Insurance capital in Renminbi (RMB) currency of Hong Kong insurers will enjoy diversified investment channels on the mainland when the Financial Services Development Council (FSDC) implements its proposal.

Some Hong Kong insurers have branches on the mainland. They operate RMB insurance business, but they have limited investment channels for the RMB insurance capital collected on the mainland.

Under these new proposed rules by the FSDC, the investment channels for RMB insurance capital can be broaden for the Hong Kong insurers. Although Hong Kong insurers already collect RMB premiums on the mainland, they cannot invest them, due to restrictions, as their counter-parts do on the mainland.

However, details of the new FSDC proposed rules, which have been submitted to Beijing for approval, are not released yet.

The RMB insurance capital proposal is one of three specific policy recommendations for Hong Kong insurance companies to deepen their mainland business. The proposal aims to "lower the threshold for Hong Kong insurance companies entering the mainland" as well as to "expand the setting up of wholly-owned insurance agency companies beyond Guangdong Province".

"I believe the Hong Kong insurance participants will enthusiastically welcome the proposals, especially for the proposed relaxation on Hong Kong insurance companies' investment channels on the mainland for RMB insurance capital," said Sally Yim, an insurance analyst at Moody's.

"Many Hong Kong life insurance companies have sold large blocks of RMB policies over the past few years, (but) they only have limited investment channel in RMB-denominated assets," Yim said.

Separately, Mak Kwong-yiu, deputy CEO and executive director from Convoy Financial Services Ltd, a Hong Kong-listed independent financial adviser, said, "I forecast (that) the proposals will receive muted responses from Hong Kong insurance companies due to their weak competence in mainland market."

But Mak, who is also eager for more investment channels of RMB insurance capital, said that currently most investment channels on the mainland are short-term, and the return on investment is very low. He said the demands in the long-term investment channels for RMB insurance capital on the mainland is allowing investment in mainland infrastructure construction and mainland bonds market.

Similarly, Yim forecast Hong Kong insurance companies would look for good quality fixed income securities issued in the mainland to match their RMB denominated policies. She expressed, "the duration is usually five to 10 years to match the duration of their liabilities. The companies may also want to invest a small amount into A-shares for diversification and yield purposes."

In the FSDC's insurance-related report, except for relaxing investment channels, it also proposes to lower the threshold for Hong Kong insurance companies entering the mainland. It suggests that the relevant thresholds be lowered to, respectively, at least RMB 2 billion ($326 million) of assets, not less than 20 years of operating experiences, and a cap of 50 percent of share capital in a joint venture insurance company on the mainland.

Mak said, "The 20 years of operating experiences are the biggest obstacle for Hong Kong insurance companies rather than the 2 billion yuan of assets."

With regards to the relaxation on the restrictions on insurance companies to form joint ventures, Yim believed this may open the door for only a few more insurance companies in the market to enter the mainland as the impact is not that significant.

In respect of its timetable forecast, Mak is more optimistic. "I think there is a high probability for the proposals to be carried out soon," Mak said. Although Mak expected the implementation date will come quickly, he thought the proposals will not have negative effects on the mainland insurance market.

"The mainland insurance market is monopolistic and Hong Kong insurance companies have big difficulties in stepping into the mainland market," Mak expressed.

An insurance market participant, who declined to be named, said, "The pattern of the mainland insurance market has already formed and is staying stable now. It is difficult to break the mould of mainland insurance."

celia@chinadailyhk.com

(HK Edition 09/12/2014 page8)