Chinese Tax on Offshore Policies Hits Prudential and AIA Stock Prices

Int’l Desk: A new 20% personal income tax on offshore insurance policies is set to narrow the yield advantage that Hong Kong savings products have long held over domestic Chinese options, raising the prospect of softer short-term sales. The levy, first reported by Caixin Global, applies to both dividend payouts and interest earned on prepaid premiums.

Shares in the two largest listed insurers most exposed to the cross-border market reacted sharply. Prudential’s London-listed stock fell as much as 13% during the day before closing 6% lower. AIA Group opened 8% down in Hong Kong and finished the session with a similar 6% decline.

In later London trading, Prudential recovered some ground to trade about 4% lower overall, with analysts expecting AIA to move in a comparable direction.

Jefferies Equity Research described the sell-off as overdone. The firm noted that market arbitrage quickly began closing the valuation gap between the two companies.

More importantly, Jefferies argued that the explicit taxation of offshore policies effectively recognises their legitimacy under Chinese rules. That recognition, the analysts said, removes a long-standing tail risk of an outright regulatory ban on cross-border insurance sales and therefore supplies greater long-term clarity for insurers such as Prudential and AIA.

While the tax is expected to reduce some of the relative attractiveness of Hong Kong products in the near term, the regulatory clarity it brings may ultimately prove constructive for the industry.