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Hong Kong Plotting New Policyholder Protection Fund

Big changes could soon be underway in Asia’s premier insurance centre. The Hong Kong government announced this week that they are planning to implement a new national insurance fund that would protect policyholders from insolvent insurers after reviewing the results of a three-month long public consultation.

Hong Kong insurance authorities surveyed public and stakeholder opinions on the proposed establishment of an insurance policyholders’ protection fund (PPF) from March to June 2011. Respondents were quizzed on four key areas of the proposed scheme – coverage, level of compensation, funding models and governance arrangements. Taking into account the comments received, the final proposals were collated and published on the government website, and plans are now underway to introduce the PPF bill into the Legislative Council during the 2012-13 legislative session. If approved, the fund would not likely be established until fiscal 2013-14 at the earliest.

Hong Kong’s Secretary for Financial Services and the Treasury, Professor KC Chan, said in a statement that the proposed insurance fund would enhance “the stability and competitiveness” of the Hong Kong insurance industry, while minimizing the risks of moral hazard. Chan added that “we are pleased to note that there is support from the general public and industry for the establishment of a PPF and most of the key elements of the consultation proposals.”

Under these new proposals, all authorized Hong Kong insurance companies would be required to participate in the PPF, which will in turn be comprised of separate life and non-life schemes. The PPF will be run by an independent board, with an initial target size of around HK$1.3 billion (US$168 million), that will focus on covering individual policyholders and building owner’s corporations in Hong Kong. If an insurer becomes insolvent, the PPF will work to transfer all existing life, accident and health insurance policies with guaranteed renewability to a replacement Hong Kong insurer. For non-life policies, the fund will provide full compensation for the entire coverage period until expiry. Ceding to industry feedback however, the PPF Board will have the power to grant exceptions to companies who can provide a similar protection to Hong Kong-based policyholders via an existing compensation scheme overseas.

The government has also considered adding local small and medium-size enterprises (SMEs) to the list of potentially insured entities under the PPF, identifying that they usually have less resources available to assess the insurer solvency and are less capable of protecting their own interests. SME policyholders may also soon be allowed to specifically insure their exports for places and buyers of their choice under certain circumstances, and could also be offered various premium discounts through a separate government initiative.

Abiding by the consultation proposals, the Hong Kong government has set the compensation limit for each insurer at HK$1 million (US$129,000). Industry analysts observed that any further increase in the compensation limit would merely lead to a surge in levy rates without necessarily contributing any notable enhancements in terms of policyholder protection. The government noted as well that the proposed compensation limit, as is, should be able to meet 90 to 100 percent of claims generated from in force life policies, as well as be able to fully cover the claims of around 96 percent of non-life policies. Once the fund is established, policyholder compensation will be 100 percent for the first HK$100,000 (US$12,900) of any claim, plus 80 percent of the balance up to the limit.

The PPF fund will incorporate a progressive funding mechanism that charges a moderate initial levy on participants followed by a “stepped-up” levy once any insurer becomes insolvent and pay-outs are merited. The initial levy rates of the fund will be 0.07 percent on applicable premiums and will be collected from Hong Kong-based insurers directly. According to the government proposal document, the initial target fund size for the life insurance scheme will be HK$1.2 billion (US$150 million), with HK$75 million (US$9.67 million) allocated for the non-life insurance scheme. Both funds are expected to be achieving their respective fundraising goals within the first 15 years of service. Once national insurance funds are in force, the Hong Kong government claimed they would regularly meet with local insurance industry professionals, using PPF data to review and adjust levy rates as well as the fund’s overall size accordingly. It is in the scheme’s long term interest to strike a balance between enhancing protection for policyholders and minimising the additional burden placed on the Hong Kong insurance industry.

The overall goal of the PPF is to provide a safety net for Hong Kong policyholders when an insurer becomes insolvent. Hong Kong regulators have outlined quite an ambitious set of reforms for the city-state’s financial sector. The PPF move follows measures introduced last month to liberalize yuan capital requirements for local banks, as well as the planned overhaul of the country’s mandatory provident fund scheme (MPF), which will allow local employees to choose the MPF provider they want to invest with. Currently, employees in Hong Kong contribute 5 percent of their salary, capped at HK$1,000(US$130) per month, into their MPF retirement account. This contribution is then matched by employers, who have had sole power to choose the MPF provider. This will change in November 2012, when the MPF Schemes Authority enacts the Employee Choice Accounts and puts the choice of MPF provider in the hands of employees. The government hopes the scheme will put performance and fee pressure back on MPF providers, and foster a whole new financial market to stimulate the local economy. This could in turn put downward pressure on Hong Kong medical insurance rates and other financial products as well.

Life, Automobile and Health insurance continues to be an integral part of the Hong Kong economy. Despite volatile equity markets, Hong Kong’s insurers managed to keep pace with the double-digit growth rates seen in several Asia-Pacific markets last year. According to the latest figures made available on the Office of the Commissioner of Insurance (OCI) website, the Hong Kong insurance industry recorded HK$172.8 billion (US$22.2 billion) in gross written premium for the first three quarters of 2011, a 12.6 percent annual growth rate, with underwriting profits rising from HK$1.7 billion (US$220 million) to HK$2.1 billion (US$270 million) in that period as well. While these substantial growth rates may not continue during a tepid 2012, Hong Kong’s insurance companies are sure to benefit from the business potential for insurance made available across Asia-Pacific markets and Mainland China in particular.

Organizations Mentioned

OCI

The Hong Kong Office of the Commissioner of Insurance is a government body that works to represent the interests of policy holders and to ensure the continued stability of the insurance industry in Hong Kong. The OCI was established in June 1990.

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RMB to Play Bigger Role in Hong Kong Insurance

Hong Kong has announced new measures this week to liberalize yuan capital requirements for local banks in a bid to promote the city-state’s status as China’s main offshore currency centre. This move will likely result in more yuan-denominated insurance products and retirement funds becoming available in Asia’s premier insurance market soon.

On Tuesday, the Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, declared that local banks would now be able to include both their holdings of yuan-denominated Chinese sovereign bonds that were issued locally in Hong Kong and bonds traded within Mainland China’s inter-bank market as part of their mandatory capital reserve requirements going forward. Prior to this regulation, all Hong Kong-based banks trading on the offshore yuan market had to set aside cash and settlement balances as reserves (equal to 25 percent of customer deposits) with a separate yuan-clearing bank or through the fiduciary account in the People’s Bank of China, as part of the city’s strict risk management regulations. Relaxing these requirements now will allow Hong Kong banks to take on more risks, hold more cash for mainland interbank lending, and increase their involvement overall in the fledgling offshore yuan market .

This announcement follows the HKMA and UK Treasury decision earlier in the week to launch a new joint private sector international forum designed to promote the globalization of the yuan. The forum will enhance cooperation between Hong Kong and London’s financial centers and work to support the continued development of the offshore yuan market.

