Hong Kong's insurance regulator is seeking to wind up Target Insurance, concluding after six months of investigations that the city's biggest motor insurer is insolvent, with HK$1.2 billion (US$152.87 million) missing from its accounts.
As much as HK$1.2 billion of foreign currencies held via an investment firm has "gone missing" from Target's accounts, causing the insurer to be "deemed insolvent," said Derek Lai Kar-yan, the vice-chairman of Deloitte China who was appointed on January 7 by Hong Kong's Insurance Authority to manage Target.
The insurer has a HK$530 million shortfall between HK$1.71 billion in liabilities and HK$1.18 billion in assets, Lai said.
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A court hearing has been scheduled on September 21 to hear the winding-up petition presented by Lai, according to the Insurance Authority's chief executive Clement Cheung Wan-ching. The matter has also been reported to Hong Kong's police, Cheung said.
(Left to right): Hong Kong Federation of Insurers' chairwoman Winnie Wong, the Motor Insurance Bureau's chairman Eric Hui, the Insurance Authority's executive director of general insurance Simon Lam, the Insurance Authority's chief executive Clement Cheung Wan-ching, Deloitte China's vice-chairman and Target's manager Derek Lai Kar-yan, and Lai's legal adviser Harris Chan, at a media briefing on July 15, 2022 at Insurance Authority's office in Wong Chuk Hang. Photo: Enoch Yiu. alt=(Left to right): Hong Kong Federation of Insurers' chairwoman Winnie Wong, the Motor Insurance Bureau's chairman Eric Hui, the Insurance Authority's executive director of general insurance Simon Lam, the Insurance Authority's chief executive Clement Cheung Wan-ching, Deloitte China's vice-chairman and Target's manager Derek Lai Kar-yan, and Lai's legal adviser Harris Chan, at a media briefing on July 15, 2022 at Insurance Authority's office in Wong Chuk Hang. Photo: Enoch Yiu.>
That marked the first time that the Insurance Authority had flexed its regulatory muscle since its establishment in 2015. The only other time that an insurer folded in Hong Kong was 13 years ago with the collapse of Anglo Starlite Insurance, also a taxi insurer.
"We cannot deny that there is room for improvement in the taxi insurance market," Cheung said. "We can find ways to reduce accidents and improve the drivers' behaviour."
Hong Kong taxi drivers on strike in the Central district on 17 March 2017. Photo: EPA alt=Hong Kong taxi drivers on strike in the Central district on 17 March 2017. Photo: EPA>
The crackdown came late last year after Target notified 8,000 customers - all of them owner-operators of taxis - that it would terminate their coverage and return their premium, giving them a week's notice without recourse.
The action, taken without informing the Insurance Authority, triggered the watchdog agency to seize control of the insurer on January 7 to "maintain market stability and protect policyholders' interest."
Under Hong Kong's Insurance Ordinance (Cap 41), the regulator has a wide range of investigative and enforcement powers to deal with insurers that fail to comply with the law, or engage in misconduct.
Derek Lai Kar-yan, the vice-chairman of Deloitte China and the provisional liquidator of the now-defunct broadcaster Asia Television (ATV) during a press conference in Hong Kong on April 25, 2017. Photo: Sam Tsang. alt=Derek Lai Kar-yan, the vice-chairman of Deloitte China and the provisional liquidator of the now-defunct broadcaster Asia Television (ATV) during a press conference in Hong Kong on April 25, 2017. Photo: Sam Tsang.>
Target, established in 1977, is the largest motor insurer in Hong Kong, providing coverage for mini buses and more than 60 per cent of the 18,163 taxis that ply the city's streets. With 1.4 per cent of Hong Kong's general insurance business, Target issued 41,000 policies before its takeover, 80 per cent of which are motor insurance policies while the remainder are for staff compensation.
The insurer's biggest shareholder is Ng Yu, who owned 21 per cent of the company, according to a February stock exchange filing. Convoy Global Holdings owned 10.8 per cent.
Ng resigned on May 27 with executive directors Lin Feng and Dai Chengyan, and the independent director Wang Jun-sheng. Only two independent directors, Chiam Tat-yiu and Yu Cho-tak, remain on the board, according to a company statement. None of the executives and directors could be reached for comment.
"We have taken legal action against the investment firm, Ng and related parties," Lai said.
The Insurance Authority's chief executive Clement Cheung Wan-ching, formerly Hong Kong's Secretary for the Civil Service, on 23 July 2015. Photo: Dickson Lee. alt=The Insurance Authority's chief executive Clement Cheung Wan-ching, formerly Hong Kong's Secretary for the Civil Service, on 23 July 2015. Photo: Dickson Lee.>
The Insurance Authority had "repeatedly" demanded the injection of fresh capital into Target to meet its minimum solvency requirements, but did not receive any "positive feedback" from its shareholders and executives, Cheung said.
"Target has violated the statutory regulatory requirements, whereby its assets are insufficient to meet its liabilities," Cheung said. "A company which violates [the Insurance Authority's] ordinance is not fit to continue."
Target still has about 30,000 policies outstanding, with 96 per cent in motor insurance for 5,200 taxis, 1,400 light buses, 21,200 private cars, Lai said.
These policies will remain in force until they expire, and policyholders may submit their motor insurance claims to Target, where they will be passed to the Motor Insurers' Bureau for processing. Employees' compensation claims will be covered by the Insurer Insolvency Bureau.
The two insolvency funds can handle about 94 per cent of outstanding policies, while Target's HK$370 million cash on hand can settle the remaining 6 per cent of the policies, Lai said.
Target's shares last traded at 48 Hong Kong cents each on January 4 before trading was halted. The stock has lost 83 per cent of its value since it was listed on the Hong Kong stock exchange in 2015.
