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Hong Kong Insurance Report Q2 2008
Business Monitor International, June 2008, Pages: 32
The Hong Kong Insurance Report provides independent forecasts and competitive intelligence on Hong Kongs insurance industry.
As was the case in Q108, the main focus of this report is BMI’s proprietary Insurance Business Environment Rating (IBER). The rating brings together a number of pieces of relevant quantitative data, together with BMI’s Country Risk Rating (CRR). The IBER makes it easier for the insurance sector business environment in a particular country to be compared with the business environment for any other BMI-monitored industry in that country. The IBER also allows an objective and meaningful comparison of the insurance sector business environment between countries. Over the coming months, we will substantially change the format of the BMI insurance reports. In essence, we will focus to a much greater extent on the companies that are active in the non-life and life segments.
Hong Kong’s IBER is 76.5. Relative to other countries in Asia Pacific, it is an attractive insurance market for foreign insurers. Within the region, Hong Kong stands out for its business-friendly environment. Hong Kong’s Q407 GDP figures revealed an unexpected acceleration in growth from the previous quarter. The territory registered real GDP growth of 6.7% year-on-year (y-o-y), up from 6.3% in Q307, buoyed by tight labour market conditions and low costs of credit which ensured domestic demand remained robust. However, going forward real GDP growth will slow, as weaker external conditions weigh on the city’s export sector. We are forecasting economic growth in Hong Kong to slow to 5.6% in 2008, after accelerating to 6.3% 2007. It should especially be noted that service export growth was at 10.5% y-o-y in Q4, compared with 12.6% in Q3. We expect this to slow as well, as a result of the global credit crunch, which will impact on Hong Kong’s financial sector - which makes up the bulk of its service exports.
Over the forecast period, we anticipate that non-life premiums will grow somewhat faster than GDP at 8% annually in local currency terms and by 8% in US$ terms. Life premiums are expected to grow rather more slowly than GDP at 3% annually in local currency terms and by 3% in US$ terms. The key drivers of growth in the non-life segment in 2007-2012 are the anticipated rise in nominal GDP from around
US$204.81bn to US$296.54bn and an expected increase in non-life penetration from 1.58% of GDP to 1.60%. The key driver of growth in the life segment is the envisaged rise in population from about 7.2mn to about 7.6mn in 2012. Hong Kong’s life penetration is expected to decline over that period.
The competitive landscape is marked by massive competition. Hong Kong remains one of the most crowded and competitive insurance markets in the world. Both markets are dominated by large, well-known companies.
The main weakness of Hong Kong’s insurance sector is the viciousness of the competition. Thus the favourable business conditions which have made Hong Kong such an attractive place to invest have led to it receiving quite low scores in terms of potential returns in the non-life sector.
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