Hong Kong Stock Exchange

Hong Kong insurance sales to be hit by UnionPay’s curbs on policy purchases

Analysts say buyers can always use other credit cards

PUBLISHED : Wednesday, 03 February, 2016, 10:59am
UPDATED : Wednesday, 03 February, 2016, 5:18pm

Hong Kong’s insurance companies are poised to be suffer after credit card operator UnionPay announced it will cap overseas insurance product purchases at US$5,000 from Thursday, a move that Beijing adopted to stem capital outflows and make it tougher for mainland Chinese to buy insurance policies from local insurers.

“It’s set to hit the insurance sector in the city hard and reduce the sales because UnionPay is the major credit card used by mainlanders who are big customers for local insurers,” Louis Tse Ming-kwong, director of VA Brokerage, said.

According to government statistics, the premiums from mainlanders purchasing life insurance policies in Hong Kong hit HK$21.1 billion in the first nine months of last year, representing 21.7 per cent of new premiums from all new policy sales. That was up sharply from HK$3 billion or 6.4 per cent of all new policy sales in 2009.

The news battered insurance stocks as they slid 3.46 per cent on Wednesday in posting the biggest losses by sector in the Hong Kong market.

AIA, the largest insurer in Hong Kong, fell more than 8 per cent at one stage before trimming the loss to close 4.88 per cent weaker at HK$38.95. Prudential declined by up to 7.33 per cent before settling 4.47 per cent down at HK$143.3, Ping An lost 3.23 per cent to close at a one-year low at HK$32.95, Manulife dropped 5.07 per cent to conclude at HK$101.20 and China Life dropped 4.19 per cent to HK$17.36.

However, Credit Suisse analyst Charles Zhou said the overall impact of the Union Pay move should be manageable.

“First, the restriction only applies to the amount per transaction, not the number of transactions per day,” Zhou said in a research note on Wednesday. “Thus, the same amount can still be purchased by increasing the number of transactions. For example, a US$100,000 policy can be purchased with 20 transactions.

Second, mainlanders can purchase via Visa or Master[Card] instead of UnionPay, with extra fees. Third, per discussion with AIA agents, the UnionPay of seven banks in cooperation with AIA (ICBC, CCB etc) are not affected by the US$5,000 cap, and their daily limit is HK$1 million.”

Purchases through China UnionPay cards have been exempt from capital controls that limit mainland individuals to bringing out a maximum of US$50,000 a year. Therefore, some insurers advertised their products as a way to evade capital controls and increase US dollar assets for mainlanders, Zhou said.

Chan Kin-por, the legislator representing the insurance sector, said mainlanders would still be able to buy insurance policies in Hong Kong.

“Many mainlanders like to purchase US dollar and Hong Kong dollar policies in Hong Kong due to the worry of depreciation of yuan,” he said. “If they buy the polices in the mainland, most of them are in yuan, but most life policies sold in Hong Kong are in US dollar or Hong Kong dollar, which would help the mainlanders to benefit from the exchange rate.”

The yuan has depreciated 0.73 per cent against the US dollar this year after a fall of 5.67 per cent last year.

Peter Tam, chief executive of the Hong Kong Federation of Insurers, said the mainlanders would not be discouraged from buying Hong Kong insurers’ life policies just because of the credit card policy change.

“The mainlanders like to buy life policies, retirement plans from Hong Kong insurance companies as they want to diversify their investment and Hong Kong has more products for them to choose from. This advantage would not be affected by the new UnionPay policies,” Tam said.