After years of stringent currency isolation, the Chinese government is now attempting to promote the use of the yuan overseas as part of their long-term plan to turn their notes into an international reserve currency to compete alongside the United States dollar. China sees the growh of the Hong Kong yuan market in particular as a key component to this objective, and are working to support it’s continued development. Yuan-denominated deposits in Hong Kong increased to CNY627.3 billion (US$99.18 billion) in November 2011, up by 1.4 per cent from a month prior. London, the world’s largest foreign exchange centre, will soon be permitted a slice of this yuan action too, as the United Kingdom looks to boost its trade and investment ties with Asia’s fast-growing economies.

Speaking at the annual Asia Financial Forum in Hong Kong yesterday, HKMA Chief Executive Norman Chan told attendees that the new relaxed rules on yuan capital requirements would ensure the stable development of the offshore Chinese currency market and become a boon for the rest of the international business community as well. “These measures greatly expand the scope of offshore yuan business development,” Chan said, adding that this in turn “raises the flexibility on how banks manage their yuan assets, favoring further growth in the market.” The HKMA has advised however that banks should of course continue to adopt prudent measures in measuring their foreign exchange and liquidity risk when engaging in yuan-denominated activities. “We are required to change financial rules according to market conditions. Our principle is to make gradual change while keeping risks at bay,” Chan concluded.

One of the beneficiaries of this development will of course likely be the Hong Kong insurance industry. The HKMA Chief admitted that they were already looking for ways to get insurer investment back into the Mainland interbank bond market. Increasing insurer trade would in turn lead to an increase in the number of yuan-denominated insurance products and retirement funds with longer maturity available in China. According to HKMA statistics, the value of new life insurance premiums priced in yuan hit a record CNY4.43 billion (HK$5.4 billion) during the first half of 2011, representing about 13.8 percent of the total Hong Kong life market for the year. The mainland insurance market offers business opportunities that HK insurers cannot ignore, provided they are permitted to engage with them.

One of Hong Kong’s chief insurance sector legislators, Chan Kin-por, was also on hand at the Asia Financial Forum to explain that currently only China Reinsurance is allowed to invest the yuan-denominated premiums. “If insurers could directly invest in the mainland interbank bond market, that could generate 3-4 percent return almost risk- free,” said Chan Kin-por, adding that a direct investment channel for HK insurers is long overdue. Four HK-based insurance companies have already confirmed their interest in the mainland bond market and will likely be granted an investment quota soon, with pension funds expected to wait a while longer.

Despite persistent financial market volatility, Hong Kong’s insurance industry kept pace with double-digit growth rates posted in several neighboring Asia-Pacific markets throughout 2011. According to the latest figures made available on the Office of the Commissioner of Insurance (OCI) website, Hong Kong’s insurance companies posted HK$172.8 billion (US$22.2 billion) in gross written premiums for the first three quarters of 2011, a 12.6 percent growth rate over the same period last year, with overall underwriting profit rising from HK$1.7 billion (US$220 million) to HK$2.1 billion (US$270 million) during that time.

While these double-digit premium growth rates may prove elusive in 2012, Hong Kong’s insurance companies will likely benefit from the business potential available across the Asia Pacific region, specifically Mainland China. According to a recent report issued by the Hong Kong Federation of Insurers (HKFI), Mainland Chinese customers are projected to contribute 20 to 30 percent of all new HK insurance sales over the next five years. China is now the world’s second largest economy, with an emerging middle class population ready to spend vast sums on a variety of insurance and investment products. This tremendous potential customer base has presented sizeable opportunities to major international financial markets, most notably Hong Kong of course, which is both convenient geographically and culturally as well. While this Hong Kong-China relationship has frequently been tested, made notable last year by maternity tourism abuse, overall the mainland market will provide many HK businesses with bountiful business prospects going forward. Hong Kong insurance companies that can develop both innovative and cost-effective insurance products not yet available on the Mainland will be able to capitalize upon a still under-penetrated and lucrative market.

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Hong Kong Insurance Market Keeps Pace

Provisional statistics released this month by Hong Kong’s chief insurance regulatory body, The Office of the Commissioner of Insurance (OCI), show that despite recent financial market volatility, Asia’s premier insurance center has managed to keep pace with the double-digit growth rates experienced in several neighboring markets during the first three quarters of 2011.

According to the latest OCI figures, Hong Kong’s insurance industry recorded HK$172.8 billion (US$22.24 billion) in gross written premiums from January to September 2011, which represented a substantial 12.6 percent increase over the corresponding period last year. In the country’s general insurance business, gross and net premiums, rose by 12.5 percent to HK$27.4 billion (US$3.5 billion) and 10.1 percent to HK$19 billion (US$2.4 billion) during this 9 month period compared with same period in 2010 respectively. The OCI noted that while the number of claims in general has continued to rise in 2011, most insurance lines have been able to maintain an underwriting profit. Indeed, over the past year overall underwriting profit for HK insurers has increased from HK$1.7 billion (US$220 million) to HK$2.1 billion (US$270 million).

The report further shows that the gross and net premiums on direct business have grown by 7.9 percent and 7.3 percent annually to HK$20.5 billion (US$2.6 billion) and HK$15.1 billion (US$1.9 billion) through the first three quarters of the year respectively. The OCI has largely attributed this rise in general insurance premium levels to the strong performance of property damage business lines in Hong Kong, which have grown by 20.4 percent in the past year, from HK$5.1 billion (US$660 million) in gross premiums in 2010 up to HK$6.2 billion (US$800 million) by the third quarter of 2011. As the largest segment of the non-life insurance market, accident and health insurance businesses have also been key contributors to non-life sales, with gross and net premiums of HK$7.3 billion (US$940 million) and HK$6.1 billion (US$780 million) so far this year. Health and accident insurance sales are expected to continue by the OCI, due to rising care costs, the expansion of medical businesses, and growing public awareness about upcoming changes to the state’s healthcare system.

Hong Kong’s general liability and motor vehicle insurance lines have also contributed to the industry’s premium growth over the past year. In the report, general liability business, which includes the employee compensation market, recorded a double digit rise in gross and net premiums, now worth HK$5.3 billion (US$680 million) and HK$3.8 billion (US$490 million) for the year in that order. The country’s automobile insurance industry meanwhile recorded HK$2.5 billion (US$320 million) in gross and HK$2 billion (US$260 million) in net premiums for the nine month period. The OCI has attributed the motor insurance industry’s growth to premium rate increases levied on commercial vehicles over the past year.

The only line in Hong Kong that has experienced a significant loss in the past year, according to the OCI report, is pecuniary loss liability insurance, which experienced a 20.6 drop in gross premium levels as a result of the slowdown in property transactions occurring in the SAR.

