8 minute read
Britain in Hong Kong September-October 2023
Today an established International Financial Centre
It was a clear and sunny Wednesday morning in June, when Paul McComb, the British Chamber’s Executive Director and I went over the final preparations for the upcoming panel that was about to start in an hour in the Victoria Suite of the Hong Kong Club.
The Hong Kong Club was founded in 1846 as gathering place for the Taipans (literally “big boss”) of the hongs (British trading houses including household names like Hutchison Whampoa, Jardine Matheson, Swire, and Wheelock-Marden). It was in its historic and iconic building, where my attention was caught by one of the eagles that frequent the Central business district soaring near the top of 88-floor tall IFC building, which saw its light in 1998 (one year after the Handover and during the Asia Financial Crisis).
Hong Kong grew to become the premier International Financial Centre (IFC) as we know it today, on par with the likes of London and New York, in the last century and a half, with the purpose to raise capital for companies and finance their growth plans in Mainland China and the rest of Asia.
As a result, and solidifying its current role as an IFC, Hong Kong built a robust financial services ecosystem, second to none in Asia, and supporting infrastructure of financial institutions (banks, insurers, investment managers), professional services providers (accounting firms, law firms, etc.), regulators (HKMA, HK Insurance Authority, SFC).
Tomorrow a flourishing International Insurance Centre?
To help answer the question whether Hong Kong is also a premier International Insurance Centre (IIC), the British Chamber of Commerce Financial Markets Committee (with a soon to be established Insurance sub-Committee to underscore its importance) curated an expert panel with Christina Bao, HKEX’s Co-Head of Sales and Marketing, Patrick Bowes, Prudential’s Chief of Investor Relations, Fulin Liang, Manulife AVP for Investor Relations in Asia, moderated by myself representing the Financial Markets Committee as its Vice Chair.
It is probably fair to say, Hong Kong, capitalising on Hong Kong’s strengths as an IFC and the earlier mentioned supporting infrastructure in place, is already a mature and vibrant International Insurance Centre with 165 authorised insurers, commanding Asia’s highest and globally the second highest insurance density (i.e., USD 9,700 insurance premium per capita) with an insurance penetration (of close to 20% direct gross premium to GDP) in 2020 You will find fourteen out of the twenty global top insurers present in Hong Kong with three so-called Internationally Active Insurance Groups (IAGs) – AIA Group Limited, FWD Group Holdings Limited, Prudential PLC – calling Hong Kong home with the Hong Kong Insurance Authority (IA) as their group regulatory supervisor.
While the status quo is not an unimpressive feat, Hong Kong should not be resting on its laurels with further untapped opportunities related to the Greater Bay Area (GBA), Hong Kong as a global risk management centre and regional reinsurance hub, or insurancelinked securities (ILS) hub for example catastrophe bonds, which was highlighted on Hong Kong SAR government’s 2023-2024 development roadmap for the insurance sector, as well as an InsurTech innovation hub.
The local Hong Kong insurance industry appears to agree and be onboard with Hong Kong’s untapped potential as the Hong Kong Federation of Insurers (HKFI), which counts the lion share of the 165 authorised insurers in Hong Kong as its members, conducted a member survey and subsequently released a proposal with three key recommendations to help reinvigorate Hong Kong’s status as an IIC.
Risk management Centre of Excellence (CoE) - To position Hong Kong as a professional risk management centre, drawing on its risk capability and expertise and providing capacity to meet the growing insurable needs of the GBA, the Belt and Road and other national strategies.
Source of capital - To position and reinforce the insurance sector’s role as an institutional investor in infrastructure investment in Greater China in the transition journey to a low-carbon economy with capital allocation on ESG instruments The HKFI calls on the Government to facilitate insurance investment into Infrastructure Debt, and Green & Sustainable Finance (GSF) assets under the Hong Kong Risked-Based Capital Regime (RBC).
Talent - To position and promote Hong Kong in attracting enterprises through fiscal incentives and support to set up broking, underwriting and other core business functions in Hong Kong, building international insurance capacity and capability, and cultivating a talent training pathway for local citizens in partnership with renowned academic institutions and the industry sector.
Hong Kong as a Risk Management Centre of Excellence
93% of HKFI members surveyed, stated Hong Kong playing a bigger role within GBA and the Belt and Road initiatives will positively impact the development of the insurance industry in Hong Kong.
To support the potential size of the prize for Hong Kong as an IIC, I wanted to repeat Patrick Bowes’ statement made during our panel session: “According to research by Allianz SE, the expected life gross written premiums in (Greater) China are expected to double from USD 486b in 2022 to USD 974b in 2033.” The GBA market is expected to experience the same growth, if not at an accelerated pace, to close the GBA protection gap, which puts Hong Kong in a pool position to become China’s and the region’s professional risk management hub to meet the growing insurable needs of the GBA, the Belt and Road.
Hong Kong’s Story as an International Insurance Center Brand
85% of HKFI members surveyed, stated Hong Kong improving its international branding and positioning will positively impact the development of the insurance industry in Hong Kong.
Hong Kong has the second highest insurance density (i e , USD 9,700 insurance premium per capita) with an insurance penetration (of close to 20% direct gross premium to GDP) in 2020, second only to the Cayman Island.
A significant growth driver of the Hong Kong insurance industry is the Mainland Chinese Visitor (MCVs) customer base, including from the GBA, who generally perceive the Hong Kong insurance industry as mature, with well-known international insurer brands providing access to more sophisticated products. COVID-19 reinforced the perception with access to cross- boundary reliable medical services becoming more front of mind.
One of the questions raised at the panel session was that while it is clear Hong Kong and Mainland Chinese residents buy insurance products and services as evidenced the insurance density and insurance penetration, but why do they not invest as much in insurers listed in Hong Kong? A number of the world’s largest insurers by market capitalisation are listed in the Pearl of the Orient, such as AIA, China Life, and Ping An, with a market capitalisation each exceeding USD 100b, Prudential, and others.
The HKEX introduced the dual counter model, where designated shared listed in both HKD and RMB counters can be traded and settled in HKD or RMB, where a number of the aforementioned insurers are on the designated list.
The Hong Kong SAR government, HKEX, insurance regulators, the insurance industry and insurers with their expert Investor Relations teams, with support from professional actuarial and risk consulting firms, public relations firms, should embark on a concerted effort to educate and promote the general investor public on the strategic importance and role of the insurance industry, and the (financial) performance of listed insurers, which in turn will attract future talent to embark on a career in insurance.
Hong Kong as an Insurance Talent hub
93% of HKFI members surveyed, stated Hong Kong deepening its local and international talent and human capital pool will positively impact the development of the insurance industry in Hong Kong.
One of Hong Kong’s advantages is not only its insurance density but also its actuary density, where Hong Kong is probably is one of the highest globally. Actuaries, data scientists, marine insurance and other designated professionals, are on Hong Kong’s Talent List, under which companies can hire international professionals without providing proof that no suitable candidates were available locally with a relatively short working visa application processing time.
Hong Kong’s academia – Hong Kong has four universities in the global top 100, i.e., University of Hong Kong, the Chinese University, Hong Kong University of Science and Technology, and Hong Kong Polytechnic University, should work collaboratively and structurally with the Hong Kong SAR government, the insurance industry and insurers, professional bodies such as the Hong Kong Federation of Insurers (HKFI), the Actuarial Society of Hong Kong (ASHK), and professional risk and actuarial services firms to create supply and demand of insurance professionals to unlock Hong Kong’s potential as an International Insurance Hub.
