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Hong Kong was once a favourite luxury shopping destination for mainland Chinese visitors. This year, fewer visitors are not only making shorter trips to Hong Kong but spending less. But there is an exception, somewhat less glamorous than designer watches: insurance.
The Hong Kong insurance industry posted a 12.2 per cent increase in total gross premiums to $21.1bn in the first quarter of this year, according to provisional statistics released by the city’s Insurance Authority. Total revenue premiums of active policies increased by 14 per cent, mostly driven by individual life insurance and individual retirement annuity businesses which increased by nearly a fifth.
Mainland visitors are the driving force behind this increase, with insurance sales to this group up nearly two-thirds to $2bn in the first quarter.
They are already boosting sales at AIA, which counts Hong Kong as its biggest market, with the value of new business in the city up 43 per cent, pushing up its value of new business margin to 64.3 per cent. Rival Prudential’s new business profit in Hong Kong has also been growing rapidly in the past year.
There are several reasons for the strong growth, despite the fact that the number of mainland Chinese travellers remains significantly lower than pre-pandemic levels. Chinese investors are losing their appetite for Chinese equities, which are down about 40 per cent from their 2021 peak, as well as local property. That has meant a stampede into insurance policies, which in some cases guarantee principal for more than a decade after buying the policy.
Hong Kong’s insurance policies, especially those that offer dividend payments, have also been popular with investors in other parts of Asia — especially countries that have lower interest rates than Hong Kong, where the base rate is at 5.75 per cent.
Increasing demand for more healthcare options offers a further boost. While China has a free public healthcare system, wealthier locals increasingly seek private healthcare insurance, one of the fastest-growing categories for insurers.
Shares of AIA are down nearly a third in the past year. But at 14 times forward earnings it trades at more than double the multiple of rival China Life Insurance, the largest mainland insurer. The premium reflects attractive long-term prospects. Ageing populations in the region — including in China, where an estimated 400mn people will be aged 60 and over by 2035 — should help sustain Hong Kong’s position as a higher-yielding destination for the insurance industry.