Despite general insurance premiums levels increasing, the OCI noted that poor claims experiences this year had caught up with several non-life lines and had lead to a fall in underwriting profit for these sectors. Overall the underwriting profit of direct business in Hong Kong declined to HK$1.3 billion (US$170 million) in the first three quarters of 2011 from HK$1.4 billion (US$180 million) in the corresponding period of 2010. Motor insurance has so far been the most affected by a claims-heavy season, with underwriting profits falling from HK$125 million (US$16 million) down to HK$2 million (US$260,000) through the first 3 quarters of 2011. Accident and Health insurance and General Liability businesses have experienced a more limited shortfall, with underwriting profit falling from HK$388 million (US$49 million) to HK$292 million (US$37.5 million) and from HK$137 million (US$17.6 million) to HK$63 million (US$8.1 million) for the year respectively. The OCI report explained however that these losses could continue to be offset by the performance of the property damage business, where underwriting profits have risen from HK$211 million (US$27.1 million) to HK$370 million (US$47.6 million) so far this year.

Premium increases in the property damage business have also helped the country’s reinsurance industry, where gross premiums grew from HK$5.4 billion (US$690 million) to HK$6.9 billion (US$890 million) and net premiums grew from $3.1 billion (US$400 million) to $3.8 billion (US$490 million) in the first three quarters of 2011 over 2010’s results. This strong premium growth has also driven the reinsurance market’s underwriting profit to increase from HK$288 million (US$37 million) to HK$752 million (US$96.7 million). Property damage insurance and reinsurance companies in Hong Kong have benefited from a relatively uneventful year in comparison to their neighbors in Japan and Thailand.

While direct insurance lines have certainly grown this year, the OCI stats show that the long-term insurance market has been able to more than hold its own, with life insurance products continuing to be a major growth driver in Hong Kong. Office premiums for new individual life policies (excluding retirement scheme business) have increased by a considerable 33.4 percent to HK$56.6 billion (US$7.28 billlion) over the past nine months. Traditional life insurance and annuity policies, where insurers collect premiums from policyholders annually to invest with and pay dividends, increased by 21 percent to HK$96.2 billion (US$12.3 billion) in 2011. Sales of investment-linked life policies, in which buyers move their premiums into a number of investment funds at varying levels of risk and return, have risen by 33.3 percent over the same period last year, for a total of HK$16.9 billion (US$2.17 billion) in terms of new office premiums. The total revenues associated with long-term in-force business were HK$145.4 billion (US$18.7 billion) in the first three quarters of 2011, a 12.6 percent increase over the same period of 2010.

While there are no guarantees double-digit premium growth will persist in 2012, Hong Kong’s insurance market should continue to benefit from the tremendous business opportunities in the Asia Pacific region, particularly on the Mainland. According to the Hong Kong Federation of Insurers (HKFI), clients from Mainland China are expected to drive between 20 to 30 percent growth in new insurance sales over the coming years. Mainland activity has already been particularly apparent in new office premiums. According to the OCI report, new policies issued to Mainland visitors have totaled HK$4.6 billion in premiums (US$590 million) so far this year, which represents over 8 percent of all new office premiums for individual business in Hong Kong.

China is now the second largest economy in the world, with a growing middle class population ready to spend on insurance and investment-linked products. This emerging investor class presents significant opportunities to financial markets like those in Hong Kong that are both close geographically and particularly convenient to them culturally as well. While this close relationship between Hong Kong and China has presented some infamous pitfalls in the past, such as rampant maternity tourism, overall it will provide HK businesses with bountiful business opportunities going forward. Hong Kong-based insurance companies that can present innovative, stable and cost-effective insurance products and services not yet available on the mainland could attract a tremendous new client base.

Organizations Mentioned

OCI

The Hong Kong Office of the Commissioner of Insurance is a government body that works to represent the interests of policy holders and to ensure the continued stability of the insurance industry in Hong Kong.

The Hong Kong Federation of Insurers

The Hong Kong Federation of Insurers (HKFI) was established on 8 August 1988 as a self-regulatory body of insurers, designed to further the development of the insurance business in Hong Kong. The HKFI is recognized by the Government of the Hong Kong Special Administrative Region as the principal representative body of their industry.

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Manulife Expanding in Hong Kong and China

Canadian insurance giant Manulife is looking to increase its agency force in Hong Kong in an attempt to capitalize on the resurgent demand for investment-linked insurance policies throughout the Asia-Pacific region.

In an interview with the South China Morning Post this week, Manulife Hong Kong executive vice-president and CEO, Michael Huddart, explained that while global financial market volatility has slowed down the sale of investment-linked insurance policies considerably over the past few months, insurers by and large remain confident in the long-term growth prospects for these products, and that their performance would no doubt improve when the market rebounds. “The outlook for these investment-linked plans is good, especially if we see some market recovery in 2012 and beyond. There is still a great need for accumulating wealth to pay for living costs and medical costs in retirement and these plans can be a useful vehicle to achieve this goal,” Huddart said in the piece..

Hong Kong – a special administrative region (SAR) of China – is the premier Asian insurance center, and attracts many of the world’s top insurance and financial service companies. Manulife, themselves, have had a presence in the City for over 110 years and now have around 1.6 million clients in HKSAR. Hong Kong has the largest number of authorized insurance companies in Asia at 167, and thousands of supplemental agents and brokers. The level of insurer business activity in 2010 amounted to 11.8 percent of Hong Kong’s gross domestic product (GDP), compared with 11.3 percent in 2009. Insurance continues to be an integral part of the city-state’s economy.

Investment-linked products had proven to be popular in Hong Kong due to their combination of both insurance protection and investment fund savings options. However, in the aftermath of the 2008 global financial crisis, the attractiveness of these insurance policies has now been sternly tested by waning investor confidence across most business lines. Statistics released by the Hong Kong government reveal exactly how closely the sales of investment-linked insurance policies have related to overall market performance. According to the data, when the Hang Seng Index passed the 29,000 benchmark and hit a record high in 2007, sales of investment-linked insurance policies rose in tow to HK$60.04 billion (US$7.72 billion). At that time, sales of new investment-linked insurance products accounted for around three times as many as traditional insurance policies, which totaled HK$20.31 billion (US$2.61 billion) that year.

Sales of investment-linked policies then dramatically declined to HK$15.06 billion (US$1.94 billion) in 2009, or roughly half those of traditional insurance policies, as the prevailing effects of the global financial crisis took hold. Investment-linked policies have since then seen much lower sales figures than traditional life insurance policies and have yet to fully recover as investor fears about the European sovereign debt crisis and a possible recession in the United States continue. Through the first half of this year, investment-linked products still only represent 30 percent of all insurance policies sold in Hong Kong, with traditional insurance policies making up the remaining 70 percent.

Despite this prolonged downturn in consumer confidence, Manulife and other players are continuing to invest in and market the long-term appeal of these investment-linked and other insurance products to clients throughout the Asia Pacific. The Toronto-based firm has planned to increase their insurance agency force in Hong Kong by 10 percent annually for the next 5 years, moving from roughly 4,600 agents at present to a staff of 7,000 by 2015. While this is happening, Manulife will also work to improve sales from non-agency channels, including bancassurance and independents, to hopefully account for roughly a quarter of total sales by the end of 2015, up from 13 percent currently. The company is also looking to promote yuan-denominated products, which have become increasingly in demand amongst investors who expect to benefit from the Mainland currency’s gradual appreciation. The yuan has already risen by some 20 percent since 2004.

