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Aug 2022

An increasingly dark and broken world

Source: Asia Insurance Review | Jun 2022

Singapore prime minister Lee Hsien Loong’s May Day speech for 2022 addressed a critical issue that could face many insurers and reinsurers in Asia Pacific following Russia president Vladimir Putin’s invasion of Ukraine.
 
“The ongoing conflict has made it extremely difficult, if not impossible, for countries to pursue win-win cooperation, whether at the UN, the G20 or at APEC,” said Mr Lee.
 
“In particular, it will further complicate US-China relations, which were already strained ... In the Asia Pacific … jostling between the US and China will result in a less stable region. It will become harder for countries to remain friends with both powers,” Mr Lee said.
 
Both the US and China are important markets for many businesses, which is why it has made sense to appeal to both. But sometimes industry find it impossible to keep politics out of business, and this is one of those times.
 
Already this has been manifest in the insurance sector in the region as China’s largest insurer, Ping An, has called for the break-up of HSBC on the grounds that the financial services company can no longer successfully balance its China ambitions with its western interests.
 
Ping An is not simply an impartial observer but, through its life insurance arm, is HSBC’s largest single shareholder with a stake in the banking group reported to be around 9.2%.
 
Since HSBC is regulated in the UK, and since UK banks were forbidden from paying dividends to shareholders at the onset of the pandemic, Ping An missed out on income that it may have relied upon for its life insurance liabilities.
 
The Chinese insurer believes that an independent Asia business focused on the region and listed in Hong Kong would be more profitable and tie up less capital that the current set up. This would allow HSBC to pursue other business around the world without the constraint of juggling potentially conflicting agendas in China.
 
Management of the banking group is reported to be against such a break-up and feels confident in the growth path that it is pursuing. HSBC’s profits dropped by $1.6bn in the first quarter of 2022 to $4.2bn as it increased reserves for bad loans because of the Ukraine war and saw slower growth in Asia on the back of China’s property market woes.
 
The corporate history of HSBC is long and covers many periods when the company had to take tough decisions in order to ensure its survival. Long-term shareholders may feel that the schism that has widened between the US and China is transitory in nature and that the banking group will find a way through.
 
On a local level, HSBC Life has shown itself to be a master at leveraging its banking customer base in Hong Kong in order to grow a very modern life insurance business.
 
But the growth of the life insurance business is about more than simply marketing to customers of the group. It is about the international experience of its C-suite, which can boast extended periods working in Europe and South America.
 
Other global insurance groups have the same luxury – being able to secure top talent from other geographies because they work for the same parent company. Such HR advantages are endangered when corporations become siloed into becoming purely domestic or operate only in a tiny geographic region.
 
Prime minister Lee’s observations are very real and will require shareholders of insurance companies in APAC to consider their strategic, rather than simply their tactical, interests when dealing with both the US and China.
 
Paul McNamara
Editorial director
Asia Insurance Review
 
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