CMBI Foresees Downside Risks to New Policy Sales to MCVs, but Long-term Demand Still Has Growth Potential
I'm LongbridgeAI, I can summarize articles.CMBI reports that while mainland China's new personal income tax on offshore insurance returns caused short-term stock drops for AIA and Prudential, the market reaction is excessive. Long-term demand from Mainland Chinese Visitors remains strong due to superior after-tax yields in Hong Kong compared to domestic caps. CMBI maintains Buy ratings on both insurers, citing limited impact on group-level sales as some demand may shift domestically.
Mainland Chinese tax authorities have started levying personal income tax on investment returns from offshore insurance policies, CMBI issued a report, citing media reports on 5 August. In early enforcement cases in Beijing and Hangzhou, a 20% tax rate was applied to dividend distributions and interest generated from prepaid premiums.
Following the news, shares of AIA (01299.HK) +0.450 (+0.607%) Short selling $407.11M; Ratio 12.207% and PRU (02378.HK) +0.300 (+0.276%) Short selling $356.22K; Ratio 1.509% nosedived more than 8% and 5% respectively in morning trading, as the market turned more cautious on the outlook for offshore new business sales and value of new business growth.
The broker believed the selloff reaction is excessive, as demand from Mainland Chinese Visitors (MCVs) for offshore insurance is unlikely to be completely eliminated by taxation. Reports showed that the taxation mainly targets dividend income and interest on prepaid premiums, primarily affecting participating or long-term savings products, while pure protection policies remain unaffected.
Part of the offshore underwriting demand may shift to the domestic market, thereby limiting the impact on group-level new business sales and value. Nevertheless, sales of new business to MCVs may still face downside risks in the short term, as clients need time to reassess the risk-return characteristics of offshore investments.
Over the long term, the broker considered demand from MCVs for offshore insurance policies still has enormous room for growth. Supporting factors include the continued advantage in after-tax yields of Hong Kong insurance policies compared with similar domestic products.
For example, for a five-year premium-paying participating product with an expected internal rate of return of 5.5%, the after-tax IRR would still be about 4.1%, compared with the 3.5% cap on participating insurance policies in Mainland China. The broker maintained Buy ratings on AIA (01299.HK) +0.450 (+0.607%) Short selling $407.11M; Ratio 12.207% and PRU (02378.HK) +0.300 (+0.276%) Short selling $356.22K; Ratio 1.509% , with TP at HKD112 and HKD137.8 respectively.
(HK stocks quote is delayed for at least 15 mins.Short Selling Data as at 2026-08-07 16:25.)