15 August 2016 Insurance

Headwinds for Hong Kong life insurers despite strong growth

The Hong Kong life insurance industry has experienced significant growth in new business over the last couple of years, but will be challenged to grow consistently in the future due to weakened domestic demand and new measures imposed by the Chinese government, according to an AM Best’s special report.

The report, titled ‘Hong Kong’s life business facing headwinds on new growth’, claims that while the majority of the developed life insurance markets in Asia have been facing bottlenecks in growth, Hong Kong has reported double-figure growth each year since 2010.

This is in terms of new business premium in direct individual businesses and has been the fastest-growing life insurance market among developed markets within Asia.

The report notes that premium on new business from Mainland China visitors (MCV) to the Hong Kong life insurance market increased to HK$31.6 billion ($4.1 billion) in 2015 from HK$4.4 billion ($57 million) in 2010 and accounted for 24 percent of new individual business, compared with 7.5 percent in 2010.

Hong Kong insurance agents are not permitted to sell policies directly in Mainland China, but Chinese visitors can buy policies from Hong Kong agents with policies to be signed in Hong Kong, the report said.

Strong demand from offshore policyholders was a main trigger of the recent strong new business growth in the Hong Kong life insurance market, fuelled by a need to diversify assets overseas on a personal scale.

However, government scrutiny, which includes a cap on cross-border transactions through credit and debit cards, will make it more difficult for MCV’s to transfer funds out of China for overseas premium payments.

Multinational insurers that have been relying on their agency force to generate business from offshore policyholders or MCVs over the last few years may see slower premium growth in the future.

AM Best predicts the growth rate to slow down as the Hong Kong domestic market is already one of the most penetrated markets in Asia. Life insurers to raise the guaranteed rate to attract new customers may also be a challenge due to the current low interest rate environment, according to the report.

Life insurers may have to lengthen their product duration in order to offer more attractive rates, concludes the report.

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