Insurer AIA’s annual profit falls 22 per cent on investment losses and foreign exchange volatility

Equity investments produce net loss of US$370 million

PUBLISHED : Thursday, 25 February, 2016, 1:21pm
UPDATED : Thursday, 25 February, 2016, 5:13pm

AIA, the largest insurer in Hong Kong and the third-largest in Asia in terms of market value, reported a 22 per cent drop in net profit for last year amid a weakening of Asian currencies against the US dollar and losses on equity investments, even as it posted strong new business growth.

The insurer’s net profit for the 12 months to the end of November was US$2.69 billion, down from US$3.45 billion the previous year, it said in a filing to the Hong Kong stock exchange. The figure fell below market expectations of US$3.35 billion.

The company’s equity investments produced a net loss of US$370 million for the year under review compared with the previous year’s gain of US$ 508 million.

New business increased 19 per cent year on year to US$2.198 billion, from US$1.85 billion a year earlier.

“We’ve been in the business for nearly a hundred years. We’ve seen incredible volatility of currency markets, of stock markets, of bond markets, of interest rates, political, social – and the business has continued to grow,” AIA chief executive and president Mark Tucker said.

Hong Kong remained the company’s leading market in terms of profit contribution, with new business growing by 32 per cent to US$820 million, followed by Thailand, which saw a rise of 9 per cent to US$395 million.

Mainland China posted the largest growth in new business, rising by 42 per cent to US$366 million, while South Korea’s new business dropped 44 per cent to US$46 million.

Ivan Li, an equities analyst at Tung Shing Securities, said that the results were “much better” than he had expected. He said new business growth was a stronger indication of how an insurance company was faring than reported profit figures because insurers worked on a long-term timeline and would only see the value generated by policies reflected in profits years later.

We’ve seen incredible volatility of currency markets, of stock markets, of bond markets, of interest rates, political, social – and the business has continued to grow
Mark Tucker, AIA

“The result was at the top end ... given the bad conditions of the capital market in the fourth quarter of last year,” Li said.

The group increased in its final dividend by 50 per cent to 51 HK cents per share, from 34 HK cents the previous year, which Tucker said was a reflection of its strong growth and confidence in its future prospects.

“If you go back to the IPO five years ago, at the time ... we said we would grow profitability strongly and we would grow dividends strongly,” Tucker said. “All we are doing is delivering on what we promised.”

Analysts said challenges for AIA moving forward included the strengthening of the US dollar against Asian currencies, the impact on capital restrictions imposed by the central government on mainland Chinese buyers of insurance policies and stock market volatility.

Hong Kong insurance companies suffered after credit card operator UnionPay announced a US$5,000 cap on overseas insurance product purchases early this month. Beijing adopted the measure to make it tougher for mainland investors to buy insurance policies from local insurers as part of efforts to stem capital outflows.

Tucker said such restrictions had always existed and the cap would have a limited effect on business because the number of investors who purchased with premiums over US$5,000 was “very low”, adding that sales to mainland buyers accounted for about a third of AIA’s Hong Kong business.

Regarding foreign exchange exposure, Tucker said: “The only exposure we have is in dividends effectively coming back to the group and we hedge those dividends. Our biggest business is effectively the US dollar business here in Hong Kong so our exposure is quite limited.”

Following the morning announcement, AIA shares closed the day up 0.89 per cent or 0.35 points to HK$39.50.