The Insurance Authority (IA) appointed managers to take full control of the affairs and property of Target Insurance Company Limited (Target) on 7 January 2022.  Pursuant to the IA’s press release, the IA took this action to maintain market stability and protect policy holders’ interests, on the grounds of (1) Target’s potential breaches of statutory requirements relating to its investment activities and asset allocation and (2) potential deficiencies in Target’s corporate governance.  The management of Target denies these allegations, according to news reports.

The IA’s power to appoint managers is provided under section 35(2)(b) of the Insurance Ordinance (Cap.41) (IO).  Under the IO, the IA may only invoke such powers when, among others:

• it considers it desirable for protecting policy holders against the risk that the insurer may be unable to meet its liabilities or to fulfil the reasonable expectations of policy holders (sections 26(1A) and 26(1)(a)); and
• it considers its actions under sections 24 to 34 (see below) would not be sufficient to appropriately safeguard the interests of policy holders (section 26(5)).

The IA’s regulatory powers over insurers under the IO also include:

• imposing restrictions on new business, investments, and premium income (sections 27, 28 and 31);
• requiring insurers to maintain certain value of assets in specific ways and to have such assets held by the IA’s approved trustee(s) (section 29);
• mandating actuarial investigations (section 32);
• requiring insurers to provide specific information and documents in specific manners (section 34); and
• directing insurers to take steps which the IA considers appropriate (section 35).

It is the first time that the IA exercises its power to appoint managers since its establishment in 2015.  Insurers should pay close attention to developments in this case as this may set a precedent for IA’s approach to exercise such powers in future.