Manulife is already reaping the rewards of its expansion strategy. In the third quarter results posted earlier this month, Manulife’s Hong Kong insurance sales were worth US$59 million, representing a 26 percent over the third quarter of 2010. The company has primarily attributed this performance to the increased number of active insurance agents, increased volumes of the popular critical illness product launched at the end of the second quarter, and higher sales made through the company’s expanded bancassurance channel.

Manulife is stepping up its agent recruitment effort primarily to grow their business and better compete in the city’s lucrative mandatory provident fund (MPF) marketplace. The MPF is Hong Kong’s compulsory retirement savings system, and is administered by the Mandatory Provident Fund Schemes Authority. With a 17.6 market share, Manulife is currently the number two insurer in Hong Kong’s MPF market. With an increased sales force, the Canadian firm hopes to successfully raise their share to over 20 percent by 2016, which would put them in a better position to compete with the predominant market leader, HSBC.

The marketplace Manulife is investing in is, however, experiencing some noted volatility at present. According to the latest figures filed by the Office of the Commissioner of Insurance (OCI), sales of retirement-related insurance policies dropped by 35.9 percent to HK$10 billion (US$1.28 billion) last year. At the end of 2010, there were 59,005 MPF contracts in Hong Kong carrying net liabilities worth HK$105.5 billion (US$13.55 billion). Local market observers have attributed this drop to a recent regulatory change regarding pensions. In 2009, The Mandatory Provident Fund Schemes Authority stipulated that all MPF funds must be held through trustees.

You don’t have to venture far outside of Hong Kong to discover one of Manulife’s other priority growth markets – Mainland China. Last week the insurer renewed their framework agreement with Bank of China, the country’s oldest bank, for another two years in a bid to further expand their bancassurance distribution network and ultimately sell more insurance products in the world’s second largest economy.

In his speech at the signing ceremony in Beijing, Mr. Donald Guloien, President and CEO of Manulife Financial, explained that China, with its robust economy and growing middle class, is an important marketplace to be in for all ambitious financial-services companies, especially considering the tepid business forecasts in their mature domestic insurance markets. Indeed, China’s insurance industry, in particular, has grown more profitable and evolved at a tremendous pace over the past decade and still has plenty of room further to develop due to generally stable economic indicators and an under-penetrated insurance and investment market. In 2010, the Chinese insurance industry grew by 30.4 percent, reaching a record US$221.4 billion in total written premiums. This momentum has continued into 2011 despite international financial market volatility and record catastrophe losses in neighboring Asian countries. The China Insurance Regulatory Commission (CIRC) interim report figures show that total premium income reported by Chinese insurance companies had increased to US$123.95 billion during the first half of 2011, maintaining double-digit growth with a 13 percent rise on last year’s interim period. At the moment, China is ranked as roughly the sixth largest insurance market in the world, and the second largest in Asia. Many industry observers fully expect the Chinese insurance market to eventually overtake the United States and become the number one overall protection and investment market in the world, possibly by as early as 2020.

Indeed, much of what may determine the future success of the Chinese insurance industry could come to a head in the coming months, as multiple Mainland insurers apply for their IPOs. More capital is needed for Chinese insurers to both capitalize on their home market and expand overseas if need be. Despite global financial market volatility, Chinese insurers remain attractive investment targets for large multinational insurance companies and investors from the financial-services sector. Over the next year, almost US$25 billion worth of dual share offerings in Hong Kong and Shanghai could be coming to the market from Chinese insurance companies alone. New China Life Insurance, China’s third-largest life insurance firm applied to the Hong Kong stock exchange for a dual listing, which could go through this week. The insurer is looking for US$4 billion in fresh funds by the end of the year. Taikang Life Insurance, China’s fifth-largest insurer by premiums, has also targeted between US$3 billion and US$4 billion from a Hong Kong listing in the next couple of years. PICC meanwhile have also expressed IPO interest and would look to raise between US$5 billion and US$6 billion in a dual listing by the end of 2012. Market analysts will be watching closely to see if these Chinese insurers and more can dual list successfully and build on their enormous domestic customer base to establish a more robust presence on the global stage.

Outside of China and it’s holdings, Manulife of course recognizes Asia as the most important market for the company’s sustained future growth and development. The region, as a whole, now accounts for over half of the company’s total insurance sales worldwide. The Canadian insurance company has seen its insurance sales across Asia jump by 22 percent to US$902.4 million in 2011, with budding businesses in less-established insurance markets like Vietnam, Indonesia and the Philippines being particular highlights. Going forward, Manulife has said they will focus on expanding insurance sales channels in these Asian countries, and will continue to upgrade the range of their core policy offerings, as the emerging middle class consumer demand in these markets matures and evolves.

Insurance Companies Mentioned

Manulife

Manulife (International) Limited is a member of the Manulife Financial group of companies. Manulife Financial is a leading Canadian-based financial services group serving millions of customers in 22 countries and territories worldwide. Operating as Manulife Financial in Canada and Asia, and primarily through John Hancock in the United States, the Company offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

Aviva Global Lifecare Plans to be Shut Down

Aviva Life Insurance Company Ltd, part of Aviva PLC, has announced to its brokers and agents in Hong Kong that the company will be cancelling its line of Aviva Global LifeCare products.

The Aviva Global LifeCare plan is an individual international private medical insurance policy licensed out of Hong Kong SAR.

In a recent communication to the Aviva distributor network in Hong Kong the company has stated that ”we have decided to discontinue any new business of our Aviva Global Lifecare products with immediate effect and also the renewal of all existing Aviva Global Lifecare policies.”

This means that any policyholders in possession of an Aviva Global LifeCare plan will be unable to renew their policy. However, until the plan reaches the renewal date, now the cancellation date, Aviva has confirmed that customers will be able to seek coverage under the plan.

This poses a grave concern for many individuals and families currently covered by the Aviva plan, as the cancellation will force them to seek alternative health insurance options. Any medical conditions developed by the policyholder while enrolled on the Aviva policy would subsequently be treated as Pre-Existing with any new health insurance application.

Pre-exsiting medical conditions are normally not eligible for coverage under an international health insurance policy.

As of the time of publishing, Aviva has offered no solutions for continuing coverage to Aviva policyholders currently suffering from severe chronic conditions whose plans will be cancelled. This means that individuals experiencing life threatening medical conditions, such as cancer, are now no longer to obtain coverage from a plan which they have been enrolled on for a number of years.

Additionally, many Aviva policyholders are finding that they have only just completed the waiting periods associated with coverage benefits such as Maternity, and are now being told that their policy is no longer being offered. These individuals must find new coverage and complete a new set of waiting periods before they are able to start their family with the protection they deserve.

A current Aviva policyholder, who did not wish to be named for this story, said of the cancellation:

“This is horrific; I’m absolutely outraged at the decision. This belies an utter lack of commitment to the customer and is, quite frankly, extremely disappointing from one of the world’s, supposedly, ‘premier’ insurance providers… How am I meant to get coverage now?”

