Yuan life insurance policies to remain popular in Hong Kong despite depreciation

Dearth of investment options, rather than currency depreciation, is seen as the main challenge facing growth of yuan products in HK

PUBLISHED : Monday, 19 May, 2014, 3:22am
UPDATED : Monday, 19 May, 2014, 5:54am

The depreciation of the yuan in recent months did not hurt sales of yuan life insurance policies as buyers are eyeing the longer-term growth of the currency, according to industry players.

BOC Group Life Assurance chief executive Terry Lo Kin-wing said half the new life insurance sales at his company still came from yuan policies during the first quarter, similar to Hong Kong dollar policy sales.

Last year, about two-thirds of the company's life policy premiums came from sales of yuan policies. It sold new life policies worth HK$6.2 billion, up 29 per cent from 2012. Of those, HK$3.9 billion in premiums were from sales of yuan life policies. The rest was from US and Hong Kong dollar policies.

"I do not think policyholders would stop buying yuan policies just because the yuan has depreciated against the US or the Hong Kong dollar over the past few months. Life insurance policies last for five, 10, 20 years or even the whole life. Policyholders are not short-term investors and they will eye returns of the yuan 20 or 30 years later. They would not be affected by the short-term fluctuations in the currency," Lo told the South China Morning Post.

The onshore yuan rate has lost 2.9 per cent this year in the spot market, while the offshore rate dropped 3 per cent. The depreciation is partly due to investors turning more bearish on the mainland's economic outlook, given questions over shadow banking activities.

A weaker yuan would hurt the buying appetite for yuan products as investors are worried about valuation loss. Lo, however, said most policyholders who bought yuan policies were not purely betting on currency gains but they might need the currency for families on the mainland.

To make sure policyholders feel more comfortable about yuan policies, he said BOC Group Life would offer an exchange guarantee for those who bought the policies within the following month. The insurer would pay the valuation differences caused by yuan depreciation of up to 300 basis points for 30 days after the policy is sold.

Beijing has not yet allowed the yuan to be fully convertible, but since 2009 it has relaxed many policies to encourage international use of the currency to settle trade or buy various investment and insurance products denominated in yuan.

About a dozen of life insurance companies in Hong Kong have launched yuan life products. Last year, the city sold HK$5 billion worth of such policies, accounting for 10 per cent of the total. US dollar policies made up 35 per cent and 54 per cent were Hong Kong dollar polices. The rest was in other currencies.

Chan Kin-por, a legislator for the insurance sector in the city, said he expected yuan life insurance policies to remain popular due to their higher investment returns. Yuan policies offered a guaranteed return of 2 to 3 per cent, whereas some Hong Kong dollar policies offered just 1 to 2 per cent, he said.

The government has not yet released figures for the first quarter of sales of yuan policies, but Chan said industry players had reported stable sales.

The challenges for yuan policies, Chan said, were more on the investment side as there was a dearth of yuan products for insurance companies to invest in. They could only invest in offshore yuan bonds. Some firms such as BOC Group Life have quotas under the qualified foreign institutional investors scheme for them to invest in the mainland's bond and stock markets.

"If Beijing allows more flexibility for overseas insurers to invest in the mainland markets, we can provide a better return to yuan policyholders," Lo said.