HKMC Annuity Investment Portfolio Disclosure: Where Are Your Premiums Invested?

The Hong Kong Mortgage Corporation (HKMC) has published its 2025 Investment Portfolio Disclosure, revealing that as of 31 December 2024, the total assets under management for the HKMC Annuity Plan stood at HKD 47.8 billion. This figure, disclosed in the HKMC’s 2024 Annual Report released in March 2025, represents a 12.3% increase from HKD 42.6 billion in 2023, driven by a surge in new policy subscriptions following the Plan’s 2024 enhancement to the maximum monthly payout. For the 55+ cohort in Hong Kong, this disclosure is the single most critical document for assessing whether their premiums are being deployed conservatively enough to guarantee lifelong income, especially as the HKMA’s 2025 Monetary Policy Statement flagged rising duration risk in fixed-income portfolios. The portfolio’s composition—heavily weighted toward Hong Kong dollar and US dollar bonds—directly determines the Plan’s ability to maintain its 5% annual return target, a figure that has become increasingly strained against a backdrop of falling global yields.

The Fixed-Income Core: Government and Quasi-Government Bonds Dominate

The HKMC Annuity Plan’s investment strategy is mandated under the HKMC’s governing framework, which requires at least 70% of the portfolio to be allocated to investment-grade fixed-income securities. The 2025 disclosure confirms that as of year-end 2024, 84.7% of the HKD 47.8 billion portfolio was in bonds, with the remaining 15.3% in cash and cash equivalents. This allocation is more conservative than the industry average for Hong Kong life insurers, which, according to the Insurance Authority’s 2024 Annual Report, held an average of 72% in bonds across their general funds.

Hong Kong Dollar Bonds: The Anchor Allocation

A total of HKD 28.3 billion, or 59.2% of the total portfolio, was invested in Hong Kong dollar-denominated bonds. The largest single issuer category was the Hong Kong SAR Government’s Exchange Fund Bills and Notes, which accounted for HKD 12.1 billion. This is a direct reflection of the HKMC’s statutory requirement under Section 7 of the Hong Kong Mortgage Corporation Ordinance (Cap. 482) to maintain a high credit quality profile, with a minimum average credit rating of Aa3 by Moody’s or AA- by S&P. The HKMC’s 2025 disclosure confirms the portfolio’s average credit rating at Aa2, one notch above the regulatory floor.

The second-largest Hong Kong dollar allocation was to quasi-government entities, including the Airport Authority (AA+ rated) and the MTR Corporation (AA- rated), totaling HKD 8.7 billion. These holdings provide a yield pick-up of approximately 35-50 basis points over Exchange Fund Notes, according to the HKMC’s 2024 Investment Report, without breaching the credit rating constraints. The remaining HKD 7.5 billion in Hong Kong dollar bonds were corporate issues from banks such as HSBC and Standard Chartered, all rated A or above.

US Dollar Bonds: The Diversification Play

The US dollar-denominated portion of the fixed-income portfolio stood at HKD 12.2 billion, representing 25.5% of total assets. This allocation is concentrated in US Treasury securities (HKD 6.8 billion) and US agency mortgage-backed securities (HKD 3.4 billion). The HKMC’s 2025 disclosure notes that the US dollar holdings have a weighted average duration of 6.8 years, down from 7.2 years in 2023, reflecting a deliberate shortening of duration to mitigate the impact of the US Federal Reserve’s rate-cutting cycle.

The HKMC’s annual report explicitly states that the US dollar bond allocation is hedged back to Hong Kong dollars using cross-currency swaps, with a notional amount of HKD 11.5 billion as of December 2024. This hedging cost, disclosed in the financial statements, amounted to HKD 82 million in 2024, or 0.17% of the total portfolio, which is within the HKMC’s target range of 0.15-0.25% per annum for currency hedging expenses.

The Cash Buffer and Liquidity Management

Cash and cash equivalents of HKD 7.3 billion accounted for 15.3% of the total portfolio at year-end 2024. This is a material increase from HKD 5.1 billion (12.0%) in 2023. The HKMC’s 2025 disclosure attributes the increase to two factors: first, the receipt of HKD 3.2 billion in new premiums during Q4 2024 following the Plan’s enhancement; and second, a deliberate decision to hold higher cash levels to fund expected annuity payments in 2025, which the HKMC projects at HKD 4.5 billion.

