Posted on Jun 01, 2012 by Sergio Ulloa
Hong Kong's Office for the Commissioner of Insurance
(OCI) has released provisional statistics of the city's insurance sector for the first quarter of 2012.
Hong Kong, recently named the world's most competitive economy
in the IMD World Competitiveness Ranking report, has a vibrant financial services industry in which the insurance sector plays a major role. According to the report from the city's OCI this role is still vitally important in contributing to the overall strength of the territory's financial clout.
An indication of the relative health of the city's insurance market can be seen in the top line numbers; total HKSAR insurance premiums for the first quarter of the year came in at a staggering HK$ 62.8 billion (US$ 8.9 billion). This figure is an increase of 11.7 percent over the same period in 2011.
General Insurance lines were the biggest contributors with net premiums increasing by 6.4 percent to HK$ 10.9 billion (US$ 1.4 billion) and gross premiums rising by 8.6 percent to HK$ 7.6 billion (US$ 929 million) over their Q1 2011 numbers. Total underwriting profit for general insurance lines rose by an almost unbelievable margin, climbing from HK$ 482 million (US$ 62 million) in Q1 2011 to HK$ 853 million (US$ 109 million) in Q1 2012.
Hong Kong has long been considered an oversaturated insurance market due to the city's relatively small population of only 7 million people and the number of large, international brand name insurers present in the local industry. However, the numbers contained in the OCI's report reveal that there are still, very real growth prospects present for insurance providers, agents and brokers within the domestic market.
In tandem with general insurance lines, direct insurance business also posted strong growth figures for the first part of 2012 with gross premiums in direct business increasing by 10.5 percent to HK$ 8.4 billion (US$ 1.1 billion) and net premiums gaining 11.1 percent to HK$ 6.3 billion (US$ 811 million) over the same reporting period in 2011.
According to the OCI, direct business is primarily being driven by General Liability lines, which includes Employee Compensation (EC) coverage, in addition to Accident and Health Business including Hong Kong Medical Insurance. Hong Kong based analysts have speculated that a rise in the uptake of locally available health insurance coverage is, in part, being spurred by constricting availability of healthcare services within Hong Kong's public medical system and the system's lowered levels of financing over the last 5 years - despite Hong Kong's high ranking in the IMD ranking report the city still lags many other nations in terms of public healthcare expenditure.
Accident and Health product lines saw gross premiums increase to HK$ 3.2 billion (US$ 412 million) while net premiums rose to HK$ 2.7 billion (US$ 347 million).
The only insurance line which did not experience the same type of growth in 2012's first quarter were Pecuniary Loss products, which actually fell 14.7 percent to HK$ 303 million (US$ 39 million) in gross premiums and dropped 39.5 percent to HK$ 126 million (US$ 16 million) for net premiums. Pecuniary Loss lines include Mortgage Guarantee products, which have been adversely affected by a major slowdown in the Hong Kong real estate market.
However, Pecuniary Loss lines represents one of the few dark spots in an otherwise gleaming report. Underneath overall premium increases across the majority of insurance businesses are indications that the city's underwriters are in for a stellar year.
Direct Business underwriting saw a major profit for the first quarter, increasing from HK$ 370 million (US$ 47 million) in 2011 to HK$ 634 million (US$ 81 million) in 2012, and Marine and Ship insurance has bounced back from a disappointing 2011, where the product lines saw a loss of HK$ 121 million (US$ 15 million), to a strong HK$ 27 million (US$ 3.4 million) profit so far in 2012. The OCI indicates that improved claims procedures and customer claims experience was a key factor in the rejuvenation of Ships business.
It's not just Ships business which is seeing the benefit of refined claims procedures; both Motor Vehicle and Accident and Health business lines have experienced the benefit of improving claims experiences, which has helped the underwriting profit for both these lines of coverage.
The underwriting profit for Accident and Health business lines increased from HK$ 85 million during Q1 2011 to HK$ 137 million (US$ 17 million) in Q1 2012, while Motor business saw underwriting profits increase from HK$ 2 million (US$ 257,706) to HK$ 45 million (US$ 5 million) over the same reporting period. Again, this is mainly due to a refinement in these lines' claims handling, pointing to significant upside for all locally situated insurers, across all product types, should they choose to refine their claims methodology.
There is good news on the Long Term product front as well, premiums for Long-Term In-Force products rose by 12.9 percent over the first quarter in 2011, coming in at HK$ 51.9 billion (US$ 6.6 billion) in quarter 1 2012. Premium revenues for Life and Annuity Non-linked plans came in at HK$ 36.2 billion (US$ 4.6 billion), a 20.9 percent increase over Q1 2011, while Linked Life products (along with Pecuniary Loss devices) actually saw a contraction of 6.3 percent with premium revenues standing at only HK$ 11.5 billion (US$ 1.4 billion).
With the vibrancy of the Hong Kong economy, and the healthiness of the first Quarter figures, it is increasingly looking like the Hong Kong insurance industry is set to record a bumper year for growth. With business up, ever increasing foreign investment, and the fact that the city is now standing at the pinnacle of the economic system, the growth in the HK insurance sector represents the growth of Hong Kong as a whole; this Asian financial juggernaut is going to keep rolling on.