GuShiio.com ① On the one hand, it will help accelerate the investment and layout of overseas financial institutions in China’s insurance market and partially alleviate the current capital shortage in the insurance industry;
② On the other hand, it is also conducive to the introduction of products and experience from mature insurance markets;
③ Some experts believe that if tens of billions of dollars of capital comes in, or large-scale premiums are leveraged.
Financial Union, February 26 (Reporter Wang Hong)The financial opening-up policy has welcomed major benefits. Today, the State Administration of Financial Supervision recently issued the “Notice on Matters Related to Hong Kong and Macao Financial Institutions ‘Participation in Insurance Companies”(hereinafter referred to as the “Notice”). Starting from March 1 this year, Hong Kong and Macao financial institutions’ participation in insurance companies has been cancelled. The requirement that the total assets at the end of the year should not be less than US$2 billion “has been cancelled.
Industry experts told reporters from the Financial Union that this measure reflects the determination of finance to open up to the outside world and helps attract more capital from Hong Kong and Macao. Some experts also pointed out that on the one hand, the “Notice” will help accelerate the investment and layout of overseas financial institutions in China’s insurance market and partially alleviate the current capital shortage in the insurance industry; on the other hand, it will also help introduce products and experience from mature insurance markets.
A year ago, a study was proposed to reduce the entry threshold for Hong Kong and Macao financial institutions in the Mainland
Specifically, the State Administration of Financial Supervision stated that this measure is to implement the requirements of relevant agreements. The formulation of the “Notice” is an important measure taken by the State Administration of Financial Supervision to expand financial opening up to the outside world in an orderly manner. It will help mainland insurance companies attract investment and shares in high-quality financial institutions in Hong Kong and Macao, further enhance capital strength, optimize equity structure, and is also conducive to deepening opening up with Hong Kong and Macao. Cooperation to promote the long-term prosperity and stability of Hong Kong and Macao.
Tian Lihui, dean of the Institute of Financial Development at Nankai University, told reporters from the Financial Union that this regulation reflects the determination of the mainland’s financial market to further open up to the outside world, helps attract more capital from Hong Kong and Macao, promotes regional financial integration, and consolidates Hong Kong and Macao as an international financial center. Status and promote the high-quality development of mainland insurance companies.
A reporter from the Financial News Agency noted that this measure has been in the making for a long time. From January 23 to 26, 2024, Li Yunze, Secretary of the Party Committee and Director of the State Financial Supervision and Administration, led a delegation to visit Hong Kong and Macao. During this period, Li Yunze said at the 17th Asian Financial Forum that the State Financial Supervision and Administration will continue to promote a higher level of opening up to Hong Kong and Macao under the framework of CEPA, including studying reducing the entry threshold for Hong Kong and Macao financial institutions to participate in mainland insurance companies.
In addition to lowering the mainland entry threshold for Hong Kong and Macao financial institutions, Li Yunze also mentioned measures at the time including continuing to optimize the “Cross-Border Wealth Management Connect” pilot, supporting more qualified investors to participate, and continuously expanding the scope of qualified investment products; further expanding the business scope of Hong Kong and Macao Banks in the mainland. Branch, actively exploring and studying the establishment of bank cards and other businesses by mainland branches of Hong Kong and Macao Banks, and improving the level of convenience for mainland branches of Hong Kong and Macao Banks to serve mainland customers; Study and introduce policies and measures to improve the level of insurance service facilitation in the Greater Bay Area to better meet the cross-border insurance after-sales service needs of residents in the Greater Bay Area; support Chinese banks and insurance institutions to establish regional headquarters in Hong Kong.
It is worth noting that on February 20, the State Administration of Financial Supervision also issued a notice allowing mainland branches of Hong Kong and Macao banks to operate foreign currency bank card business and RMB bank card business for customers other than citizens in China.
How does incremental funds affect the mainland insurance industry? Help alleviate the current capital shortage
What impact does the Notice have on the mainland insurance industry? Industry experts believe that on the one hand, it can alleviate the current capital shortage in the insurance industry, and on the other hand, it can also introduce experience from mature markets.
It is worth noting that under the second phase of the “Second Generation Compensation” project, the overall solvency adequacy ratio of insurance companies has dropped significantly, and insurance companies are facing greater pressure on capital replenishment. The latest data released by the State Administration of Financial Supervision shows that the comprehensive solvency adequacy ratio and core solvency adequacy ratio of the insurance industry at the end of 2024 were 199.4% and 139.1% respectively, down 24.8 percentage points and 10.9 percentage points respectively from the end of the first quarter of 2022.
Especially against the background of falling interest rates and investment fluctuations combined with the implementation of new accounting standards, there is considerable pressure on capital replenishment in the insurance industry. At present, insurance companies mostly replenish capital by issuing capital supplementary bonds and increasing capital by shareholders.
Zhou Jin, PricewaterhouseCoopers ‘China financial industry management consulting partner, told reporters from China Financial News Agency that the “Notice” appropriately lowers the threshold for Hong Kong and financial institutions to invest in insurance companies, which will help accelerate the investment of overseas financial institutions in China’s insurance market and partially alleviate the current capital shortage in the insurance industry.
“On the other hand, it is also conducive to the introduction of products and experience from mature insurance markets to enrich the product supply in the domestic market and improve the operation and management level of domestic insurance institutions.” Zhou Jin also said that the competitive landscape in Hong Kong and Macao insurance markets is relatively concentrated. The head companies are large in size, but the large number of small and medium-sized companies are generally small in size, so many do not meet the standard of total assets of US$2 billion. After lowering the entry threshold this time, these small and medium-sized insurance companies can also participate in investing in the equity of domestic insurance companies.
Hong Kong’s insurance market is relatively prosperous. Especially in recent years, the “insurance craze” from the mainland to Hong Kong has driven rapid growth in policy business. Data from the Hong Kong Insurance Regulatory Bureau shows that the total amount of new premiums created in the first three quarters of 2024 was HK$169.6 billion, a year-on-year increase of 15.7%. The amount of mainland insurance in Hong Kong was HK$46.6 billion; as of February 14 this year, there were 158 authorized insurance companies in Hong Kong.
A reporter from the Financial Union noted that some market views believe that the “Notice” is expected to allow Hong Kong and Macao financial institutions to inject capital in the mainland, allocate assets domestically, and bring incremental funds to the A-share market. In this regard, Zhou Jin believes that returning to the original purpose of the Notice, foreign investment does not directly invest in A-shares, but ultimately depends on the allocation of major types of insurance funds. “If tens of billions of dollars of capital come in, it may leverage tens of billions or even hundreds of billions of dollars in premiums. There will definitely be A shares in these insurance funds allocated.”
