Re: Collection of levy on general insurance premium by Insurance Authority

Dear Customer/Business Partner,

Thank you for choosing China Pacific Insurance Co.,(H.K.) Ltd(“CPIC”) to provide you with insurance products and services.

From 1 January 2018, the Insurance Authority (IA) will start collecting a premium levy from policy holders through insurance companies in accordance with the law. The levy rate in the first phase will be 0.04% of the insurance premium and there will be a levy cap. Policy holders must pay the levy in accordance with the law, and insurance companies will inform them of the related arrangements.

To facilitate the understanding and maintenance of your legitimate rights and interests, the related provisions of IA Levy are listed below for your reference.

Scope of the levy

Except for certain policies exempted from the levy by law¹, policy holders of general insurance policies must pay the levy along with their premium payment. The policies within the following classes insured with China Pacific are exempted from the levy:

i. Marine Hull Insurance

ii. Marine Cargo Insurance

iii. Marine Cargo Open Cover Insurance

iv. Aircraft Hull and Machinery

v. Aircraft Liability

vi. Reinsurance Policy

Levy rates and cap

The levy rate will start at 0.04% of the insurance premium in Phase 1, and increase gradually until it reaches 0.1%.There will be a cap on the levy. For general insurance policies with annual premiums at or above $5 million, policy holders will need to pay only the cap. For example, in Phase 1, the cap levels for general insurance policies will be $2,000 per policy year respectively. Details of levy rate and cap can be referred to table below.

Illustrative examples

Example 1: Ms A bought a property insurance policy with an inception date² of 1 January 2018. Her monthly premium is $1,000. The total levy payable from January to December 2018 will be $4.8:

The levy payable is the lower of:

- $1,000 x 12 x 0.04% = $4.8 ; or

- the $2,000 cap for general insurance policies.

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Example 2: Company B plans to buy a nine-month property insurance policy in February 2018 for immediate inception. The single premium payable is $6,000,000. The levy payable for this policy will be $2,000:

The levy payable is the lower of:

• $6,000,000 x 0.04% = $2,400; or

• the $2,000 cap for general insurance policies

(The levy cap will not be affected by the duration of risk coverage under a policy of less than one year.)

¹Reinsurance business, policies underwritten by authorized captive insurers, and marine, aviation and goods-in-transit business are exempt from the levy.

² As defined by the law, "inception date" means the date on which the first premium under the contract becomes payable.

If you have any questions regarding IA Levy collection, please contact your CPIC representative at 25414338.

Thank you for your attention and we look forward to your continued support.

Frequently asked questions

A1 Insurance companies will explain the payment arrangement to policy holders through various channels (e.g. email, SMS or premium notice). Policy holders should contact their insurance company for any enquiries.

A2 As defined by the law, "inception date" is the date on which the first premium under the contract becomes payable.

A3If a policy holder does not pay the required levy, the IA may impose on the policy holder a pecuniary penalty of up to $5,000. The IA may recover outstanding levy as a civil debt due to it.

A4 Insurance companies must submit audited annual remittance reports to the IA, as required by the law. If an insurance company has collected excessive levy from a policy holder, the IA may impose on the insurance company a pecuniary penalty of up to $10,000.

A5 It is stipulated in the Insurance (Levy) Regulation that policy holders must pay the levy to insurance companies.

A6 The law provides for the IA to collect premium levy from policy holders in an incremental approach and with levy caps to reduce the impact on policy holders. Under the Insurance Ordinance, if, during a financial year of the IA, the reserves of the IA, after deducting depreciations and all provisions, are more than twice its estimated operating expenses and there is no outstanding debt, the IA must consult the Financial Secretary with a view to recommending to the Chief Executive in Council a reduction of the levy.

A7 Refund of levy is allowed if the corresponding premium becomes refundable (unless the amount of levy payable on premium after refund still reaches the cap). Insurance companies have to follow the requirements stipulated by the IA in calculating the amount of levy to be refunded.

A8 Refund of levy is allowed if the corresponding premium becomes refundable. However, cancellation of policies that do not constitute any premium refund do not necessitate the refund of levy.