Hongkong Insurance Report Q1 2007

Key Insights On The Insurance Sector Of Hong Kong

Projections For 2006 And Drivers Of Growth - Non-Life Segment

At this stage, we are looking for non-life premiums to remain stagnant in local currency terms in

Figures published by Hong Kong's insurance regulator - the Office of the Commissioner of Insurance (OCI) - indicate that non-life premiums in the first three quarters of 2006 were virtually the same as they had been in the same period of 2005. Essentially, decreases in premiums for motor vehicle and property damage insurance were offset by fairly small increases in other lines of business. We are not looking for any growth in non-life premiums in 2006 as a whole. We had previously been looking for non-life penetration to rise from 1.29% of GDP in 2005 to 2.00% in 2010. We thought that the growth would come mainly from offshore business. The latest figures from OCI suggest to us that our projections may have been a little optimistic. Accordingly, we have trimmed the forecast non-life penetration for 2010 to 1.60% Projections For 2006 And Drivers Of Growth - Life Segment At this stage, we are looking for life premiums to rise by 23% in local currency terms in calendar-year 2006.

Figures published by Hong Kong's insurance regulator - the OCI - indicate that life premiums rose by almost 19% in the first three quarters of 2006. Accordingly, we suggest that it is reasonable to look for 20% growth in premiums in 2006 as a whole. Growth has been driven by the expansion in individual single premium business. We had previously envisaged that life density would remain at around US$2,200 per capita, which is where it was in 2005. This is a high number even by the standards of East Asia, where savings rates are high.

The latest figures suggest that Hong Kong's people (and, perhaps, mainland Chinese who have savings in the city) see insurance as a particularly attractive investment opportunity. Accordingly, we are now looking for life density to rise to US$2,800 per capita by 2010. Nevertheless, we would be surprised if the growth in life premiums did not slow a little in the coming years. Economic Environment Hong Kong's real GDP growth rebounded to 6.8% year-on-year (y-o-y) in Q306, after a disappointing 5.2% y-o-y rise in the second quarter. The economy continues to be supported by strong domestic demand, while exports showed robust growth following a downturn in the second quarter. In addition, overseas shipments remained resilient through October-December, growing by an average 12.0% y-o-y, despite a slowing US economy. As such, Hong Kong will likely post strong full-year growth for 2006. Going forward, while we expect export growth to moderate over the coming months, as external demand softens with the slowing global economy, Hong Kong should continue to post solid growth in 2007.