Addressing MCV ‘pent-up demand’ concerns
- We think investor concerns about exhaustion of MCV insurance ‘pent-up demand’ are overdone and expect consensus VONB upgrades in 2024F.
- We remain confident in the ‘green shoots’ emerging from the HK agent channel and see higher MCV VONB margins in HK for 2024F.
- An imminent expansion of the Individual Visit Scheme is a positive, as MCV arriving under this scheme are more likely to buy HK insurance, in our view.
- Reiterate Sector Overweight rating. Our top picks are AIA and Prudential.
We do not see exhaustion of ‘pent-up’ MCV insurance demand
We disagree with investors who see exhaustion of ‘pent-up demand’ for insurance products among mainland Chinese visitors (MCV). Such concerns were accentuated by the Insurance Authority (IA) on 20 Feb 2023 stating 2023 MCV insurance sales were HK$59bn, implying 4Q23’s was HK$12bn, down 19% qoq (3Q23 qoq: -33%; 2Q23 qoq: +132%). The IA also said it sees MCV insurance sales falling to HK$43-51bn (down 14-27% yoy) in 2024F (i.e. the level in 2017-2019 and below 2016’s HK$73bn). We stress that such statements are about unweighted sales and ignore the important distinction between lower margin single premium policies vs. higher-margin regular premiums. As noted in MCV: The differences post-pandemic, (9 Jan 2024), single premiums are falling more rapidly, as their mix post-pandemic remains abnormally high (Fig 4). On an annualised premium equivalent basis, 3Q23 MCV sales fell only 13% qoq and we believe this narrowed in 4Q23 qoq.
2024F Bloomberg consensus VONB looks overly conservative
Favourable US-China yield differentials (Fig 6), US$/ Rmb trends (Fig 7), the sizeable buildup of US$ deposits within mainland China (Fig 13) and encouraging continued postpandemic rebound of MCV (Figs 16-17) are all reasons to be bullish on 2024F MCV insurance sales in HK, in our view. We thus think Bloomberg 2024F value of new business (VONB) consensus looks low and expect upgrades going forward. For example, our FY24F VONB growth forecast for AIA of 26% is well above Bloomberg consensus’ 15% (Fig 20).
Looking forward to HK MCV VONB margin expansion
We see clearly improving mom growth in HK agent numbers over Oct 2023-Jan 2024 (Fig 24). Thus, we think the higher-margin agent channel will be a more important driver of 2024F MCV HK insurance sales and help alleviate our concerns about intense competition in the lower-margin broker channel (see The battle for MCV heats up in HK, 10 Aug 2023).
First expansion of the Individual Visit Scheme since 2007 imminent
The Standard newspaper reported on 22 Feb 2024 that Beijing has agreed to expand the geographical coverage of the Individual Visit Scheme (IVS) for the first time since 2007 from the current 49 Mainland China cities (Figs 38-39). It expects an imminent official announcement to coincide with the Hong Kong (HK) and Macau Affairs Office director Xia Baolong’s visit to HK on 22-28 Feb 2024. This is positive for HK insurers such as AIA and Prudential, not only due to an increase of MCV, but also because we believe MCV are much more likely to buy insurance if they come under the IVS vs. part of a group tour.
Reiterate sector Overweight; our sector top picks: AIA & Prudential
Our sector OW call is premised on inexpensive valuations (currently 0.6x FY24F P/EV, >2 s.d. below post-2012 mean) and potential re-rating catalysts of favourable stronger-for longer MCV insurance sales and faster agent growth. Key downside risks: stricter MCV insurance regulation and greater competition
