China Block Premium Outflow

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. 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.