Hong Kong Regulator Eyes Local Impact of AIA-Prudential Merger

The proposed merger between life insurance heavyweights AIA Group and U.K.-based Prudential plc [085925] may have an impact on competition and consumer options in the Hong Kong life insurance market, prompting the insurance regulator to say it will closely monitor the situation to ensure "fair competition."

The Office of the Commissioner of Insurance of Hong Kong, also known as the Insurance Authority of Hong Kong, said it will monitor the combination of American International Group's [058702] AIA and Prudential to see whether it could reduce market variety in Hong Kong in terms of choices of insurance products and services, as well as product pricing, or affect policyholders of the two insurers.

The regulator said the domestic free market has supplied adequate service providers under the principle of fair competition in the city. "As there are over 40 long-term insurers in Hong Kong, we consider that there is sufficient and fair competition in the local insurance market," noted the Insurance Authority.

The regulator also said it will continue to "closely monitor" the operations of all insurers, including both domestic and foreign companies, in Hong Kong, in order to ensure the "protection of the interests" of policyholders.

The proposed US$35.5 billion acquisition of AIA by Prudential still needs shareholder and regulatory approvals.

According to Pandora Leung, equity analyst at KGI Securities in Hong Kong, AIA and Prudential have around 10% to 11% of the life insurance market in Hong Kong, respectively. HSBC Insurance (Asia) [086812] has about a 20% market share (BestWire, March 2, 2010).

The AIA-Prudential transaction is also raising concern as to whether it may trigger layoffs within the two insurers, or cause an increase in the rate of policy surrenders and hurt market confidence in the insurance industry in Hong Kong. The regulator declined to comment on whether it will take action to protect the employees working at the insurance companies or take measures to strengthen market confidence.

According to the Insurance Authority, during the first three quarters of 2009 total premiums of long-term in-force business in Hong Kong was HK$117.1 billion (US$15.1 billion), down 11% from the corresponding period of 2008.

Premiums of non-linked individual life and annuity business rose 7.8% to HK$68.1 billion. Linked individual life and annuity business fell 42.7% to HK$27.7 billion during the period, said the regulator.

(By Rebecca Ng, Hong Kong news editor: [email protected])