2007 2008 2009 Gross $m 2,782.0 2,919.1 2,890.8 3,024.2 4,037.0 Profit/(Loss) $m (136.4) (84.9) (163.9) (489.3) (125.2) Growth of Gross Net Claims Incurred Ratio Margin -20.1 4.9-1.0 4.6 33.5 71.0 69.5 70.9 85.2 71.4-5.5-3.5-7.0-19.8-4.9 Number of Policies in Force 299,330 348,324 354,325 350,899 364,156 Local Vessel Liability Business Gross premiums of Local Vessel Liability business remained at $41 million in 2009, similar as in 2008, with the number of local vessels covered decreased by 2.2 to 10,867. The underwriting profit of such business decreased from $21 million in 2008 to $14 million in 2009. Figure 2.11 Local Vessel Liability Business

Unit 2005 2006 2007 2008 2009 Gross $m 22.3 27.6 38.9 41.0 40.7 Profit/(Loss) $m 7.7 (8.0) 1.3 21.0 14.2 Growth of Gross Net Claims Incurred Ratio Margin 10.9 23.8 40.9 5.4-0.7 6.3 118.1 54.1-11.2 61.1-58.0 6.3 78.1 56.6 Number of Local Vessels Covered 6,529 6,992 9,237 11,115 10,867 Note: Figures for 2005 and 2006 covered the business in respect of launches, ferry vessels and pleasure vessels whilst figures for 2007, 2008 and 2009 covered the widened scope of local vessel business with effect from 2 July 2007. Pure reinsurers (i.e. insurers that are only authorised to carry on reinsurance business in or from Hong Kong) recorded an increase in gross premiums by 7.5 to $1,545 million in 2009. Their total underwriting profit decreased from $679 million in 2008 to $525 million in 2009. The top 5 pure reinsurers captured an aggregate market share of 77.6 in terms of gross premiums, indicating that the continuing high concentration of business in the pure reinsurers' market persisted in 2009. Figure 2.12 Pure Reinsurers' Business Unit 2005 2006 2007 2008 2009 Gross $m 2,030.3 1,934.0 1,453.5 1,436.4 1,544.5 Profit/(Loss) Growth of Gross Net Claims Incurred Ratio Margin $m 633.0 486.8 693.4 679.2 524.5-14.4-4.7-24.8-1.2 7.5 36.8 32.9 16.3 6.7 21.1 31.9 27.8 51.7 54.1 42.3 Figure 2.13 Top 5 Pure Reinsurers by Gross in 2009 Ranking of Reinsurers Gross Market Share $m 1. Taiping Reinsurance Company Limited 343 22.2

2. Munich Reinsurance Company 334 21.6 3. Swiss Reinsurance Company Ltd 308 19.9 4. BC Reinsurance Limited 109 7.1 5. SCOR Reinsurance Company (Asia) Limited 104 6.8 Total Gross Written by Top 5 Reinsurers in 2009 1,198 77.6 Corresponding Figure for 2008 1,167 81.2 Pursuant to the local asset requirement under section 25A of the Insurance Companies Ordinance, insurers other than pure reinsurers and captive insurers carrying on general insurance business in or from Hong Kong are required to maintain assets in Hong Kong to match their local insurance liabilities. As at their financial year ended in 2009, assets maintained by these insurers in Hong Kong totalled $104,467 million, a 6.6 decrease over 2008. Mortgage portfolio remained the largest asset type, registering $39,751 million or 38 of total local assets, followed by Deposits & Cash (29.0) and Fixed & Variable Interest Securities (13.1). Figure 2.14 Breakdown of Assets Maintained in Hong Kong Category of 2007 2008 2009 Assets $m $m $m Deposits & Cash 19,824.3 25.0 33,303.4 29.8 30,270.6 29.0 Fixed & Variable Interest Securities 15,431.9 19.4 11,693.3 10.4 13,665.5 13.1 Insurance Debts 3,170.1 4.0 3,913.4 3.5 4,507.9 4.3 Letters of Credit 2,710.3 3.4 1,847.9 1.6 2,150.4 2.0 Investments in Associated/Subsidiary Companies 2,102.0 2.7 4,209.4 3.8 3,854.9 3.7 Land & Buildings 1,828.1 2.3 3,551.8 3.2 4,035.8 3.9 Other Assets - Mortgage Portfolio* 29,711.0 37.4 45,275.5 40.5 39,750.5 38.0 - Others 4,614.8 5.8 8,065.7 7.2 6,230.9 6.0 Total 79,392.5 100.0 111,860.4 100.0 104,466.5 100.0 * Mortgage Portfolio was owned by The Hong Kong Mortgage Corporation Limited. A total of 117 insurers reported to the IA on their Hong Kong general insurance business for 2009.