Upon being asked if he had any pre-existing conditions which would require continuing coverage the policyholder stated:

“Yes, and it’s definitely a condition which will be excluded from my next plan – if I’m even accepted. The whole situation is verging on the criminal, in my opinion.”

One woman, asking to be called Mrs. S in this article, who had purchased the policy expressly for the maternity coverage said of the news that “this is insane! My husband and I were going to try to start a family this year…. We now have to wait another 10 months on a different policy before we can give birth? How can Aviva do this?!”

Aviva entered the international health insurance market with the Aviva LifeCare plan in 2007 and it is unknown at this moment why the company is choosing leave. Additionally, it is also unknown whether Aviva’s offerings in the United Kingdom or Singapore will be affected by this decision.

However, it should be noted that Aviva has had a history of extreme premium increases over the last 2 years with the LifeCare product, with average plan costs doubling for 2 consecutive years. This is unusual for Health insurance and may indicate a structural unsoundness at the core of the Aviva LifeCare business.

At this time International Insurance News recommends that any person holding an Aviva Global LifeCare Health Insurance policy should contact their agent, broker, or representative to establish continuing coverage options.

Globalsurance International Health Insurance - Expat Medical insurance products for you and your family no matter where in the world you live.

Hong Kong Insurance Industry Records Double Digit Growth in 2010

This week, Hong Kong’s chief insurance regulatory body, The Office of the Commissioner of Insurance (OCI), released finalized business statistics for 2010 based on the audited returns and additional actuarial information submitted by insurance companies over the past year. The government report showed that despite recent market turmoil and global economic uncertainties, insurance sales have continued to grow in Hong Kong as more people purchase policies for investment and protection against risk.

Hong Kong – a special administrative region (SAR) of China – is the leading insurance center in Asia, attracting many of the world’s top insurance companies. Hong Kong has the largest number of authorized insurance companies in Asia at 167 and thousands of supplemental agents and brokers. The level of insurer business activity in 2010 amounted to 11.8 percent of Hong Kong’s gross domestic product (GDP), compared with 11.3 percent in 2009. Insurance continues to be an integral part of the country’s economy.

According to the latest OCI figures, the total gross premium of the Hong Kong insurance industry for year end 2010 was HK$205 billion (US$26.3 billion), representing an 11 percent increase in growth over the previous year. For the country’s general insurance business, gross and net premiums, rose by 8.7 percent to HK$31.1 billion (US$3.99 billion) and 5.9 percent to HK$21.7 billion (US$2,79 billion) during this period although the overall retention ratio declined slightly from 71.9 percent to 70 percent. The OCI noted that while the overall number of claims increased in 2010, with a net claim incurred ratio of 53.6 percent compared to 52.8 percent in 2009, most insurance lines maintained an underwriting profit. The one exception were the ships insurers, who reported a HK$108 million (US$13.87 million) underwriting loss.

The OCI has largely attributed the double-digit rise in general insurance premiums to the robust performance of property damage business lines in Hong Kong, which have grown by 16.8 percent in the past year, from HK$5.7 billion (US$730 million) in premiums in 2009 up to HK$6.6 billion (US$850 million) in 2010. Accident and health insurance lines, the largest segment of the general insurance market, also contributed significantly with a 10.2 percent rise in gross premiums from HK$7.7 billion (US$1 billion) in 2009 to HK$8.5 billion (US$1.09 billion) in 2010. These two market segments, property damage and accident/health, also continued to be two of the most profitable lines for Hong Kong insurers, registering strong profit of HK$673 million (US$86.4 million) and HK$464 million (US$59.5 million) for the year respectively. The increase in health insurance proliferation is expected to continue by the OCI, in conjunction with expansion in medical business, rising care costs, and a growing awareness among the public about upcoming changes to the state’s health system.

Hong Kong’s motor insurance segment also posted strong numbers last year with a 12.7 percent annual increase in gross premiums from HK$2.8 billion (US$360 million) in 2009 to HK$3.2 billion (US$410 million) in 2010. Even more impressive, motor insurers were able to turn and make an underwriting profit of HK$105 million (US$13.48 million) following a claims-heavy term. The OCI attributed the motor insurance market’s growth to the overall premium rate increases levied on commercial vehicles over the past year. General liability insurance meanwhile remained level with HK$7.1 billion in premiums reported last year.

While 2010 certainly proved to be a productive year for general insurance business, the long-term insurance market more than held its own, with life insurance remaining a major growth driver. Both individual life insurance and investment-linked policies recorded significant premium growth last year. Office premiums for new individual life policies increased significantly by 28.2 percent to HK$57.9 billion (US7.43 billion) compared in 2010. Traditional life insurance policies, whereby insurance companies collect an annual premium from policyholders to invest and eventually pay a dividend, increased by 25.1 percent to HK$38 billion (US$4.8 billion) in 2010. Sales of investment-linked life policies, in which buyers move their premiums into a number of investment funds at differing levels of risk and return, were up 34.7 per cent over last year, for a total of HK$19.9 billion (US$2.56 billion) in terms of new office premiums. With the market begging to recover from the global financial crisis last year, investment-linked policies proved particularly popular with buyers looking to benefit quickly from the market rally. Industry observers are doubtful this trend will continue through 2011 as global market unrest in recent months continues to cut down investor appetite and spending power.

Overall Hong Kong insurance companies sold 1.01 million life policies in 2010, with the total number of new policies up 5.7 percent on the previous year. Individual life insurance products remained the dominant line in the long-term insurance market, comprising 9 million policies, HK$160.2 billion (US$20.5 billion) in premiums, and 92.1 percent of total business. While the total office premiums has increased by 11.4 percent from HK$156.1 billion (US$20 billion) in 2009 to HK$173.9 billion (US$22.3 billion) in 2010, the other insurance lines in the sector have not been able to make inroads. The number of group policies has increased by 1.1 percent to 16,263 but in-force premiums of Annuity and other business fell by 26.3 percent to HK$2.1 billion (US$270 million) and sales of retirement-related policies dropped by a further 35.9 percent to HK$10 billion (US$1.28 billion). At the end of 2010, there were 59,005 Retirement Scheme contracts in Hong Kong carrying net liabilities of HK$105.5 billion (US$13.55 billion). Local market observers have attributed this drop to a recent regulatory change regarding pensions. Last year, The Mandatory Provident Fund Schemes Authority stipulated that all MPF funds must be held through trustees.

It remains to be seen whether the Hong Kong insurance industry will be able to deliver similar performance numbers through the next financial year; given the bleak macroeconomic outlook it appears doubtful. One particularly notable development however could be the increasing proportion of business accounted for by visitors from mainland China. According to the OCI, these mainland customers are expected to drive between a 20 to 30 percent annual growth rate in the country’s total premiums this year alone. China has become the second largest economy in the world, with an emerging middle class population ready to spend on insurance and investment-linked products. This emerging investor class presents significant opportunities to financial markets like those in Hong Kong that are of close proximity and particularly convenient to them. While this close relationship between Hong Kong and China can also present some notorious pitfalls, such as maternity tourism, overall it could provide local businesses with bountiful opportunities. Hong Kong-based insurance companies that can present innovative, cost-effective and secure insurance products and services not yet entrenched on the mainland will be rewarded with a tremendous potential client base.

