HK-Mainland travel boosts life insurers | Insights | Bloomberg Professional Services

This analysis is by Bloomberg Intelligence Industry Analyst Steven Lam. It appeared first on the Bloomberg Terminal.

Strong tourists arrivals in Hong Kong during the Labor Day holiday, also known as Golden Week, and a consensus-beating 1Q GDP bode well for our view that the city’s new annual premium equivalent can rise by 68% in 2023. Prudential’s 4x jump in its Hong Kong new APE in 1Q and AIA’s strong new-business value growth reinforce our earlier assumption that they can double their new APE this year in the city.

HK life insurers can get sales boost with easier travel permits

Easier application for travel permits by mainland citizens to visit Hong Kong and Macau should give a significant boost to an already-strong recovery in the growth of life insurers’ new annual premium equivalent (APE), led by AIA, Prudential, China Taiping and FWD. Starting May 15, mainland citizens are no longer restricted to their household registration (or “Hukou”) when applying for travel permits, the National Immigration Administration said on May 11. That’ll make it easier for migrant workers in large cities, a source of premium-mass clients for insurers, to apply for entry to the southern China cities.

That may help Hong Kong life insurers to beat expectations of a 60% rise in new APE this year, a weighted average of growth based on a poll of 25 insurers during the Bloomberg Insurance Forum in Hong Kong on April 26.

Golden Week visitors give Hong Kong a boost

The Labor Day holiday for mainland China and Hong Kong could not only be a key barometer of the city’s tourism, hospitality and retail sectors, but also a good gauge of life-insurance sales to mainland customers. Hong Kong’s life industry had an average of 35% of their new annual premium equivalent from mainland visitors in 2016-19, and that customer segment accounted for an even bigger share of business at peers such as AIA, Prudential, HSBC and China Taiping.

Hong Kong recorded a daily average of about 125,000 mainland visitors during the five-day Labour Day holiday (April 29-May 3), or 77% higher than the daily average during April 1-28. Before the pandemic, Hong Kong received an average of 117,000-140,000 mainland visitors a day from 2015-19.

Very strong start in Hong Kong

Strong 1Q results from AIA and Prudential suggest Hong Kong could be the main driving force behind their new-business values at the group level in 2023, and possibility beating consensus’ forecasts for the full year as well. Prudential’s NBV in Hong Kong doubled in 1Q while its new APE jumped fourfold in the quarter. This led to a 30% rise in Prudential’s group NBV and a 35% increase in its group new APE. AIA recorded a 28% rise in group NBV while its group new APE climbed by 34%, excluding exchange-rates effects.

Hong Kong’s 1Q GDP also grew faster than expected to 2.7%, vs. consensus’ 0.5%. Bloomberg Economics raised its annual forecast to 5.2% on May 2, vs. its February projection of 3.2%.

2023 APE set to rebound on border reopening

Hong Kong life insurers’ new annual premium equivalent (APE) could jump 68% in 2023, driven by the release of pent-up demand from mainland customers and their desire to diversify assets as well as prepare for studying or living overseas. The impact of a surge in Covid cases had largely faded by the end of 1Q while air-transport capacity might rebound to 60% of pre-pandemic readings by 3Q and about 80% by 4Q, data from Cirium show. Improving sentiment toward the economy, stocks and property might also drive sales of long-term policies to Hong Kong residents.

More than 7,000 mainland visitors traveled to the city daily by air on average during the last week of March, more than double the 3,000 daily average at the end of January, Immigration Department data show. That’s equivalent to about 55% of daily arrivals in 2019.

Bigger average ticket size drives sales

Hong Kong life insurers’ sales to mainland visitors might rely more on larger per-case size in the near term, before flights can normalize later this year. Average new premiums from mainland customers jumped to HK$5.8 million in 4Q22, 4.3 times the value from a year earlier, or 5.5 times the sales to onshore clients. Meanwhile, the average size of new regular-pay premiums of mainland visitors also rose 160% to HK$215,000 in 4Q22, or 5.4 times that of onshore customers. That’s why we believe new premiums in 2Q and 3Q might be supported by wealthier individuals on strong pent-up demand, despite the fact that scheduled seat capacity between the mainland and Hong Kong might resume to only 65% of 2019 numbers by September, and 93% by December, based on Cirium data.