Ban “Inversion”! Exclusive response from the Hong Kong Insurance Regulatory Bureau: Starting from July 1, the “defensive” limit on the demonstration interest rate of Hong Kong dollar dividend policies will be 6% higher

(Photo source: Visual China)

Blue Whale News, February 21 (Reporter Shi Yu)Hong Kong’s dividend insurance is ushering in an important moment.

Relevant persons from the Hong Kong Insurance Regulatory Bureau responded exclusively to the Blue Whale News reporter that starting from July 1, the demonstration interest rate of Hong Kong’s dividend insurance may be tightened. The maximum interest rate for Hong Kong dollar policies will be set at 6%, and the 6.5% limit will also be locked in for non-Hong Kong dollar policies. This adjustment is intended not only to prevent excessively aggressive investment return assumptions in the market, but also to directly attack the sales chaos in the craze of mainland tourists coming to Hong Kong for insurance. It may promote the market to carry out an anticipatory management offensive and defensive campaign around Hong Kong insurance.

When wealth on paper returns to rationality, will Hong Kong insurance, which is considered a trump card for cross-border asset allocation, create a new situation?

Hong Kong dividend policy plans to set a demonstration interest rate cap, which will be implemented from July 1

Hong Kong media reported that based on the Hong Kong Insurance Regulatory Bureau’s earlier plan to set a cap on the demonstration interest rate of dividend policies, Executive Director (long-term business) Lu Yuguo recently stated that the measure target is planned to be launched on July 1, with the cap on Hong Kong dollar policies set at 6%, or 6%, and the cap on non-Hong Kong dollar policies set at 6.5%, or 6.5%, which will be updated at least once a year.

The so-called demonstration interest rate is the possible income level that the insurance company displays to customers during sales, and is not different from the actual income.

Blue Whale News verified the authenticity of the news with relevant persons from the Hong Kong Insurance Regulatory Bureau. It stated that the Insurance Regulatory Bureau conducted industry consultations on certain regulatory requirements related to the sale of dividend policies, including studying the bonus interest rate explained by interest rates. Set a cap to prevent excessively aggressive investment return assumptions in the market, promote healthy competition among insurance companies, and promote sustainable development of the insurance industry.

In addition, the Hong Kong Insurance Regulatory Bureau also revealed to reporters that it is reviewing the remuneration structure of intermediaries and studying the establishment of a one-stop dividend realization rate comparison platform to collect opinions from the industry to ensure that customers are treated fairly and further strengthen policy holders. Protection.

Compared with mainland dividend insurance products, although the income of Hong Kong dividend insurance products is also composed of guaranteed income and non-guaranteed income, the difference is that the yield of the guaranteed part of Hong Kong dividend insurance is lower, usually no more than 1%, but the expected yield of the non-guaranteed part is generally higher.

On the premise of low guaranteed returns, various Hong Kong insurance companies open an open book to demonstrate interest rates. Judging from the demonstration income data of Hong Kong’s dividend insurance products in recent years, in 2023, it will mainly be concentrated in the range of 6%-7%. Starting from 2024, it has once shown a trend. The trend has increased, with some reaching 7.2%-7.3%. The current expected income of the main products of the head institutions is mainly concentrated at 7.12%-7.19%.

However, judging from the actual situation, there are many cases where the guaranteed return is low rather than the guaranteed return (expected return) is high. There is dividend insurance that attracts customers with high expectations, but there is a gap in the final achieved yield, which induces customers to complain.

According to requirements, insurance companies are required to disclose the dividend insurance realization rate, which is the ratio between the non-guaranteed benefits actually distributed and the non-guaranteed benefits expected at the time of sale.

“In recent years, the Hong Kong Insurance Regulatory Bureau has continued to strengthen disclosure requirements for dividend insurance realization rates, requiring insurance companies to disclose long-term historical data to enhance transparency. The setting of the interest rate cap in this demonstration is consistent with previous trends and will help reduce information asymmetry. Li Wenzhong, deputy director of the Institute of Rural Insurance of Capital University of Economics and Business, analyzed to reporters.

With the expected rate of return lowered and the disclosure requirements of Hong Kong regulators more stringent, it will be easier for insurance companies to reach dividend commitments, and the dividend realization rates of different products will be more objective.

Demonstration behind the setting of interest rate caps: defensive limits”

The demonstration interest rate, which has been rolled out by the market, will face a cap setting. What is the consideration of the regulatory authorities?

