New rules likely to slash HK life insurers' growth momentum

More stringent rules have been introduced.

It has been observed that the introduction of more stringent rules governing the ways life insurers underwrite and sell their non-linked policies are likely to moderate insurers' growth dynamics in the coming one to two years.

According to a release from Fitch, the new rules might also lead to changes in some insurers' operating processes. Solid capital buffers and sound operating margins, however, will continue to underpin the credit strength of Hong Kong insurance sector.

Fitch expects uncertainty in the movement of Chinese yuan against the US dollar to reduce the attractiveness of yuan-denominated life insurance policies. New life policies issued in yuan, in terms of annualised premium equivalent (APE), declined by about 16% on a year-on-year basis in 3Q15.

Here's more from Fitch:

Fitch expects keen competition as a result of abundant underwriting capacity to constrain general insurers' capacity to improve their operating margin. Pricing for the employee compensation (EC) line is likely to remain soft while the underwriting deficit from motor third-party liability insurance could persist.

The overall underwriting margin of non-life insurance sector in Hong Kong is likely to remain healthy, however, due to the continued earnings
contribution from other non-statutory business such as property damage insurance. The sector's combined ratio amounted to 91.3% for 3Q15 (2014: 89.6%).

Visitors from Mainland China will remain the key source of growth for new life insurance business. New life insurance policies as measured by APE sold to tourists from Mainland China increased by 43.2% in 3Q15 on year-on-year basis. Unless the number of visitors contracts substantially, the demand from Chinese buyers is likely to remain robust in the short term.

The stable sector outlooks primarily reflect Fitch's expectation that both the life and non-life sectors will maintain sound operating profitability despite high volatility in the stock market.