Manulife Financial Corp. has withdrawn leverage for an insurance product targeting wealthy Hong Kong clients after the offering drew scrutiny from regulators and competitors, according to people familiar with the matter.
Product Details
The product pitched by the Canadian insurer allowed wealthy individuals to buy a policy worth US$80 million in nominal value with almost four times leverage and offered returns exceeding 10 per cent, according to marketing materials seen by Bloomberg News.
Manulife's clients required an initial investment of US$14.4 million for the product, with an additional US$56 million borrowed at a fixed interest rate of 3.39 per cent for five years. By comparison, market lending rates on other policy loans currently available to retail customers hover around seven per cent.
Industry Context
While premium financing, or borrowing against the value of a life insurance policy, is a common practice for high-net-worth individuals, this specific program stood out because of its aggressive leverage and unusually low financing costs, according to people familiar with the matter, who asked not to be identified discussing private information.
A spokesperson for Manulife said the company regularly reviews its policy services and makes adjustments as part of its routine operations, adding that it remains committed to meeting customer needs.
Regulatory Response
Aggressive structures have caught the attention of the city's insurance watchdog. Asked about the product, Insurance Authority chief executive Clement Cheung said that the regulator doesn't comment on individual cases. More broadly, he said the regulator has noticed “some premium financing and relatively creative financial arrangements in the industry” and remains focused on protecting policyholders' interests.
Regulators have previously sounded the alarm over premium financing. The watchdog has warned consumers that final returns can fall short of projections, while cautioning against unexpected interest costs and the risk of heavy losses in the event of an early surrender.
The insurance watchdog capped the so-called illustration rate of return at 6.5 per cent for non-Hong Kong dollar denominated policies starting from July 2025. Hong Kong-dollar policies can market their returns at maximum six per cent. While the cap aims to “maintain realistic expectations for policy holders” at the point of sales, insurers can still pay dividends beyond the stated figure, the authority has said.
Broader Crackdown
The suspension at Manulife comes amid a broader, coordinated crackdown on cross-border wealth channels. Chinese authorities have tightened the screws on domestic brokers, and Hong Kong lenders have intensified scrutiny over new bank accounts opened by mainland visitors.
