HONG KONG - Hong Kong-listed shares of major insurers, led by Prudential and AIA Group, fell sharply on Aug 6 after Caixin reported China’s mainland tax authorities are levying taxes on insurance policy income earned offshore.

Beijing and Hangzhou authorities have started to apply personal income tax rates of 20 per cent on returns from Hong Kong insurance policies, including dividend payouts and interest earned on prepaid premiums, the Chinese business publication reported on Aug 5.

The move was seen by analysts as a potential sharpening of China’s increased scrutiny of offshore investments.

China’s finance ministry and the National Financial Regulatory Administration have not responded to Reuters’ requests for comment.

The overseas-based insurers earn a major share of their business from mainland Chinese customers, and the tax news sparked fears sales of insurance policies and ​other financial products could slow.

AIA declined to comment. Prudential, HSBC, Standard Chartered, Hong Kong-based insurer FWD Group and Chinese insurers Ping An Insurance and China Life Insurance did not immediately respond to emailed requests for comment.

AIA shares slid 8.2 per cent, Prudential fell more than 5 per cent following a 13 per cent slide in its UK-listed shares, and FWD was down 4.5 per cent, dragging Hong Kong’s Hang Seng Index more than 2 per cent lower on Aug 6.

Hong Kong insurance has long been a channel for Chinese investors buying assets abroad, with the policies providing more protection than what is available on the mainland, and related savings and investment products mostly denominated in US dollars. A drop in domestic bond yields dragged down onshore insurance returns, which further fuelled demand for offshore products in recent years.

Ping An and China Life Insurance shares fell more than 1 per cent as both firms have a sizable offshore business with Hong Kong assets.

HSBC’s Hong Kong-listed shares fell 2.2 per cent and Standard Chartered was down 1...