What’s so good about Hong Kong insurance?

In recent years, Hong Kong insurance has become popular among mainland residents and has become the focus of discussion in the wealth management paper media in China and Hong Kong. In the first half of 2016, the premium amount of new insurance policies purchased by mainland residents in Hong Kong was HK$30.1 billion, a year-on-year increase of 116%. The records of large-amount insurance policies in Hong Kong’s insurance market are constantly being refreshed by mainland high-net-worth customers. Policies worth tens of millions are commonplace, and insurance companies have long queues of policyholders at the door every weekend.

While local residents in Hong Kong continue to lament that mainlanders are getting richer and richer, more and more middle-class families from the mainland are pouring into Hong Kong to purchase overseas insurance priced in US dollars. Existence is justified, and there must be more deep-seated reasons behind the hot sales of Hong Kong insurance. The author will take the hot sales of Hong Kong insurance as an entry point, summarize the characteristics of Hong Kong insurance from the perspective of asset allocation, analyze the motivations of mainland policyholders for insurance, and give tips on existing risks.

1. Characteristics of Hong Kong insurance

Compared with mainland insurance, the main characteristics of Hong Kong insurance are:

1. The premium calculation basis is different

The average life expectancy of mainland residents is about 75 years old, and that of Hong Kong residents is 85 years old. In Hong Kong, the mortality rate is lower than that in the Mainland, and the incidence of serious diseases is also lower than in the Mainland. The calculation of insurance premiums in Hong Kong is based on Hong Kong’s local population mortality and major disease morbidity rates. Therefore, the insurance company has a low claim trigger ratio, a corresponding increase in income, and the policyholder's dividend ratio will naturally increase.

2. Legacy assets accumulated over the past century

Hong Kong insurance has experienced more than 100 years of development. Every year, especially during the war years, there are many unclaimed legacy assets. These legacy assets have become the income shock absorbers of Hong Kong’s insurance savings products through a century of continuous reinvestment and compound interest effects. When the external investment environment is not good, due to the existence of legacy assets, insurance companies do not need to adjust actuarial models and increase premiums to stabilize policyholders' dividend expectations. This scale of legacy assets worth hundreds of billions is unmatched by mainland insurance companies.

3. High investment return rate

Mainland insurance fund investment channels are limited and can only be invested in RMB asset targets. Hong Kong insurance companies can invest globally, with more channels and fewer restrictions. Coupled with relatively mature management and experienced investment teams, they can cooperate with the shift in economic development cycles between different economic regions around the world and achieve global top-down and low-down prices. , obtain high return on investment. The author once compared the income data of similar participating insurance companies in Hong Kong and Mainland China, and found that the difference between the two in sixty years was nearly a dozen times.

4. Improved supervision and operation mechanisms

Unlike the mainland, Hong Kong insurance adopts a policy of "strict entry and easy exit", that is, strict underwriting and lenient claims settlement, which provides a great degree of protection. This improves the quality of the policy and reduces the defective rate of later policies. In terms of supervision, Hong Kong insurance companies focus on self-discipline. Hong Kong’s insurance regulatory agency is the Office of the Commissioner of Insurance. The main responsibilities and powers of the Office are to authorize insurance companies to operate insurance business in Hong Kong and ensure that insurance companies operate their business in a prudent manner. . Compared with mainland insurance companies' self-dispute assessment and handling methods, this third-party supervision protects the rights and interests of policyholders to a certain extent. In terms of operational services, after more than a century of development, the customer service quality of Hong Kong insurance companies has become a benchmark in the global insurance industry. The hard-selling phenomenon that often occurs in the mainland is hard to find in Hong Kong. Hong Kong's mature operating system has also greatly reduced the company's operating costs.

5. Historical income data is robust

Take a dividend product of Prudential in the UK as an example. In its more than 20 years since its establishment, it has experienced the financial crisis in 1998 and the U.S. financial crisis in 2008. During the credit crisis and the European debt crisis, only three years did it fail to achieve expected returns, and the difference was only about 0.5%. Since its establishment, the overall revenue has been 30-40% higher than expected revenue. However, most dividend-paying products in the Mainland cannot meet the income expectations calculated in the plans, and some can only achieve one-fifth of the expected income.

6. The company has a high credit rating

Take Prudential as an example, its credit rating is even higher than China's government bond rating. The three major rating companies Prudential have all reached AA ratings or above (Standard & Poor's AA rating, Moody's Aa2 rating, Fitch AA rating). In 2008, the central bank also purchased 1% of Prudential shares as a safe-haven investment. A high credit rating also eliminates the investment security concerns of policyholders to a certain extent.

2. Analysis of insurance motivations

For mainland customers, Hong Kong insurance, in addition to being a traditional insurance, is also an important tool to avoid various risks and is also an important tool for global asset allocation. components.

1. U.S. dollar insurance policies, hedging the risk of RMB depreciation, and savings products with high returns

In the past two years, the exchange rate of RMB against the U.S. dollar has started a major cycle of depreciation, with a depreciation of more than 10% since its peak. %. Entrepreneurs with keen market acumen presciently began to transfer assets overseas as early as 2014. Hong Kong insurance is priced in USD/HKD. Investing in Hong Kong insurance can avoid the exchange rate risk of RMB depreciation. Therefore, the appropriate allocation of offshore assets has become an unstoppable trend.

All insurance policies in Hong Kong are in US dollars, and as a long-term investment plan, the savings insurance has high financial security, good privacy, and annual compound interest returns of up to 6% to 8%. Moreover, the flexibility of funds is also high. Customers can decide by themselves which year to withdraw and how much to withdraw, which is equivalent to their own growing overseas capital account.