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Ping An Invests in China, As Will Hong Kong Insurers

Ping An Insurance (Group) Co, China’s second largest insurer, announced a 33 percent rise in first-half profits this week, at the top end of market expectations. As the company’s premium income and investment returns have continued to expand, the insurer also plans to increase its stake in a Chinese bank to further strengthen its banking and asset management operations.

In a statement released to the Shanghai stock exchange, Ping An reported that the group’s net income for 2011 had climbed to CNY12.8 billion (US$2 billion), or CNY1.67 (US$0.26) a share, from CNY9.61 billion (US$1.5 billion) a year earlier. The Shenzhen-based company noted that net premiums were able to grow by 39 percent for the period despite a slowdown in automobile sales in China and tightened regulation over bancassurance policies. Individual insurance premiums rose 29 percent, while Ping An’s industrial insurance business reported a 36 percent advance. An improved focus on telemarketing and agents helped contribute to a 38 percent year-on-year rise in revenues to CNY133.81 billion (US$20.9 billion), while total equity was up 20 percent from 2010 to CNY134.33 billion (US$21 billion). The company also reported that total assets hit CNY1.31 trillion (US$200.4 billion) by the end of June, an 11.8 percent increase from the end of last year.

It was the performance of the firm’s banking sector that drew the most attention. Ping An noted that net profit from its banking businesses more than doubled to CNY2.4 billion (US$375 million) in the first half of 2011, accounting for nearly a fifth of the group’s total net profit of CNY12.76 billion (US$1.9 billion). Ping An Bank, a subsidiary of the group, contributed CNY1.21 billion (US$181 million) towards the total net profit, a 34.9 percent increase over last year, with a capital-adequacy ratio (CAR) of 10.78 percent. In an attempt to capitalize on its success in the financial services sector and establish itself as a major player in the Asia Pacific region, Ping An plans to inject up to CNY20 billion (US$3.1 billion) in fresh capital into its other majority-owned banking unit, Shenzhen Development Bank Co. This would be the second time Ping An has injected funds into the bank, having increased their stake to 52 percent from 30 percent at the end of June.

Shenzhen Development Bank has contributed CNY1.18 billion (US$180 million) towards Ping An’s net profits so far this year. The investment will be used to replenish the bank’s capital base, which had lowered to near the minimum levels required by Chinese law to operate. According to the latest figures, Shenzhen Development Bank held capital in June equal to 10.58 percent of total risk-weighting assets, with a minimum CAR of 10.5 required for banks of its size in China. Concerns were raised by a recent regulatory ruling, which could lift capital requirements further to 11.5 percent if Shenzhen Development Bank is declared systemically important. Once the deal is completed, Shenzhen Development Bank expects its CAR will improve to 13 percent, adding in a statement that “The capital replenishment will enable the bank to further expand its assets and businesses, and help it achieve sustainable profit growth.”

Many other banks in China have undergone similar fundraising efforts in order to bolster their capital positions in the face of volatile global financial markets. Chinese insurance companies have duly invested in bank stocks because they believe bargains have begun to surface on expectations that the market has bottomed out following the sharp falls due to the global market turmoil earlier this summer.

For Ping An, the investment in Shenzhen Development Bank comes as part of the company’s ambitious long term plan to become a full-service financial services conglomerate, with equally proficiency in cross-selling insurance, banking and investment operations. Ping An have used HSBC as a model, who in fact hold a 16 percent stake in the Chinese insurer. According to Ping An, it’s business from non insurance operations (banking, securities, trusts) now contribute 27 percent of its net profit, up from 23 percent in 2010, and management are keen to see this continue. Injecting money into Shenzhen Development Bank will further accelerate the development of banking and investment business within the group’s business portfolio. Insurance industry analysts predict that these moves could help Ping An to perform better than its biggest rival China Life. Having a more diversified business portfolio will ultimately help protect the insurance company from adverse market volatility in the future.

The Chinese insurance market itself may become more diverse in the near future, with the introduction of prominent Hong Kong-based companies perhaps on the horizon. Speaking at a financial forum on Wednesday, China’s Vice Premier Li Keqiang told attendees that Beijing has plans to grant greater access for Hong Kong’s services sector on the massive mainland Chinese market. Li, viewed by some as a likely candidate to replace Premier Wen Jiabao, singled out Hong Kong-based insurance companies in particular, and stated that they could soon be allowed to establish separate branches and play a bigger role on the mainland as well as take up ownership stakes in their mainland Chinese subsidiaries. Li closed by saying such implementing such policies would be “consistent with our policy of opening to Hong Kong first under the ‘one country, two systems’ and aimed at taking mainland-Hong Kong economic and financial cooperation to a new high.”

Many Hong Kong insurance companies already recognize the importance of the mainland market. According to The Office of the Commissioner of Insurance (OCI), over ten percent of all insurance premiums collected this year were from policies issued to Mainland Chinese visitors. These mainland customers are expected to drive between a 20 to 30 percent annual growth rate in the country’s total premiums this year alone. China has become the second largest economy in the world, with an emerging middle class population ready to spend on insurance and investment-linked products. This emerging investor class presents significant opportunities to financial markets like those in Hong Kong that are of close proximity and particularly convenient to them. Hong Kong insurance companies that can present innovative, cost-effective and secure insurance products and services not yet entrenched on the mainland will be rewarded with a tremendous potential client base.

Insurance Companies Mentioned

Ping An Insurance (Group) Co. of China Ltd.

Ping An Insurance is the first integrated financial services conglomerate in China that blends its core insurance operations into securities brokerage, trust and investment, commercial banking, asset management and corporate pension business to create a highly efficient and diversified business profile. The group was established in 1988 and headquartered in Shenzhen, Guangdong Province, China.

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Boosting Big Investments in “BRIC”

As the economies of Brazil, Russia, India and China continue to grow, increasing numbers of international insurance and reinsurance companies are seeking to enter into these burgeoning regional markets. As some of the most recent international insurers to tap new country markets have found out, not only must they balance short and long-term strategies, but also provide appropriate and appealing products to local populations, sometimes even in the middle of shifting regulatory environments.