First of all, corresponding to the investment side, Xu Yuchen, a founding member of the China Association of Actuaries, analyzed to reporters that the setting of the interest rate ceiling lower than market performance is a defensive or predictive reduction. rdquo;

Judging from the specific situation of dividend insurance in Hong Kong, many insurance institutions have promised to allocate no less than 90% of the distributable earnings to policy holders. This distribution mechanism emphasizes the principle of policy holder priority, but it also means that It is directly linked to the investment income of insurance companies and is obviously affected by market fluctuations.

“The current global economy is facing multiple challenges such as high inflation, interest rate fluctuations and geopolitical conflicts, and long-term return expectations in capital markets tend to be conservative. The investment income of Hong Kong insurance companies is highly dependent on global allocation, and setting a demonstration interest rate cap may reflect the supervision’s prudent prediction of long-term investment returns. Li Wenzhong also raised this view.

In other words, this is an expectation management of consumers.

A relevant person in charge of a Hong Kong insurance institution told reporters that from the perspective of risk control, the previous demonstration interest rate was higher, which easily made consumers have too high expectations for income. If the actual income was not reached, disputes would easily arise, and the demonstration interest rate cap will make consumers ‘expectations more reasonable. rdquo;

After all, not all product realization rates can reach 100%. According to industry statistics on 254 products from the top 10 Hong Kong insurance companies, in the context of high demonstration interest rates, about 40% of the products will have a dividend realization rate of less than 100% in 2023.

“Risk disposal, upper limit setting will help promote mainland customers to reset assessmentsframework

One of the sources of concern that earnings fall short of expectations or disputes may arise is mainland visitors. In the past two years, mainland visitors have become popular in Hong Kong to take out insurance. Data shows that in the first three quarters of 2024, mainland visitors accounted for 27% of new policy premiums for personal life insurance in Hong Kong, and non-Hong Kong residents outside the mainland accounted for about 37%.

In the past two years, against the background of the continuous decline in domestic interest rates, the high demonstration interest rate of Hong Kong’s dividend policies has attracted a large number of mainland tourists, especially many people without insurance sales qualifications. They have used referral methods to bring mainland tourists to Hong Kong for insurance and obtain high referral fees, including many front-line sales personnel in the mainland.

Attracted by high referral fees, unlicensed agents in the mainland illegally promote and recommend Hong Kong insurance, which also involves many potential risks, such as legal risks, exchange rate risks, risk of surrender losses, etc., laying hidden dangers.

Blue Whale News reporter learned from interviews with the industry that a number of insurance intermediaries have issued internal notices on strictly prohibiting the promotion and recommendation of Hong Kong insurance. Recently, some institutions have reiterated relevant regulations, emphasizing that internal personnel are required to check whether there is any publicity and sales involving Hong Kong insurance or overseas insurance in their respective media and circles of friends. Once discovered, it will be dealt with seriously in accordance with regulatory requirements and company systems. rdquo;

As Hong Kong’s dividend policies are about to set a demonstration interest rate cap, we should remind them again that what to deal with is to deal with a wave of suspension of sales.

However, the reporter combined industry feedback and found that the concerns were not obvious. First of all, unlike the previous wave of suspension sales in the context of product switching in the industry, the switch of the demonstration interest rate cap this time is not linked to the direct income of the policy, but may promote a further increase in the dividend realization rate.

“The setting of 6% for Hong Kong dollar policies and 6.5% for non-Hong Kong dollar policies not only ensures rationality, but also allows Hong Kong insurance to remain competitive in the market.& rdquo; The relevant person in charge of an insurance institution in Hong Kong mentioned above supports the setting of the maximum limit of the dividend insurance policy. Short-term enthusiasm for insurance may heat up, forming a small purchase peak within six months. In the long run, Hong Kong’s insurance advantages of multiple currencies and asset isolation will remain attractive. ldquo; Especially high-net-worth customers, they are relatively more interested in asset allocation and risk isolation, and are not too sensitive to adjustments in demonstration interest rates.” rdquo;

But overall, this action will help mainland customers restructure the evaluation framework, focusing more on the insurance company’s actual investment ability, dividend realization rate and asset-liability matching, rather than simply comparing and demonstrating interest rate values, thereby realizing rational expectations, many industry insiders pointed out to reporters that this will also help Hong Kong insurance institutions achieve a cycle of continuous redemption and steady operation.