Mainland China Clients Becoming More Important for HK Insurers

Posted on Jun 16, 2011 by Sergio Ulloa (G+)

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.