UnionPay cards said barred for some HK insurance purchases

[HONG KONG] The use of China UnionPay Co credit and debit cards to buy insurance products in Hong Kong will be suspended other than for accident and medical coverage, according to insurance brokers with knowledge of the matter.

Banks and UnionPay will monitor non-compliance with the new regulations, according to an internal memo from one insurer seen by Bloomberg. A unit of UnionPay, in a statement on its website, outlined its guidance on payment of overseas insurance products, saying that the use of its cards by mainland Chinese is prohibited other than for accident, medical coverage and tourism consumption.

Regulators have been cracking down on mainlanders' purchases of insurance in Hong Kong as buyers have been eager to move money abroad amid slower economic growth and a weakening yuan.

Capital outflows from China reached US$1 trillion last year, Bloomberg Intelligence estimates, amid a corruption crackdown at home and fears that the currency would continue to weaken.

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.

Chinese buyers had used multiple swiping of credit cards as a way of moving money overseas through the purchase of insurance policies. Restrictions on their use by those living on the mainland were introduced this year to curb the practice.

UnionPay Guidance

UnionPay said it issued the guidance to reiterate rules and ensure legal use of its cards, after its recent monitoring had shown a surge in single-card use for multiple transactions at the same merchant. Each transaction at overseas insurance merchants is subject to a US$5,000 cap, UnionPay said.

Shares in Prudential Plc fell in London trading on Friday after news of the UnionPay curbs, closing down 1.9 per cent at 1,369 pence. The UK insurer has a substantial Asian business, which helped underpin the 6 per cent increase in first-half profit.

Earlier this year, China's State Administration of Foreign Exchange capped purchases of insurance products overseas using UnionPay cards at US$5,000 per transaction. Regulators also moved to limit electronic transfers for purchases to try to control the booming practice.

The most popular insurance policies in the city for Chinese buyers, Hong Kong agents have said, are those that combine a life-insurance element and an investment component.

These can be cashed out after a few years and the money can be used for property investment or other purposes, raising fewer questions about how the money left the Chinese mainland.

BLOOMBERG