Finance

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

China's push to slow the exodus of capital from its shores is hurting shares in some of the world's top insurers. But investors selling stock in AIA and London-based Prudential on news that Beijing has imposed controls on mainland buyers of premiums in Hong Kong may be getting ahead of themselves.

Prudential, which operates in 12 markets across Asia, tumbled as much as 9 percent Tuesday, the most since March 2010, after people familiar told Bloomberg that China's State Administration of Foreign Exchange plans to cap the use of UnionPay bankcards for the purchase of insurance products overseas at $5,000 each time. Hong Kong-based AIA, which up until 2010 was part of AIG, slumped 9.4 percent in early trade Wednesday and is down 16 percent for the year.

Taking a Policy Hit
China's plan to limit UnionPay purchases of overseas insurance policies have been more bad news for AIA and Prudential

UnionPay is China's main processor of bank cards and the vehicle through which mainland visitors have been piling in to insurance policies in Hong Kong. The city's policies have a two-pronged allure: If they're not sold in U.S. dollars, they're denominated in Hong Kong's currency, which is pegged to the greenback and so has appreciated as the yuan began its descent late last year. Secondly, they're cheaper, considering Hong Kong's higher life expectancy.

So even as mainlanders desert Hong Kong's luxury stores, they're snapping up more and more insurance policies in the city. (An added bonus to Hong Kong's economy is that they have to physically visit to do so.) Chinese visitors purchased $2.7 billion of premiums in the nine months ended Sept. 30 and made up almost 22 percent of buyers, data from the Office of the Commissioner of Insurance show. The yuan's souring fortunes late in that period saw a spike in demand, according to brokerage CICC, which estimates more than 35 percent of all policies sold in Hong Kong in 2015 were to mainland visitors.

Priority Premium
Life insurance premiums being sold in Hong Kong to mainland Chinese have been rising
Source: Office of the Commissioner of Insurance, Bernstein
* Data for the first nine months of 2015

A UnionPay cap should, therefore, spell bad news. About 10 percent of AIA and Prudential's sales in Hong Kong were to mainland Chinese in the third quarter but the city's influence is bigger than those numbers suggest. AIA gets 30 percent of its annual premium equivalent, a measure of life insurance sales, from Hong Kong, while for Prudential, that figure is about 20 percent, Bernstein analyst Linda Sun-Mattison says. Hong Kong margins are also higher than average.

A closer look, however, shows China has actually left its insurance-hungry citizens a degree of spending leeway.

Although average life insurance premiums in Hong Kong range from $3,000 to $7,000, mainlanders typically spend $3,000 to $4,000, Sun-Mattison says. The SAFE cap would, at most, trim sales growth at the duo by just 1 percent, according to Bernstein.

Price You Pay
Source: Office of the Commissioner of Insurance, Bernstein

At the end of the day, mainlanders will find a way to get their money out somehow, and against this backdrop, Beijing's UnionPay limits seem half-hearted. People wanting to use insurance as a way of safeguarding their funds could always turn to bank transfers, for example. Or insurers could simply ask for payments in smaller installments.

SAFE's $5,000 cap isn't the Draconian measure shareholders are making it out to be. Business may not be brisk in Hong Kong's boutiques but it's sure to remain so for insurance companies in the city.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Katrina Nicholas at knicholas2@bloomberg.net