A.I.A. beats analysts' predictions

PUBLISHED : Saturday, 25 February, 2012, 12:00am
UPDATED : Saturday, 25 February, 2012, 12:00am


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AIA, Asia's third-largest insurer by market value, reported a 40 per cent increase in the value of new business last year, beating analysts' estimates and driving shares prices up more than 3 per cent to a six-month high.

Value of new business (VONB), a key indicator for insurance companies which measures the present value of future business, rose to US$932 million for the year ended in November. VONB margin climbed 4.6 percentage points to 37.2 per cent, AIA said.

The jump outshone a 41 per cent drop in the insurer's net profit, due to stock investment losses.

'Overall figures were very strong, and VONB results especially beat analyst estimates,' said Stanley Tsai, an analyst at Keefe, Bruyette & Woods.

Margins rose in VONB mainly through the company's repricing strategy, launch of new products and improvement in its agency sale force, said Tsai. He said about 80 per cent of AIA's value of new business was generated through agency channels.

The insurer showed strong growth in its key markets such as Hong Kong, Singapore and the mainland, said Kenneth Yue, an analyst at CCB International.

VONB margin reached 56.1 per cent in Hong Kong, 62.3 per cent in Singapore and 47.2 per cent in the mainland.

In Thailand, the margins reached 48.8 per cent, taking markets by surprise, as analysts expected a slower growth after last year's floods.

The insurer's embedded value, another important yardstick of performance that includes the present value of future profits plus adjusted net asset value, rose 10 per cent to about US$27.24 billion year on year.

Net profit for the fiscal year fell 41 per cent to US$1.6 billion from US$2.7 billion a year earlier. The slide came mainly from US$207 million worth of mark-to-market losses in AIA's equity portfolio, because of market volatility in the second half of last year. This was compared to a US$853 million gain in 2010.

AIA chief executive Mark Tucker said AIA's net profit figure did not include bond gains and that as of yesterday, AIA estimated its negative mark-to-market movement in equities had been fully reversed.

AIA proposed to pay dividends equal to 26.5 per cent of operating profit. Tucker said the company would maintain this policy this year.

Several insurance businesses are being put up for sale. ING's Asia-Pacific operations were valued at Euro5.8 billion (HK$60 billion) at the end of last year. An additional Euro300 million from the investment management business is also being attributed to Asia. If sold, it would be the region's second-largest sale.

At the end of November, AIA had cash and cash equivalents of US$4.3 billion. Its solvency ratio reached 311 per cent, a strong capital position, analysts said.

Tucker said that while the bank had the ability to conduct acquisitions, it would do so prudently.

AIA's shares rose 3.28 per cent, or 90 HK cents, to HK$28.30. The Hang Seng index rose 0.12 per cent.