In 2009, gross premiums written by the top 10 and top 20 insurers amounted to $11,849 million and $18,660 million respectively. These premiums represented 41.5 and 65.4 of the market share, similar to the corresponding figures of 40.2 and 62.3 recorded in 2008. At the lower end of the scale, 23 insurers wrote gross premiums below $1 million level in 2009. Comparing with the market share of the top 10 general business insurers by overall gross premiums (41.5), the market share of the top 10 insurers by gross premiums of individual major classes of general insurance business was higher, namely Accident & Health business (72.5), EC business (72.3), Motor Vehicle business (61.1) and Property Damage business (50.3). Figure 2.15 Distribution of Insurers' Market Share Ranking of Insurers Range of Gross Market Share $m 1-10 2008 734-1,774 40.2 2009 797-1,845 41.5 11-20 2008 424-729 22.1 2009 587-789 23.9 21-50 2008 128-410 28.3 2009 104-519 27.1 Remaining 2008 <122 9.4 2009 <102 7.5 Figure 2.16 Top 10 Insurers by Overall Gross in 2009 Ranking of Insurers Gross Market Share $m 1. HSBC Insurance (Asia) Limited 1,845 6.5 2. Bank of China Group Insurance Company Limited 1,517 5.3 3. American Home Assurance Company 1,381 4.8 4. Zurich Insurance Company Ltd 1,344 4.7 5. Royal & Sun Alliance Insurance plc 1,305 4.6 6. Bupa (Asia) Limited 1,129 4.0 7. 8. 9. 10. QBE Hongkong & Shanghai Insurance Limited Hong Kong Mortgage Corporation Limited - The AXA General Insurance Hong Kong Limited China Taiping Insurance (HK) Company Limited 891 3.1 839 2.9 801 2.8 797 2.8 Total Gross Written by Top 10 Insurers in 2009 11,849 41.5 Corresponding Figure for 2008 10,750 40.2 Figure 2.17 Top 10 Insurers by Gross of Major Classes in 2009

Accident & Health Business Ranking of Insurers Market Share 1. HSBC Insurance (Asia) Limited 15.4 2. Bupa (Asia) Limited 14.7 3. American International Assurance Company (Bermuda) Limited 9.2 4. AXA China Region Insurance Company Limited 7.7 5. Blue Cross (Asia-Pacific) Insurance Limited 7.7 6. American Home Assurance Company 5.0 7. Bank of China Group Insurance Company Limited 4.2 8. The Prudential Assurance Company Limited 3.5 9. GAN Assurances IARD Compagnie Francaise D' Assurances Et De Reassurances Incendie, Accidents Et Risques Divers 2.7 10. Liberty International Insurance Limited 2.4 Top 10 Insurers' Market Share 72.5 Number of Insurers : 69 Motor Vehicle Business Ranking of Insurers Market Share 1. Bank of China Group Insurance Company Limited 10.5 2. AXA General Insurance Hong Kong Limited 9.2 3. Target Insurance Company, Limited 7.5 4. China Taiping Insurance (HK) Company Limited 7.2 5. Zurich Insurance Company Limited 6.6 6. QBE Hongkong & Shanghai Insurance Limited 5.9 7. China Ping An Insurance (Hong Kong) Company Limited 4.1 8. MSIG Insurance (Hong Kong) Limited 3.4 9. Trinity General Insurance Company Limited 3.4 10. Asia Insurance Company, Limited 3.3 Top 10 Insurers' Market Share 61.1 Number of Insurers : 61 Property Damage Business Ranking of Insurers Market Share 1. CNOOC Insurance Limited 8.4 2. Zurich Insurance Company Ltd 7.6 3. HSBC Insurance (Asia) Limited 6.0 4. Lloyd's Underwriters 4.6 5. Asia Insurance Company, Limited 4.5 6. Bank of China Group Insurance Company Limited 4.4

7. MSIG Insurance (Hong Kong) Limited 4.3 8. American Home Assurance Company 3.8 9. China Taiping Insurance (HK) Company Limited 3.5 10. Hang Seng General Insurance (Hong Kong) Company Limited 3.2 Top 10 Insurers' Market Share 50.3 Number of Insurers : 79 Employees' Compensation Business Ranking of Insurers Market Share 1. Royal & Sun Alliance Insurance plc 24.4 2. Bank of China Group Insurance Company Limited 11.8 3. Wing Lung Insurance Company Limited 7.4 4. QBE Hongkong & Shanghai Insurance Limited 6.8 5. Sun Hung Kai Properties Insurance Limited 4.4 6. American Home Assurance Company 4.1 7. China Taiping Insurance (HK) Company Limited 3.8 8. MSIG Insurance (Hong Kong) Limited 3.3 9. Zurich Insurance Company Ltd 3.3 10. AXA General Insurance Hong Kong Limited 3.0 Top 10 Insurers' Market Share 72.3 Number of Insurers : 54 In 2010, gross and net premiums of general insurance business recorded a growth to $31,361 million and $21,927 million respectively compared with 2009. Overall underwriting performance also recorded a rise in profit to $2,615 million in 2010. On direct business, gross and net premiums increased to $24,090 million and $17,693 million respectively in 2010, propelled again by Accident & Health business (comprising Medical business), gross and net premiums of which were $7,975 million and $6,601 million respectively. Other major classes of business including Property Damage, Motor Vehicle and General Liability (Non-Statutory) businesses also contributed to the premium growth. Their gross and net premiums in 2010 were $3,419 million and $1,860 million, $2,908 million and $2,435 million, and $2,339 million and $1,309 million respectively. The underwriting profit of direct business increased to $1,912 million in 2010. The profit of Pecuniary Loss business substantially grew to $543 million, primarily driven by the buoyant property market for mortgage guarantee business and lower claims for credit business. On reinsurance inward business, gross and net premiums increased to $7,271 million and $4,233 million respectively in 2010. Nevertheless, the underwriting profit declined to $702 million due to adverse claims experience.