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AIA, Manulife slump on concern China to curb insurance sales

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(Bloomberg) — AIA Group Ltd. and Manulife Financial Corp. shares slumped in Hong Kong amid concern that China may place restrictions on the buying of overseas insurance.

Hong Kong-based AIA sank as much as 9.4 percent, the biggest intraday drop since September 2011, after people familiar with the situation told Bloomberg that China’s currency regulator will cap the use of UnionPay bankcards to buy insurance products overseas. Manulife lost 6.2 percent earlier. Prudential Plc, which operates in 12 markets across Asia, tumbled as much as 7.5 percent after its London shares slid 8.2 percent on Tuesday.

The move comes as China steps up administrative measures to slow capital outflows that Bloomberg Intelligence estimates reached $1 trillion last year. The tightening marked a reversal after years of easing that spurred global use of the yuan, a trend that turned on China when speculative bets against the currency offshore jumped.

“The offshoring insurance practice is regarded as one effective way for mainland Chinese to transfer” their yuan savings into Hong Kong or U.S. dollar assets, Tang Shengbo and Cao Haifeng, analysts at Nomura Holdings Inc., wrote in a Feb. 3 report. “We may see increasing risk from potential regulatory changes on limiting mainlanders’ offshoring insurance purchases.”

Premium Income

AIA derives more than a fifth of its revenue from Hong Kong. The company’s growth in new business value, a measure of projected profitability, may fall by about 5 percentage points as a result of the cap, the Nomura analysts said. It will probably remove about 30 percent of AIA’s total weighted premium income in Hong Kong, Bolun Tang, an analyst at China International Capital Corp., wrote in a separate note.

Stephen Thomas, an AIA spokesman, had no immediate comment, while a Prudential spokesman declined to comment.

The immediate impact of the UnionPay cap on Manulife would be “minimal” as mainland Chinese visitors to Hong Kong only represented “a small part” of its insurance business, the company said in an e-mailed statement. The Toronto-based company derived almost half of its September quarter revenue from Asia, data compiled by Bloomberg show.

The three insurers’ Hong Kong-listed shares all closed more than 4 percent lower on Wednesday.

Restricted Merchants

China’s State Administration of Foreign Exchange is capping the purchases of insurance products overseas using China UnionPay Co. debit and credit cards at $5,000 per transaction effective Thursday, people familiar with the matter said Tuesday. Purchases through UnionPay cards have been exempt from capital controls that limit Chinese individuals to bringing out a maximum of $50,000 per year.

Chinese citizens have been flocking to Hong Kong to buy insurance policies, which typically come with better service than on the mainland and also offer them a way to skirt controls on how much capital they can move abroad.

Insurance belongs in a category of so-called restricted merchants that are subject to a $5,000 payment cap per transaction, UnionPay International said in an e-mailed reply to questions. An investigation by the payments provider found that some overseas merchants hadn’t applied the restricted classification to insurance, and UnionPay is asking them to comply with regulations, it said.

Money Laundering

Purchases of insurance policies by mainland visitors in Hong Kong reached HK$21.1 billion ($2.7 billion) last year through September, following a 64 percent surge in 2014, according to the city’s industry regulator.

Annie Choi, Hong Kong’s former commissioner of insurance, warned in April last year that the high cash values of such policies being purchased in Hong Kong could be used for money laundering.

“As the term of these policies may range from a few years to several decades, a lot of changes can take place long before a policy matures or the occurrence of the assured event,” she said in a speech to a financial crimes conference. “These changes, including advance premium payment, policy loan, lump sum top up, policy assignment, changes in the beneficiary or early surrender, may make it possible for a life insurance policy to become an unnoticed tool for money laundering.”

The SAFE move also adds to evidence that President Xi Jinping’s government is working with increased urgency to rein in risks to the financial system. Besides the action on insurance products, the head of the banking regulator has also warned bank executives that their jobs are on the line unless they control risks.

— With assistance from Sarah Jones and Sheridan Prasso.

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