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Hong Kong Insurance Report Q1 2009
Business Monitor International, March 2009, Pages: 99
BMI's Hong Kong Insurance Report provides independent forecasts and competitive intelligence on Hong Kong's insurance industry.
As anticipated, after exceeding expectations in the first quarter, Hong Kong's economic growth slowed markedly in Q208. Preliminary national accounts data put Hong Kong's real GDP growth at 4.2% yearon- year (y-o-y) in April-June, down from a revised 7.3% y-o-y in Q108 (previously reported as 7.1%). On a seasonally adjusted quarter-on-quarter (q-o-q) basis, Hong Kong's real GDP contracted by 1.4% q-oq – its first quarterly fall since Q203 – however this must be viewed against the stellar Q1 performance. The data put overall growth in H208 at 5.8% y-o-y. In light of deteriorating growth prospects – not only across the developed world, but also in mainland China – we have revised down our 2008 and 2009 growth forecasts for Hong Kong since our last quarterly Business Forecast Report. We are now expecting the territory's real GDP to expand by 4.6% in 2008 (down from 5.0%), with growth slowing to 4.1% in 2009 (previously 4.8%). The Hong Kong government has retained its growth forecast of 4-5% for 2008.
The deteriorating external environment, as the fallout for the US sub-prime mortgage-induced financial turmoil spreads, poses a key threat to Hong Kong's economic performance in 2009. The slowing global economy will dampen demand for Hong Kong's goods, reducing export earnings and hampering growth. A downturn in business activity will feed through to the labour market that, combined with declining property and stock market prices, will further erode household wealth and consumer confidence. Furthermore, while it is not our core scenario, a marked downturn in the Chinese economy would have a significant impact on Hong Kong. Positively, China has pledged to help Hong Kong weather global economic turmoil by speeding up infrastructure projects and safeguarding food supplies. Beijing said in October that it would safeguard food supplies to Hong Kong to relieve inflation pressure in the territory, expedite infrastructure projects and support small and medium-sized businesses. Beijing also plans to further relax visa restrictions to allow more mainland Chinese to travel freely to Hong Kong, potentially boosting tourism in the territory.
Since the last quarter, we have made two major changes to the data in this report. First, we have – to the greatest extent possible – incorporated hard figures that have been made available by the regulator(s) and trade association(s) in each country. In some cases, therefore, we have begun to include numbers that pertain to the development of the insurance sector through the early stages of the global financial crisis. Second, we have extended our forecasts out to 2013. In all cases, we have reviewed the key growth drivers – non-life penetration and life density – which we had incorporated in our forecasts.
The Global Financial Crisis is likely to affect the various segments of the global insurance industry in different ways. In many countries – especially in Europe – the coming recession points to softness in the non-life segment. In many cases, the numbers of policies may fall: there should be downwards pressure on premiums. By contrast, the main problem for the life segment – in almost all countries – is the extreme volatility of financial markets. Over the longer term, though, the fortunes of life insurance will recover – thanks to the secular growth of organised savings in most countries. China, where the larger insurance companies continue to achieve double-digit growth in premium income, is a good example of this. Some
particular niches should also do well in the current environment, such as legal liability insurance. In the Asia Pacific, we profile 23 companies. These are AEGON, AIG, Allianz, Aviva, AXA, Cardif, Fortis, Generali, Groupama, HDI-Gerling, HSBC Insurance, ING Group, Liberty Mutual, Manulife, MetLife, Prudential Financial, Prudential plc, QBE, RSA, Sun Life Financial, The Hartford, Principal Financial Group and Zurich Financial Services. We estimate that, over the course of 2008, total premiums in Hong Kong rose by 26% to HKD212,314mn. Non-life premiums rose by 6% to HKD27,014mn, while life premiums rose by 30% to HKD 185,300mn.
Between now and the end of the forecast period, we expect that annual non-life premiums will grow by HKD13,263mn, while annual life premiums should increase by HKD25,021mn. Growth in non-life premiums should be driven by the general growth in nominal GDP plus a rise in non-life penetration from the current level of 1.54% to 1.60%. Growth in life premiums should be driven by the change in the overall population and a rise in life density from US$3,080.77 to US$3,500.00 per capita. BMI’s Insurance Business Environment Rating is 76.5.
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