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AIA, Manulife slump on concern China may curb insurance sales

[SHANGHAI] 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.

[SHANGHAI] 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 6.7 per cent as of 9:53 am local time, the most since Aug 24, after people familiar with the situation told Bloomberg that China's State Administration of Foreign Exchange will cap the use of UnionPay bankcards to buy insurance products overseas. Manulife lost 5.6 per cent. Prudential Plc, which operates in 12 markets across Asia, tumbled 8.2 per cent in London on Tuesday, the most since March 2010.

The move comes as China steps up administrative measures to slow capital outflows that Bloomberg Intelligence estimates reached US$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 US dollar assets, Tang Shengbo and Cao Haifeng, analysts at Nomura Holdings Inc, wrote in a Feb 3 report.

"We may see increasing risk from potential regulatory changes on limiting mainlanders' offshoring insurance purchases."

The currency regulator is capping the purchases of insurance products overseas using China UnionPay Co debit and credit cards at US$5,000 per transaction effective Feb 4, people familiar with the matter said on Tuesday.

Purchases through UnionPay cards have been exempt from capital controls that limit Chinese individuals to bringing out a maximum of US$50,000 per year. Chinese people have been flocking to Hong Kong to buy insurance policies, which typically come with better service than on the mainland and also offer them a way to skirt controls on how much capital they can move abroad.

Insurance belongs in a category of so-called restricted merchants, that are subject to a US$5,000 payment cap per transaction, UnionPay International said in an e-mailed reply to questions. An investigation by the payments provider found that some overseas merchants hadn't applied the restricted classification to insurance, and UnionPay is asking them to comply with regulations, it said.

Purchases of insurance policies by mainland visitors in Hong Kong reached HK$21.1 billion (S$3.86 billion) last year through September, following a 64 per cent surge in 2014, according to the city's industry regulator.

Annie Choi, Hong Kong's former commissioner of insurance, warned in April last year that the high cash values of such policies being purchased in Hong Kong could be used for money laundering.

"As the term of these policies may range from a few years to several decades, a lot of changes can take place long before a policy matures or the occurrence of the assured event," she said in a speech to a financial crimes conference. "These changes, including advance premium payment, policy loan, lump sum top up, policy assignment, changes in the beneficiary or early surrender, may make it possible for a life-insurance policy to become an unnoticed tool for money laundering." The Safe move also adds to evidence that President Xi Jinping's government is working with increased urgency to rein in risks to the financial system. Besides the action on insurance products, the head of the banking regulator has also warned bank executives that their jobs are on the line unless they control risks.

Below are other measures taken recently by Chinese regulators:

Shang Fulin, chairman of the China Banking Regulatory Commission, told an internal meeting last month that banks would be forced to restructure, inject new capital or change their senior management if key risk indicators fall outside "reasonable ranges," people familiar with the matter said Tuesday. Those indicators include bad-loan coverage and capital adequacy ratios, Mr Shang told the meeting, the people said.

China's central bank has told lenders it will require greater control over the amount of wealth management product funds they give to brokerages and other financial institutions to manage, people familiar with the matter said on Tuesday. The People's Bank of China told banks it will also impose more limits on the amount of proprietary funds managed by other institutions, and that it will tighten control of leverage taken on when buying bonds, the people said.

The central bank said on Tuesday it will allow banks to cut the minimum required mortgage down payment to 20 per cent from 25 per cent for first-home purchases to the lowest level ever as it steps up support for the property market. A rising stockpile of unsold new homes is hampering government efforts to spur investment expanding at the slowest pace in more than five years.