Just last week, at the Insurance Day Conference in Bermuda, Joe Plumeri, CEO and Chairman of Willis Group Holdings, spoke about the importance of maintaining growth in the Indian health insurance market along with the markets of Brazil, Russia, and China, or the “BRIC” countries as they are sometimes called. He stated that due to these countries’ developing populations, “the wealth and insurable value that an exploding global middle class will create will be unprecedented in history. The resulting demand for insurance will dwarf the capital and capacity of today’s insurance market.” Plumeri emphasized that “the new middle class will need brokers that understand them and their industries. They’ll need carriers who are innovative, financially secure, and who are there when they need them-carriers with a reputation for paying legitimate claims quickly.” A report published by Standard and Poor’s this week reaffirmed his opinion, with S&P credit analyst Magarelli stating that India’s “non-life sector, which includes property/casualty and health insurance, has one of the lowest penetration rates in Asia.” Again asserting Plumeri’s opinion on what customers will need from carriers, Magarelli proclaimed that in order to maintain the growth of the Indian insurance market, insurers need to start focusing more on key factors such as customer service, innovation, and efficiency; currently, “the insurers’ persistently poor underwriting performance..could potentially stunt the industry’s growth if it remains unchanged.”

As the demand for insurance in Brazil grows, The Travelers Companies Inc has just purchased 43 percent of Brazilian insurance company J. Malucelli Participacoes em Seguros e Resseguros SA for US$410 million, with the opportunity to increase its stake in the company to 49.9 percent over the next 18 months. As J. Malucelli already commands 30% of Brazil’s largest market, it is no surprise that Vice Chairman and head of Traveler’s Financial, Professional, and International Insurance business segment Alan Schnitzer said that J. Malucelli’s “extensive customer base provides us [The Travelers Companies, Inc.] with an exceptional platform for expanding the joint venture beyond the surety business into the growing property and casualty market.”

In accordance with projections for growth in Malaysia’s insurance sector, Zurich Insurance Company Ltd has just purchased Malaysia’s Assurance Alliance Bhd, a subsidiary of MAA Holdings Bhd, in full. A financial holding company, MAA offers general and life insurance, reinsurance, property management, investment advising, and more; Zurich purchased the general and life insurance sectors of the company. The sale comes a few months after Dan Bardin, Zurich’s chief executive of Global Life Asia Pacific and the Middle East, disclosed that the company was interested in expanding in Malaysia, saying that now is a “great time” to focus on expansion in Asia, although it can be “an enormous task to integrate.” Unfortunately, the sale effectively removed the basis of MAA, resulting in the quick descent of MAA’s shares on the Bursa Malaysia Stock Exchange from 5 sen to 67.5 sen on a volume of 32.63 million shares. MAA is also suffering other monetary issues, as without adequate internal funding, the company may not be able to pay their final principal payment of RM140 million. Whether or not they are able to do so will depend on the profit made from the RM344 million (US$114 million) sale to Zurich.

Bardin has reported that the company is also interested in expanding to Singapore and Taiwan. Contrary to S&P credit analyst Magarelli’s opinion that India has “one of the lowest penetration rates in Asia”, Zurich Regional Chairman of Asia/Pacific and the Middle East Geoff Riddell has reported that the company is currently not looking at expanding to India due to the competing prices caused by large private life insurers entering the market already. In March, Warren Buffett’s Berkshire Hathaway entered the Indian insurance market to sell automobile policies for Bajaj Allianz General Insurance, while New Zealand/Australia insurance giant IAG currently owns a 26 percent share of the Indian sector of its business alongside the State Bank of India.

Managing Director of Swiss Reinsurance’s Corporate Solutions Division Ivan Gonzalez elaborated on Swiss Re’s goals for expansion in the future in an interview last week. With 80% ownership of Brazilian insurance company UBF Seguros, Swiss Re has already gotten a footing in the Latin American insurance market, but they hope to use this ownership to expand in and out of Brazil; to grow the company “as a business”. With an eye on the other three largest Latin American markets-Mexico, Chile, and Columbia, Swiss Re is also opening an office in Miami, in order to “be closer to the Latin America market”, Gonzalez said.

Locally, Hong Kong is also trying to maintain its global financial foothold, as the Hong Kong government has begun to talk about creating an independent insurance authority; its aim will be to enhance “regulation and development of the insurance industry”, the government said. Secretary of Financial Services and the Treasury KC Chan also stated that the authority will “reinforce Hong Kong’s position as an international financial center.”

It is clear that companies will continue expanding into Brazil, Russia, India, and China, but only time will tell if they will be able to provide customer service that will maintain a good relationship between these countries and their new insurers.

Insurance Companies Mentioned:

Zurich: Although its headquarters are in Switzerland, Zurich services customers in more than 180 countries, providing insurance for markets in North America, Europe, Latin America, and the Asia Pacific. In North America, Zurich is the second-largest provider of commercial general liability insurance and the fourth-largest commercial property-casualty insurer.

Swiss Reinsurance: As the second-largest re-insurer in the world, Swiss Re maintains a presence on all continents, providing reinsurance for Property and Casualty and Life and Health related issues, as well as risk management services for corporations.

Bajaj Allianz Insurance Company: A joint venture between global insurance giant Allianz SE and Bajaj Finserv Limited, one of the 2 and 3 wheeler manufacturers in the world, Bajaj Allianz offers health, child, and pension policies in more than 1,200 offices across India.

J. Malucelli Seguradora SA is a Brazilian insurance company that provides surety insurance.

Malaysian Assurance Alliance Holding’s Berhad (MAA Bhd) is a financial holding company that provides financial services and insurance in South Asia, dominating in Malaysia while also establishing a presence in Indonesia and Malaysia.

Berkshire Hathaway: Under CEO Warren Buffet, Berkshire Hathaway manages many subsidiary companies, including Geico Auto Insurance, and can also provide financial planning help.

UBF Seguros: is a small Brazilian insurance company that provides agricultural and surety insurance.

Willis Group Holdings: As one of the world’s leading insurance brokers, Willis provides professional insurance services, reinsurance, risk management, financial and human resource consulting, and more in almost 120 countries.

The Travelers Company: One of the largest American insurance companies and the largest writer of US property-casualty insurance, The Travelers Company provides personal, business, financial, professional, and international insurance and ranks 106 on the Fortune 500 list.

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Mainland China Clients Becoming More Important for HK Insurers

At the end of May, The Office of the Commissioner of Insurance (OCI) released provisional statistics detailing the Hong Kong insurance industry’s positive market performance in the first quarter of 2011. One particularly notable development mentioned was the increasing proportion of business accounted for by visitors from mainland China.

Hong Kong – a special administrative region (SAR) of China – is the leading insurance center in Asia, attracting many of the world’s top insurance companies. Hong Kong has the largest number of authorized insurance companies in Asia at 167 and thousands of supplemental agents and brokers. In 2009, the insurance industry’s HK$184.6 billion income (US$23.68 billion), accounted for about 11.3 percent of the Hong Kong Gross Domestic Product.

The total gross written premiums of the Hong Kong insurance industry for the first quarter of 2011 was HK$56.3 billion (US$7.22 billion), which represented a 13.3 percent increase over the corresponding period in 2010. The gross and net premiums of general insurance business rose 11.2 percent to HK$10.3 billion (US$ 1.32 billion) and 8.4 percent to HK$7.0 billion (US$0.9 billion) during this period although underwriting profit reportedly declined from HK$559 million (US$71.7 million) to HK$482 million (US$61.84 million).

