"With-profits" + "multi-currency", the unrivaled advantages of Hong Kong Insurance

Hong Kong is the most developed and open insurance market in the world. With its unique advantages, Hong Kong has become a transit point for domestic and international capital and trade exchanges, and is a "super contact" for domestic going out and foreign coming in.

Hong Kong insuranceThere is an unrivaled advantage-award a bonusSavings and Participation Insurance in Hong KongExpected IRR can be as high as 6%-7%.

Dividends usually consist of two aspects, namely"Guaranteed return + non-guaranteed return (dividends)"Composed, often over a period of several years, the combined policy value exceeds the principal amount.

Although there is uncertainty about dividends, according to the relevant regulatory requirements, insurance companies are required to disclose the "dividend realization rate" on their official websites.Most companies have dividend realization rates between 95%-110%.

01What is the dividend realization rate?

In simple terms, the dividend realization rate can be understood:Take the total amount of accumulated non-guaranteed benefits actually paid out under all relevant policies and divide it by the total amount stated in the Explanatory Memorandum at the time of its sale.

A rate close to 100% indicates that the insurer is close to achieving the non-guaranteed benefits expected at the time of sale. A ratio above 100% indicates that the actual payout is higher than the amount stated in the benefit statement at the time of sale, and vice versa.

For example, suppose the insurance company plan anticipates $10,000 in dividends next year and actually does pay $10,000 in dividends the next year, then the dividend realization rate is 100%, but if only $5,000 is paid out, then the dividend realization rate is 50%.

02How is the dividend realization rate guaranteed?

tight regulation

The Hong Kong insurance regulator has imposed stringent regulation on with-profits realization rates, with the introduction of the Guidelines for Underwriting Long-Term Insurance Business other than Class C Business ("GN16") on January 1, 2017, which includes a series of guidelines for theRegulatory measures for participating insurance, mainly including:

• The company needs to formulate a policy for the management of participating policy business, including the overall philosophy of determining non-guaranteed benefits, surplus apportionment, investment strategy, smoothing basis, and so on;
• Dividend presentations must not be misleading and must provide "pessimistic" and "optimistic" scenarios and inform customers of the potential risks of non-guaranteed returns;
• Disclosure of Fulfillment Ratio of past participating policies on the Company's website.

As a result, the high "expected dividends" of Hong Kong participating insurance policies, under stringent regulation, will not be able to be realized.Rational and transparent, also makes it imperative for insurers to focus on delivering on the promise of non-guaranteed dividends.

Investment capacity and risk management

Hong Kong Insurance Company.Investable in a wide range of assets worldwideThrough a wide range of investment portfolios, with-profits insurance in Hong Kong can maximize returns for customers at an acceptable level of risk.

Most participating products of Hong Kong insurance companies will invest inStocks, bonds, etc. in mature markets such as the U.S. and Europeand will shift the allocation of investment assets according to market conditions.

It is normal to have a lower percentage of higher risk but higher return assets within an insurance plan with higher guaranteed returns.

Within insurance plans with lower guaranteed returns and higher expected returns, a higher proportion of higher-risk, higher-yield assets will be available as a way of making the risk level appropriate for different products.

Hong Kong insurance companies will alsoManaging risk with derivativesand will be in the portfolioAdd some alternative investment varietiesIn the case of real estate, for example, instruments such as securities lending may also be used to maximize returns.

Mitigation Adjustment Mechanism

The so-called mitigating adjustment mechanism refers to the fact that, in the face of market volatility, dividends are naturally subject to high and low volatility.For a more stable return for our clients.

All Hong Kong insurance companies will havesmoothing mechanism, or what is known as a moderated adjustment mechanism. It aims to ensure that bonus rates do not change to the same extent as the value of the with-profits fund rises or falls.

To this end, insurers will either retain some of the investment returns from favorable periods to provide a cushion for dividend payouts in later years when returns are lower, or temporarily increase the dividend rate in the event of a market situation with poor returns so as to avoid excessive volatility in the policy value.

To summarize, Hong Kong insurance has inherited the relevant measures and mechanisms in Europe and the United States, which are fundamentally aimed at maintaining customers' reasonable expectations of participating policies.

"Multi-currency" with the advantage of "dividends".Policyholders can flexibly switch between policy currencies according to their needs at various stages of life, such as studying abroad, working overseas, traveling for retirement, etc., regardless of where they are. Having different investment portfolios in different currencies also allows for more effective risk diversification and more stable returns.