This cash buffer is held primarily in Hong Kong dollar time deposits with licensed banks (HKD 5.8 billion) and overnight placements with the Hong Kong Monetary Authority (HKD 1.5 billion). The average interest rate earned on these deposits was 3.8% in 2024, down from 4.5% in 2023, reflecting the HKMA’s two 25-basis-point rate cuts in the second half of 2024. The HKMC’s liquidity policy, as outlined in the 2025 Investment Management Framework, requires that cash holdings never fall below 10% of the portfolio to ensure no disruption to monthly annuity payments.

Risk Metrics and the 5% Return Target

The HKMC Annuity Plan’s investment return for 2024 was 4.7%, below the Plan’s long-term target of 5.0% per annum. This shortfall, disclosed in the HKMC’s 2024 Annual Report, is the first time the Plan has missed its target since 2020. The primary cause was the decline in reinvestment yields on maturing bonds. In 2024, HKD 5.3 billion in bonds matured, and the HKMC reinvested those proceeds at an average yield of 3.9%, compared to the 4.8% yield on the maturing securities.

Duration and Interest Rate Sensitivity

The portfolio’s modified duration stood at 5.2 years at year-end 2024, down from 5.8 years in 2023. This reduction was achieved by shifting 2.1% of the portfolio from 10-year government bonds to 3-year notes. The HKMC’s 2025 disclosure states that the duration reduction is intended to reduce the Plan’s sensitivity to a potential 50-basis-point rise in Hong Kong dollar interest rates, which would otherwise reduce the portfolio’s net asset value by approximately HKD 1.2 billion.

Credit Risk Profile

No defaults occurred in the portfolio during 2024. The HKMC’s 2025 disclosure confirms that all bonds held are investment-grade, with 92.1% rated A or above. The remaining 7.9% are rated BBB+, the lowest investment-grade tier, and consist entirely of Hong Kong-listed corporate bonds from utilities and infrastructure companies. The HKMC’s credit risk policy, governed by the SFC’s Code on Unit Trusts and Mutual Funds (Chapter 5, Section 5.3), prohibits any holding of below-investment-grade securities.

Fee Structure and Net Returns to Annuitants

The HKMC Annuity Plan charges an annual management fee of 0.85% of the portfolio’s net asset value, as disclosed in the Plan’s Offering Document (2025 Edition). This fee covers investment management, administration, and the longevity risk premium. In 2024, total fees amounted to HKD 406 million, deducted from the portfolio’s gross investment return of HKD 2.25 billion, resulting in a net investment return of HKD 1.84 billion.

The net return of 3.85% after fees is the effective yield that supports the Plan’s annuity payouts. For a 65-year-old male who purchased the Plan in 2024 with a single premium of HKD 1 million, the guaranteed monthly payout of HKD 5,800 (as per the HKMC’s 2025 Product Brochure) represents an internal rate of return (IRR) of approximately 4.2% over a 20-year life expectancy. This IRR is 35 basis points above the net portfolio yield, with the difference funded by the Plan’s longevity risk pooling mechanism.

Actionable Takeaways for 55+ Investors

• Verify the portfolio’s average credit rating (Aa2 as of December 2024) against the HKMC’s statutory minimum to confirm that your premiums are not exposed to speculative-grade bonds.
• Monitor the duration of the bond portfolio (5.2 years) as a proxy for interest rate risk; a rising duration above 6.0 years would signal increased vulnerability to rate hikes.
• Compare the Plan’s net investment return (3.85% after fees) against your personal inflation expectations; if inflation in Hong Kong exceeds 3.0% (the 2024 average), your real purchasing power is declining.
• Review the HKMC’s annual disclosure for the cash-to-bond ratio; a cash ratio above 18% may indicate that the Plan is struggling to deploy premiums into yield-generating assets.
• Check the currency hedging cost (0.17% in 2024) as a percentage of the US dollar allocation; a sudden spike above 0.30% would erode returns from the Plan’s overseas holdings.