Mainland buyers continue to boost HK insurance industry despite restrictions

Photo: wsj.com 

 
The first half of 2016 saw mainland visitors rush to purchase insurance and related investment products in Hong Kong, despite tightening restrictions in February and then warnings in late April by China’ insurance regulators. 
 
The Office of the Commissioner of Insurance (OCI), Hong Kong’s insurance regulator, announced last Wednesday that local insurance sector received premiums of 207.5 billion HK dollars in the first half of 2016, an increase of 12.2% from the previous year.
 
A large part of the growth was propelled by Chinese mainland purchases that stood at 30.1 billion HK dollars in the first half year, representing 37% of the total new individual premiums. Insurance premiums paid by mainland visitors surged 138% in the second quarter only from a year earlier to a record 16.9 billion HK dollars. Considering the purchases for the whole of 2015 stood at 31.6 billion HK dollars, there is clearly a buying frenzy going on. 
 
“The reason the contribution of mainland visitors is so high is because the local market is almost saturated. Medicare and critical illness insurance are the common choices for the local people and so there is rarely any growth,” Liao Songping, an associate director of GF Wealth Management (Hong Kong), said.  
 
According to initial figures, Hong Kong has 158 insurers with over 7 million life insurance policies, with an average of one policy per capita. Hong Kong’s insurance density stands at $6,000 now and its insurance penetration is around 15%, ranking among top three in the world, with the global average of 7%. 
 
Insurance penetration is measured as the percentage of insurance premium underwritten in a given year to Gross Domestic Product (GDP), while insurance density is calculated as the ratio of premium underwritten in a given year to the total population. 
 
Comparing with Hong Kong’s almost saturated market, the demand on the mainland is definitely not quite well satisfied, with insurance density being only $300 and penetration 3%. 
 
Encouraged by the surge in demand, a lot of mainlanders now based in Hong Kong are becoming insurance agents. Doctors, international school teachers, architects, human resources managers, housewives, and people of various other professions hailing from the mainland are engaged in the sector full time or part time. 
 
“It’s gravy train time now. And we’re going to cash in. I’m paid as highly as I used to be in the private banking business, and now I’m leading a much more relaxed life,” said Mr. Ye, an insurance professional. He got married last year in Hong Kong and works for an insurance broker that represents big companies like Prudential and AIA. At 27, he earns 200,000 HK dollars per month.
 
“My clients, mostly from Shanghai and Chengdu, would buy policies ranging from several thousand to $100,000. And I can get a commission of 200,000 to 300,000 HK dollars for a $100,000 deal,” explained Ye. 
 
With fierce competition featuring securities and other investment products in the city, the insurance business has emerged as a bright growth spot. Now, some Chinese-funded securities firms are also turning to the sector to grow their overseas assets management business.  
 
Premium financing and family wealth inheritance
 
It is reported by several international media that a persistent campaign to fight corruption, slowing economy and gloomy outlook for China’s yuan have all led to a craze for Chinese residents to move their money overseas. Buying insurance in Hong Kong denominated in US dollars has been known by many as a grey belt to skirt strict capital controls and gain dollar assets. 
 
The investing in HK insurance market also carries other benefits. Premium financing and family wealth inheritance are two factors that work as drawcards for the enthusiastic mainland buyers. 
 
More and more high net worth clients are now financing on their insurance policies. According to a rough calculation by Liao Songping, 60% of the total premiums paid by Chinese buyers are used as financing tools. He believes the practice would be more and more popular among high net worth clients.  
 
“For example, if a client buys a million US dollars’ worth of policy and makes his children beneficiaries, his sudden death would bring 3-4 million US dollars’ indemnity to his children to offset losses caused by the heavy heritance tax. When the client is alive, he could still use the policy as collateral to gain loans of up to $700,000 from his insurer. Even if he would use the loans to buy bonds or bond funds denominated in US dollars, the around 4% annual rate could make the whole deal break even,” said Liao, adding that Hong Kong insurance’ benefits for family wealth inheritance is one of the major drawcards for mainland purchasers.
 
Above all, life insurance products in Hong Kong cost 10-30 percent less than the mainland, for that the average life span in Hong Kong is one of the longest globally and more accurately calculated mortality rate has made the city’s products more profitable. 
 
Although mainland regulators have begun to limit the amount of money that could be transferred to buy certain policies through UnionPay credit or debit cards, ambitious mainland visitors are ready to swipe their cards hundreds of times to make deals. It is predicted more curbs would come later, which has prompted mainland investors to act quickly. 
 
Potential risks 
 
China’s insurance regulator warned mainland residents against buying insurance in Hong Kong in late April, noting certain policy and foreign exchange risks.    
 
According to a statement by the China Insurance Regulatory Commission, purchases of overseas life and investment-related insurance products are transactions under the capital account. This could affect the ability of policyholders to make timely premium payments if foreign-exchange payment policies change. 
 
Also, the regulator suggested that Hong Kong insurance policies have got no guarantee on the principal, as the value of the products is totally decided by the market.       

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