Hong Kong Insurance Market Keeps Pace

Posted on Dec 05, 2011 by Sergio Ulloa (G+)

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.