AIA Shares Fall as China Adds Curbs on H.K. Insurance Buying

  • China halts UnionPay card payment for most Hong Kong insurance
  • Move aimed at curbing capital outflows after yuan weakened

AIA Shares Fall on UnionPay Move

AIA Group Ltd. shares slumped after China UnionPay Co. halted credit and debt card payments for most insurance policies in Hong Kong, as regulators crack down on capital outflows from China.

AIA shares declined 5.9 percent in Hong Kong at 12:17 p.m. on Monday, the biggest intraday decline since June 24. UnionPay will suspend the use of its cards by Chinese nationals to pay for all Hong Kong insurance except for accidents, medical coverage and tourism, Bloomberg News reported on Friday. About 50 percent of fiscal first-half sales by AIA’s Hong Kong unit were generated from Chinese visitors, AIA Chief Executive Officer Mark Tucker said in July.

Prudential Plc, which fell 1.9 percent in London trading on Friday, fell 2.4 percent in Hong Kong trading Monday.

The latest curbs will affect more than 20 percent of AIA’s annualized new premiums, a gauge of new policy sales, in Hong Kong, China International Capital Corp. analysts estimated. They
will reduce AIA’s overall new business value, the projected profitability of new policies, by about 5 percent, CICC said in a report.

The new restrictions effectively disallow the purchase of almost all kinds of policies with UnionPay cards, including the popular health policies that usually contain a savings component, CICC said. Mainlanders may resort to paying for smaller policies with cash, using local bank accounts or Visa and Mastercard, it added.

Those methods of payment are more expensive or less convenient, Credit Suisse Group AG analysts said in a client note.

Surprise Devaluation

AIA complies with all guidelines in the processing of applications of life insurance by Chinese visitors in Hong Kong, the company said in an e-mailed statement.

Sales of insurance to Chinese visitors in Hong Kong have surged since August 2015, when a surprise devaluation of the country’s currency, the first since 1994, stoked fears of a further weakening and led citizens to move money offshore. China has been progressively tightening rules governing Hong Kong insurance sales to mainland residents as part of its attempts to curb capital outflows.

Still, Chinese visitors bought a record HK$16.9 billion ($2.2 billion) of insurance and related investment policies in the three months through June, according to numbers released by the Office of the Commissioner of Insurance in Hong Kong.

Skirting Controls

Chinese people have been flocking to Hong Kong to buy insurance policies, which typically come with better service than on the mainland and also offer a way to skirt controls on how much capital they can move abroad. Chinese buyers had used multiple swiping of credit cards to move money overseas through the purchase of insurance policies. Restrictions on their use by those living on the mainland were introduced this year to curb the practice.

The UnionPay move is unlikely to reduce China’s capital outflows by a significant amount, Goldman Sachs Group Inc. analysts led by MK Tang wrote in a note Monday. A much larger amount of China’s stealth capital outflows may involve trading companies keeping part of their net export proceeds offshore, said the report.

The bank estimated capital flight from China accelerated to almost $80 billion in September, with a similar or larger number this month amid a weakening yuan. Further capital account restrictions may lead to greater outflows as Chinese households move money through unregulated channels, the Goldman Sachs analysts wrote.

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