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Manulife Expanding in Hong Kong and China

Posted on Nov 14, 2011 by Sergio Ulloa ()

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 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.
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