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Hong Kong Monetary Authority (HKMA)

Policies linked to investments not faring well in HK

PUBLISHED : Thursday, 07 June, 2012, 12:00am
UPDATED : Thursday, 07 June, 2012, 12:00am

Hong Kong insurers have sold fewer yuan-denominated insurance policies and investment-linked products this year as a result of poor market sentiment, according to the Hong Kong Federation of Insurers (HKFI).

Total sales of investment-linked policies dropped 29.5 per cent in the first quarter to HK$3.96 billion. In comparison, non-investment-linked products increased 34.1 per cent in the first quarter year on year, to HK$15.06 billion.

This meant 78 per cent of life insurance policies sold in the first quarter were non-investment-linked, for which policyholders receive a low guaranteed return.

The investment-linked products allow policyholders to invest in different funds, and shoulder any gain or loss. Sales of such policies soared to HK$60.04 billion when the Hang Seng Index rose to a record high in October 2007 - three times those of traditional insurance policies, which totalled HK$20.31 billion.

Sales fell in 2009 during the financial crisis to HK$15.06 billion, about half those of traditional policies. Investment-linked policies have stayed less popular since then.

HKFI chairwoman Agnes Choi said poor sentiment amid the euro-zone crisis had made investors less willing to take on risk. 'This is not just about insurance. Other investment products are also finding it hard.'

Sales of yuan-denominated policies dropped in the first quarter by 40 per cent year on year.

'Expectations about yuan appreciation are slowing this year,' said Thomas Lee, deputy chairman of HKFI. 'In addition, there are an increasing number of yuan-denominated investment products that add competitive pressure to sales of yuan insurance products.''

Yuan-denominated policies were popular in the last two years as people bet the value of the yuan would keep rising after gaining 30 per cent against the US dollar since 2003. But the yuan has stayed flat against the dollar this year.

Yuan deposits in Hong Kong stood at 552.4 billion yuan (HK$675.8 billion) at the end of April after dropping for a fifth straight month, according to the Hong Kong Monetary Authority. Deposits were 12 per cent lower than the peak of 627.3 billion yuan recorded on November 30. Analysts think the downward trend will continue.

But Choi expects yuan liberalisation will continue in light of Beijing's goal of making it a global currency.

'We have seen China allowing overseas insurers to invest in the mainland market through the QFII [qualified foreign institutional investor] scheme, which should help to develop yuan insurance products in Hong Kong.''

Separately, Choi said the institute would work closely with the government to discuss plans to set up an insurance authority, as well as an insurance protection fund, which she said would have a great impact on the industry.