China’s Economic Worries Spur a Different Kind of Shopping Spree
Mainland tourists are flocking to Hong Kong in search of investment-focused insurance. One of the big beneficiaries: HSBC.
China’s economy is struggling, but one line of business is booming: selling insurance in Hong Kong to travelers from mainland China.
In recent months, mainland tourists have packed the offices of Hong Kong insurance agents and formed long lines at banks. Sales of investment-focused insurance policies have roared back to life after Beijing ended strict pandemic controls and the border with Hong Kong reopened.
Demand tends to rise when doubts swirl about China’s economic health.
Customers from the mainland use insurance policies in Hong Kong to diversify away from investments in yuan, which has fallen sharply against the dollar this year. Policies in the city are denominated in U.S. dollars or Hong Kong dollars, which are pegged to the greenback. U.S. stocks have also rallied this year, while Chinese stocks are in a slump.
Among the beneficiaries: HSBC HSBC 0.38%increase; green up pointing triangle. The pickup in business is welcome, as China’s slowdown poses a challenge to other parts of the London-based lender, which counts Hong Kong and other Asian economies among its biggest markets.
HSBC wants to reduce its dependence on traditional, interest-rate-sensitive areas such as lending to companies and households. The bank has ventured into a market traditionally dominated by big insurers such as AIA Group and Prudential. That’s not a coincidence: HSBC Chairman Mark Tucker served as CEO of both companies.
HSBC shares have soared this year as central banks lift rates to fight inflation.
But being so reliant on interest payments raises doubts about how HSBC will perform if and when rates go back down. By serving the wealth needs of Asia’s growing middle class, the bank hopes to generate more fee income instead.
Recent insurance buying may be driven partly by demand that couldn’t be satisfied during the pandemic. But there are also longer-term growth drivers across Asia, where many countries lack robust social-welfare programs, said Fahed Kunwar, an analyst at Redburn Atlantic in London.
“Insurance is seen as very important to offer security to people in these countries, which then allows them to invest more,” Kunwar said. HSBC’s Hong Kong insurance business had grown rapidly before the pandemic and appears to be resuming that growth, he added.
HSBC’s income from life insurance in Hong Kong jumped by about $200 million in the three months through June compared with a year earlier, the bank said last month, boosting its broader wealth division. Nearly one in three new policies recently sold by HSBC in Hong Kong were bought by mainland Chinese customers, the bank’s finance chief, Georges Elhedery, told investors.
Across the city, the insurance business is racing ahead of where it stood prepandemic. New premiums from policies sold to mainland Chinese visitors to Hong Kong totaled the equivalent of about $4 billion in the first half of this year, up more than 20% from the same period in 2019, according to the city’s Insurance Authority.
Prudential and AIA have highlighted surging inflows from mainland China. The value of new business for AIA in Hong Kong more than doubled in the first half from last year, aided by “substantial business from mainland Chinese visitors,” said Chief Executive Officer Lee Yuan Siong.
Banks in Hong Kong have benefited more broadly. Mainland clients need local checking accounts to pay policy premiums in U.S. or Hong Kong dollars, and are also piling into dollar-denominated time deposits offering far higher rates than they can get at home.
China has strict controls on capital outflows, allowing individuals to move no more than $50,000 a year offshore. Buying insurance in Hong Kong is a way for Chinese citizens to put that money to work in long-term investments globally.
The insurance policies sold in Hong Kong that are popular with mainland Chinese customers are in effect savings products that double as life insurance and policies for critical illnesses, according to insurance agents and brokers.
Customers pay premiums for a number of years. Insurance companies invest the premiums into different assets to earn returns over a longer period. Customers later use the money for retirement, their children’s education or deferred annuities.
Two years ago, HSBC pledged to spend more than $3.5 billion over five years on building its Asian wealth business. Since then, it has hired thousands of staff and struck a series of deals. In mainland China, it has hired 1,400 wealth managers across at least six cities to sell insurance and advise on investments, through a branchless wealth business known as Pinnacle.