A report that China’s foreign exchange regulator is tightening restrictions on purchases of insurance products oversees is really a “mild negative” for Canada’s Manulife Financial Corp., based on analysts at RBC Dominion Securities Inc.
Lead analyst Darko Mihelic noted that the article published by Bloomberg News, citing sources with understanding of the matter, was “unsubstantiated.” But he explained the restrictions described could have an impact on Manulife’s growing business in Asia.
According towards the Bloomberg report, purchases of insurance products using debit and charge cards of UnionPay, China’s banking card organization, will be capped at US$5,000 per transaction beginning in a few days. The news service says China is trying to stem the flow of people to Hong Kong to purchase insurance, high is typically better service and fewer control over how much capital they move abroad.
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RBC estimates the new cap could have a potential impact on about eight percent of Manulife’s sales in Asia.
About one-third of Manulife’s earnings come from Asia, and management has indicated that start up business, primarily in Asia, “will drive 60 to 70 percent of growth in insurance core earnings, to satisfy the company’s 2016 core earnings target of $4 billion,” Mihelic wrote.
Shares of Manulife slipped $1 to shut at $18.21 around the Toronto Stock market .
Regulatory data through the third quarter shows that about 21 percent of Manulife’s Hong Kong annual premium equivalent sales are “offshore,” meaning the policyholder doesn’t have a Hong Kong identity card, the RBC report said. Other insurers operating in Hong Kong could be harder hit, Mihelic wrote, noting the regulatory filings show about 58 per cent of Prudential PLC’s start up business was “offshore.”
Prudential shares touched a two-year low Tuesday following the Bloomberg report.
The news report said purchases of insurance policies by mainland tourists in Hong Kong reached HK$21.1 billion in the first nine months of this past year, after climbing 64 percent in 2014.
