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Local pivot offsets loss of mainland Chinese business for this US$60B life insurer

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What a difference a few years can make to your business.

“Up until the end of 2019, roughly 40% of our customers’ premium inflow was derived from non-resident Chinese customers,” Edward Moncreiffe told Asian Private Banker. And before the pandemic, distribution through-third party brokers was higher than from the HSBC brands.

“Now, clearly that non-residents market has gone,” the CEO of HSBC Insurance (Asia) and HSBC Life (International) said. He recalled how it started to become smaller in 2H19 following the social unrest and the reduction in tourist numbers. Then the pandemic hit, and the business “literally disappeared” in early 2020. “The last couple of years have been challenging for the insurance industry.”

Hong Kong’s insurance market has shrunk by almost 40% in the two years following the COVID-19 travel restrictions that choked off the flow of U/HNWIs from mainland China, according to a July survey by Deloitte and BOC Life.

The value of new standard premia was HK$79 billion in 2021. That was a touch higher than the HK$78 billion recorded in 2020, but still represented a 37% fall from the HK$126 billion figure in 2019.

Reinventing the business

Following the closure of the boundary between Hong Kong and China nearly three years ago, HSBC Life began relying on Hong Kong’s U/HNWIs to grow its business. By offering them multiple insurance products, it managed to offset the loss of mainland Chinese business with a sharp increase of inflows from Hong Kong-based customers, he explained.

“The value of new business (VNB) grew 57% in Hong Kong in 1H22 and we distributed insurance products to HNWIs mainly through our own brands — asset management unit, commercial branches and private bank channel.“

In Hong Kong and Macau, the life insurance unit currently uses around 1,500 intermediaries, a number which did not see significantly decrease over the past two years. There are plans to grow the team.

Giving clients access to institutional heft

HSBC Life has AUM of over US$60 billion and plays an important role as an institutional investor. In times of market volatility, it is able to transfer such capacity of its investment-related insurance products to clients.

In Hong Kong, unless you are an UHNW customer, you are unlikely to be able to access those [institutional] types of investment opportunities,” Moncreiffe asserted. “We enable customers to access these investment opportunities via our institutional scale. We wrap it up in an insurance product through a strategic asset allocation, which means customers can access this upside opportunity while enjoying downside protection.”

He cited as example the ‘Ultra Wealth Goal’ products, which require assets of at least US$500,000. For non-leveraged products, the internal rate of return is about 5.1- 5.5%. Obviously, when using higher leverage, the this number can become significantly larger, in some cases up to 6.9%-7.3%, he shared.

Chinese middle class as growth driver

The Hong Kong government on Monday announced that the mandatory quarantine period for Hong Kong arrivals has been shortened from seven to three days, which appears a step in the right direction towards freer travel between Hong Kong and mainland China.

Moncreiffe is confident that the drivers of economic growth will return: there’s a large and growing middle class in China that looks at offshore wealth management as a core part of their long-term planning. He is adamant that the single best vehicle for offshore wealth management is a US dollar-dominated, Hong Kong issued insurance product.

He believes that we can look forward to a bloom at some point in the future, adding that one good thing that came out of the pandemic experience is a greater awareness of the need to be protected.

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