Fearing further yuan weakness, mainland Chinese are buying insurance policies in Hong Kong once again

In first half of 2018, mainlanders spent HK$22.3 billion on insurance policies in the city

PUBLISHED : Saturday, 01 September, 2018, 8:03am
UPDATED : Saturday, 01 September, 2018, 8:03am

Mainland Chinese customers are once again buying more life insurance policies in Hong Kong, according to data released by the Insurance Authority on Friday, amid concerns the yuan might decline further.

China’s yuan has tumbled by more than 6 per cent over the past three months, making it the worst performer among currencies in Asia.

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“The yuan has been weakening since June as a result of the trade war between the US and mainland China. This has contributed to mainlanders buying policies in Hong Kong,” said Chan Pui-leung, chairman of the Hong Kong Federation of Insurers.

“This trend of mainlanders buying Hong Kong insurance is likely to continue in the second half of this year, as the yuan is likely to continue being volatile due to the ongoing trade war. The stock markets in both the mainland and Hong Kong have also been volatile, which will again lead to mainlanders buying insurance policies as these carry lower risks than other types of investment,” said Chan.

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In the first quarter, which witnessed a record decline, mainlanders spent HK$11.83 billion on life insurance policies in Hong Kong, down by 37 per cent from the HK18.8 billion spent a year earlier. In the April to June quarter, the rate of decline slowed down, with mainlanders spending HK$10.5 billion on life insurance policies in the city, which represented a 10 per cent drop from the HK$11.62 billion spent a year ago.

On a half-year basis, mainlanders spent HK$22.3 billion on life insurance policies in Hong Kong, or 26.5 per cent of all new policies sold in the city.

The total number of new life insurance policies sold in the first half of this year was HK$84.1 billion, up 3.9 per cent from a year ago. The total gross general insurance policies premium stood at HK$21 billion, up 6.4 per cent, according to the Insurance Authority.

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The offshore yuan, which is traded outside mainland China, has been on its longest losing streak. It declined for 14 days in a row to go down by more than 6 per cent against the US dollar in June, because of the escalating trade war between the US and China.

The Chinese currency dropped further over the next two months, and traded at 6.8474 yuan per US dollar, down by 10 per cent from a peak on March 27, when it traded at 6.2352 yuan per US dollar.

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Whenever the yuan weakens, mainlanders buy Hong Kong insurance policies as these are issued in US dollars or Hong Kong dollars. The mainland Chinese exchange their yuan to buy these products with an eye on returns from dividend payments as well as currency gains.

In 2016, when the yuan was falling against the US dollar, mainlanders rushed to buy insurance policies in Hong Kong, but stopped doing so in 2017, when the Chinese currency strengthened against the US dollar.