Hong Kong life insurers face uphill battle as pressures persist

Growth disruptions are expected to cause a 5-10% dip in total premiums.

A plunge in new-business volumes looms over Hong Kong life insurers despite new measures to prevent it as disruptions continue to plague growth prospects, reports S&P Global Ratings.

Total premiums are expected to dip 5-10% YoY in 2020, assuming that new-business activity dwindles over 30% and a stable renewal rate. New business connected to mainland Chinese visitors is expected to nosedive 70% due to stricter border controls.

Revenue and profits will be bogged down by challenging operating conditions aggravated by the coronavirus pandemic, a flat yield curve and capital market volatility, analyst Judy Chen said.

There is “heightened pressure” in the industry as illustrated by the Hong Kong Insurance Authority allowing products to be offered without face-to-face contact, she added. Large players with established digital platforms are expected to benefit more from this temporary rule, to the detriment of smaller competitors.

The sharp rout in investment markets and a global recession will likely hurt profitability, with return on assets estimated to halve to 0.7% this year. Life insurers are likely to bolster reserve provisions against flat yield curves which will tighten capital buffers.

"The regulator's responsiveness to the changing market landscape in Hong Kong is proactive but is no panacea and won't prevent a market dip for Hong Kong insurers in 2020," Chen added. "But a prolonged pandemic could increase insurance awareness, and may help the longer-term recovery of the sector."

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