According to the OCI, ten percent of all insurance premiums collected were from policies issued to Mainland Chinese visitors. Mainland activity has been particularly apparent in new office premiums, amounting to HK 1.7 billion (US$218 million) in business during the first quarter.

Hong Kong Federation of Insurers (HKFI) reported that demand from Mainland customers would drive between a 20 to 30 percent annual growth rate in the country’s total premiums. Visitors from across the border have already purchased policies this year worth HK$168.3 million (US$21.59 million), or 9.9 percent of the SAR’s HK$1.7 billion (US$218 million)  in total premiums. These figures already amount to more than half of what was paid in premiums by Mainland Chinese clients for the whole of last year. In 2010, The HKFI recorded insurance policies bought by mainland Chinese worth HK$330 million (US$42.34 million), representing 7.5 percent of last year’s overall premiums of HK$4.4 billion (US$564 million).

Thomas Lee Mun-nang, chairman of the HKFI Life Insurance Council, explained in a newspaper interview that Mainland Chinese were becoming an increasingly lucrative source of income for Hong Kong insurance companies.

“Mainlanders are attracted by the variety of insurance products in Hong Kong, but may need to pay a higher premium than local policyholders due to life expectancy and health factors,” the chairman said.

Most policies held by Mainland Chinese in Hong Kong have been in either US or HK dollars. Yuan-denominated policies have been mostly held by speculative locals and accounted for only 6 to7 percent of total premiums last year. This is due to limited investment opportunities with the Yuan. Yuan linked policies in Hong Kong have a short tenure of three to five years and have offered minimal returns of between 1 and 2 percent.

As China has become the second largest economy in the world, a middle class population with some capacity to spend outside its borders has grown to be a foundation of the remarkable economic dynamism lifting the country. This emerging investor class presents significant opportunities to financial markets like those in Hong Kong that are of close proximity and particularly convenient to them. In addition to the China’s gradual capital liberalization, Hong Kong’s insurance industry and professionals will benefit from the recent CEPA agreement to gain greater access to the mainland’s insurance market. HK-based insurance companies that can present innovative, cost-effective and fiscally secure insurance products and services not yet available on the mainland will be rewarded with a tremendous potential client base.

Earlier in the year however, we discussed some of the pitfalls involved in the relationship between the two regions. An influx of Mainland Chinese mothers seeking to give birth in Hong Kong in recent years has placed an undue burden on the SAR’s healthcare system. These women either arrive to escape the mainland’s notorious One Child Policy or to become early participants in Hong Kong’s more robust public services. This practice, known as Maternity Tourism, has Hong Kong authorities scrambling to control the number of pregnant Chinese nationals entering the city.

Organizations Mentioned

The Hong Kong Federation of Insurers

The Hong Kong Federation of Insurers (HKFI) was established on 8 August 1988 as a self-regulatory body of insurers, designed to further the development of the insurance business in Hong Kong. The HKFI is recognized by the Government of the Hong Kong Special Administrative Region as the principal representative body of their industry.

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ACE Group Completes Acquisition of New York Life’s Hong Kong and Korean Holdings

ACE Limited, the Swiss insurer operating in over 50 countries, has successfully completed the acquisition of all shares in both New York Life’s Hong Kong and South Korean wholly-owned life insurance subsidiaries for a combined US$425 million in cash. The purchase agreement between the two conglomerates was initialized in October 2010 and further amended to permit separate closings for NY Life’s Korea and Hong Kong operations. The Korean half of the transaction closed on February 1st for US$75 million and the sale of the Hong Kong operations was finalized April 1st for US$350 million. Purchase was funded exclusively through ACE Limited’s available cash reserves, involving no financing contingency.

ACE already had a strong presence in Hong Kong and South Korea through property and casualty insurance services (P&C) but has been looking for an entryway into the local life insurance markets and growth through the acquisition of established NY Life operations. ACE will incorporate the newly purchased businesses into their existing local infrastructure, which already involve US$2.15 billion in assets, more than 2,400 captive agents and earnings of US$330 million in incremental life insurance revenues. ACE’s preexisting Asian life insurance businesses include operations in China, Indonesia, Thailand and Vietnam. In October the group entered the Malaysia life insurance market through the US$210 million acquisition of Jerneh Insurance.

The Chairman and Chief Executive Officer of ACE Limited, Evan G. Greenberg commented on the deal: “We are pleased to complete this transaction, which adds the important and dynamic market of Hong Kong to our growing international life insurance franchise,” adding that “Together with our recent acquisition of New York Life’s business in Korea, the addition of a life company in Hong Kong expands our presence in Asia and complements the life insurance business we have been growing organically in the region for the last six years.”

ACE’s success in managing international life insurance businesses coupled with their expertise and existing infrastructure within the Hong Kong and South Korean insurance markets will support the company’s growth targets and maintain operational efficiencies through the transition period. Through 2009 New York Life’s Hong Kong and South Korean branches had 2,448 insurance agents, and a combined 234,505 policyholders generating total revenues of US$327 million. The acquisition of NY Life’s East-Asian holdings is projected to substantially boost sales in ACE’s Asian life insurance business (excluding the joint venture with Huatai Insurance Group in China) and diversify their existing premium base.

Speaking at the onset of the deal back in October, New York Life Chairman and Chief Executive Office Dick Mucci explained that the decision to leave the South Korean and Hong Kong markets was part of the company’s operational strategy: “While these are well-established businesses, New York Life has made the decision, as part of a strategic shift, to concentrate on our operations in the U.S., where we have the leading market share in life insurance, and on our markets in Asia and Latin America where we have strong market positions.” The chairman maintained that this transaction would not affect the quality of cover available in the region: “Consistent with our commitment to policyholder safety and security, ACE Group is a respected and well established global insurer with a strong balance sheet and robust ambitions for growth in Asia.”

New York Life continues to maintain operations in India, Taiwan and Thailand. In January, the company announced that it was selling the remaining 25 percent stake it held in it’s Shanghai-based joint venture, Haier New York Life, to Meiji Yasuda Life Insurance. The global life insurance industry still presents opportunities for growth. According to the most recent annual report, in 2009 New York Life derived 21 percent of its life insurance business from international markets.

Insurance Companies Mentioned

ACE Group

The ACE Group is one of the largest providers of commercial property and casualty insurance in the world. With its core operating insurance companies rated A+ for financial strength by Standard & Poor’s and A.M. Best, and with nearly US$78 billion in assets and more than US$19 billion of gross written premiums in 2009, the ACE Group is distinguished by its underwriting expertise, superior claims handling and global franchise, and has a physical presence in 53 countries and commercial and individual customers in more than 170 countries.

New York Life

The New York Life Insurance Company is one of the largest mutual life insurance companies in the United States, and also operates in India, Mexico, Thailand, China and Taiwan. The Fortune 100 Company was started in 1845, and is headquartered in New York, New York. New York Life sells life insurance, retirement income and investment products, as well as long-term care insurance.