Hong Kong insurers may suffer after China’s industry watchdog warns of risks in buying products in the city

CIRC statement may be designed to defend mainland insurers after a rush to buy Hong Kong life policies last year amid a falling yuan.

PUBLISHED : Friday, 22 April, 2016, 7:38pm
UPDATED : Friday, 22 April, 2016, 10:38pm

Hong Kong insurers may be hit hard after a Chinese regulator for the industry warned mainland

residents on Friday about the risks of purchasing insurance products in Hong Kong, a city that became popular last year for mainlanders seeking Hong Kong- or US-dollar policies as the yuan weakened.

Analysts said the warning is to defend local insurers which lost business as a result.

The China Insurance Regulatory Commission (CIRC) issued a statement on its website that said insurance products issued by Hong Kong insurers were not protected by mainland laws. It highlighted the legal fees for any insurance disputes are higher in the city. It also said policies bought in Hong Kong would face exchange-rate risks while Hong Kong has no regulation on dividend payment or cash values.

“Policyholders would not get anything back if they surrendered their Hong Kong insurance policies within two years after the purchase,” the CIRC said. “The Hong Kong Insurance Claims Complaint Bureau can only handle compensation up to HK$1 million.”

The statement came just a few days after China Life issued a profits warning that its first half year result may drop 55 per cent to 60 per cent compared with the same period the year before.

By contrast, AIA, the largest life insurer in Hong Kong, said on Friday that new business in its financial first quarter was worth US$578 million. That’s an annual 36 per cent increase for the three months to the end of February and exceeded analysts’ estimates of 18 per cent.

The contrast in results came after mainlanders spent HK$31.6 billion, or 24.2 per cent of the total new premiums of all life policies sold in Hong Kong last year, up from just 6 per cent in 2009.

Insurers said mainlanders like to come to Hong Kong to buy US- and Hong Kong-dollar policies to escape the exchange loss in light of the yuan’s weakening. The Chinese currency dropped 5.6 per cent against the US dollar last year.

“The CIRC warning shows the mainland regulator wants to defend mainland insurers which lost business to Hong Kong insurance companies when there are an increasing number of mainlanders now buying insurance products in Hong Kong,’ Christopher Cheung Wah-fung, lawmaker for the financial services sector in the city, said.

“We wish the mainland regulator wouldn’t intervene in free-market competition. It should let the customers decide what products suit them best,” he said.

The Hong Kong Federation of Insurers Chief Executive Peter Tam said the CIRC only wanted to give a risk alert to mainlanders when they purchase policies in Hong Kong.

Ben Kwong Man-bun, Ben Kwong Man-bun, executive director of KGI Asia, said the CIRC warning came as the country worried about capital outflows due to the high amount of mainland money going into life policies in Hong Kong.

Beijing in February curbed mainlanders’ ability to use credit cards to pay for their policies in Hong Kong by instituting a US$5,000 cap.

“The warning of CIRC comes as there are serious capital outflow problems in China. It is natural the country wants to discourage overseas insurance purchases,” Kwong said.

An insurance executive who did not want to be named said mainlanders have been big spenders for local insurance policies since last year.

“It would hit sales hard if China further curbs mainlanders’ ability to buy insurance policies here. However, since there are still worries over the devaluation of the yuan against the US dollar, the mainlanders are likely to continue to buy policies in Hong Kong,” he said.