By LU Wenqi, ZENG Lingjun
Ms. Zhang lives in Beijing. As soon as school was out for the summer, she and her daughter hopped on a flight to Hong Kong.
Unlike the old stereotype of mainland visitors, the pair did not immediately begin a rampage through luxury boutiques and then spend quality mother-and-daughter time together over afternoon tea. Instead, they went to a bank.
As soon as she arrived, Zhang opened a local bank account. Then, oblivious to Hong Kong's many world-famous tourist attractions, with the help of a broker, she bought a life insurance plan and deposited a few years' premium in her pristine new account. That's not an insubstantial sum, amounting to several million yuan. A 27-percent discount more than covers FX costs.
Useful access to overseas assets
Hong Kong’s insurance products are in high demand, mainly from small-but-wealthy mainland investors.
The effects of the pandemic are astonishing. New policy premiums came close to HK$10 billion in the first quarter, that's up from around HK$350 million this time last year and accounted for 20 percent of the private banking business in Hong Kong.
“Insurance products in Hong Kong provide mainland investors useful access to overseas assets,” said ZHU Xiaowei, an analyst at UBS. “With dividends, they offer better returns than similar products at home.”
The return on these saving plans disguised as insurance policies can be as high as 6 percent. The best that can be found on the mainland are around 4 percent offered by mainland alternatives.
Insurance broker LI Xi said that Hong Kong insurance was always popular among mainlanders, but demand is different this year.
“Because of the economy, many wealthy people have taken money out of their businesses. They are looking for somewhere else to put it. Insurance is safe. Most US-dollar plans hedge against FX risk. So we’ve signed many big deals,” she said, having personally signed up US$500,000 in new policies last month.
The more expensive the plan, the more popular. Almost 200,000 life insurance plans were issued in Q1, with first-year premiums averaging HK$400,000 – while health plans, the most popular before the pandemic, declined. Middle-class investors, previously the main buyers of the affordable plans, are either already insured or feeling a little cash-strapped.
Insurance companies have come up with all kinds of whistles and bells to attract customers: discounts, waivers and guaranteed returns to name but a few. Some, bizarrely, offer free Covid shots.
Stacks of documents, heaps of demand
Banks in Hong Kong have been increasing interest rates in response to the Federal Reserve. Many offer 3.5 percent or more for short-term accounts. Long-term rates start at 4 percent and can be as high as 5 percent, much higher than the mainland.
Bank of China Hong Kong is opening 70 percent more new accounts than in Q4 last year, mostly for mainland customers. All of them have to bring stacks of documents to prove they meet the minimum asset requirements. The bank is hiring customer service agents this year.
At Standard Chartered Bank new accounts doubled from February to April, and demand has continued into May. Hang Seng Bank and HSBC have extended their opening hours.
Skipping ahead
Even so, customers are showing up at 7 in the morning to beat the crowd. Ms. Zhang is attracted to the high interest rates, but may have been more swayed when her broker offered her a “skip the line” service. Some have paid agents up to 4,000 yuan to skip the line.
To try to compete, mainland banks have come up with mutual funds that invest in assets in Hong Kong and abroad. Nearly 9,000 Bank of China customers in Guangzhou bought a cross-border mutual fund product from February to April.
