Hong Kong Insurance Industry Records Double Digit Growth in 2010

Posted on Oct 04, 2011 by Sergio Ulloa (G+)

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.