Based on the above advantages, it has become a major trend that mainland customers are willing to go far away to buy insurance in Hong Kong. It should be noted that: those over 18 years old need to come to Hong Kong to sign the contract in person, and are protected by Hong Kong law and guaranteed by legal and compliance configurations.

2. As an investment in children’s education, Hong Kong insurance can support children to study abroad, including education funds, entrepreneurial funds, and pensions.

More and more families in mainland China provide insurance to their children when they are in high school. When your children go to study in the United States, in order to ensure that they receive the best education, it is undoubtedly a wiser choice to make arrangements in advance. This will not only reduce future burdens and ensure that children can concentrate on their studies, but parents' other personal plans (such as retirement) will not be affected by the need to cope with education expenses. Therefore, it is very necessary to establish an education reserve fund for your children in the form of overseas insurance.

3. As a wealth inheritance tool, Hong Kong insurance can avoid mainland policy risks, avoid taxes and debts

After thirty years of rapid economic development, the first generation of business owners have slowly entered the In their twilight years, wealth inheritance has become one of the issues they have to consider. With the continuous advancement of real estate registration and inheritance tax collection policies in the Mainland, Hong Kong insurance has gradually become a high-quality tool for family wealth inheritance. Many founders choose to provide sustainable high-quality life protection for their families through Hong Kong insurance trusts.

If you have studied the corresponding legal regulations, you will know that the later money given by the insurance company is called insurance benefits. Insurance benefits do not belong to inheritance and no inheritance tax is required. At the same time, because it does not belong to the inheritance, it does not need to be responsible for the debts of the deceased. Previously, the traditional view was that "the father's debt and the son's debt must be repaid", but the debt of the father and the son's repayment is actually not accepted in the current law. There is only one reason why the father's debt should be paid by the son, and that is because the son inherits the father's inheritance. If the father has no inheritance to inherit, then the father's debt does not need to be paid by the son. In view of this, if the child is left with only an insurance policy and no other debt-deductible assets, because he has no inheritance to inherit, the insurance benefits do not belong to the inherited estate and inherited assets, and the beneficiary rights are greater than the debts, then the policy It becomes a debt haven.

4. Exemption from inheritance tax

We found that since the introduction of the inheritance tax draft in 2000, there has been an obvious policy hint of "robbing the rich and giving to the poor." As in any country, more and more wealthy people are worried about this. Although it has not been officially implemented, during the two sessions in recent years, there have been growing calls for the introduction of inheritance tax. Some scholars even suggested launching a pilot program of inheritance tax in Shenzhen. In view of this, more and more wealthy people are also realizing that if they are not prepared accordingly, it is very likely that their assets will be subject to inheritance tax in the future, and a large part of their money will become government assets.

Please note that the inheritance tax bills of most countries will have corresponding provisions: inheritance tax retrospective period. If there are any signs or actions of asset transfer in the first five to five years or three years before the inheritance tax is levied, you will be subject to the retrospective period of inheritance tax. Therefore, it is even more important for wealthy people to consider making appropriate plans in advance before this bill officially begins to prevent their money from shrinking due to inheritance tax.

5. Hiding wealth overseas

Under traditional culture, mainland Chinese residents generally have a mentality of hiding wealth.

Because they are extremely rich but don’t want others to know about it, more and more “tycoons” and “big names” often have assets worth hundreds of millions or billions, but they usually dress like farmers, being extremely simple and unwilling to show off. I don’t want my wealth to be exposed.

In China, asset transparency is also achieved in several steps. It started with the issuance of second-generation ID cards. There is a chip inside the second-generation ID card. Everything done with the second-generation ID card has corresponding records in the chip, and all can be checked online by the national information department. Even if you lose your ID card and go to get a new one, all the information you have used to apply for it is in it and cannot be destroyed or canceled. This is a step toward asset transparency. Secondly, since 2000, when you go to the bank to make a deposit, you must open a real-name account. Opening a real-name account means that the money belongs to whose name it belongs. The bank deposits have become transparent again.

6. Low-cost overseas trust plan arrangements

In fact, insurance policies and trusts have many similarities. In addition to tax attributes, their structural characteristics can also be compared with trusts. The three parties to an overseas trust are: the settlor, the trustee and the beneficiary; the trust assets actually need to be transferred to the trustee's name because the assets no longer belong to the settlor but to the trust assets. Trust assets are independent of the settlor's assets and the trustee's assets. Therefore, the assets are no longer mine and belong to the trust assets. This also explains why trust assets are not subject to inheritance tax.

You will find that many wealthy people, including celebrities, have chosen trust plan arrangements. For example, Anita Mui and Fei Fei both chose trust plans for their families. However, the disadvantages of trust plans have also begun to appear in recent years. For example: Anita Mui left enough living allowance for her mother, but her mother still faced the tragic situation of being kicked out of the rental house and living on the street. Why? Anita Mui's mother received this money every month not as living expenses but as legal fees to sue the trust assets to give her more living expenses. The high legal fees squeezed her living expenses so much that she had no money to spend.

In fact, buying a policy is different. The policyholder buys a policy. As the policyholder, the policy becomes an asset of the policyholder. The policyholder If you die, you can transfer the policy overseas and change the policy holder to your children through the transfer of the policy. Then the children will have ownership of the policy. After owning the policy, he can actually choose to take it out through an annuity every year, or he can make arrangements such as policy loans and use other more flexible ways to handle his policy property.

If you also consider transaction costs such as management fees of overseas trusts, overseas insurance policies are actually more flexible and low-cost planning arrangements.