AIA looks past biggest profit slump in a decade, banking on Hong Kong’s reopened borders to lift insurance sales
- AIA’s 2022 net profit tumbled 96 per cent to US$282 million, or 2.36 US cents per share, missing analysts estimates
- Sales jumped in the first two months, as a million mainland Chinese travellers poured across the border into Hong Kong
AIA is looking to strong sales in 2023 to put one of its worst years behind it, as Asia’s largest insurer wagered that the rush of mainland Chinese customers across Hong Kong’s reopened borders would help arrest a slump in earnings.
Net profit plunged 96 per cent in 2022 to US$282 million, or 2.36 US cents per share, missing the US$2.79 billion expected in a Bloomberg poll, due mainly to US$5.39 billion in unrealised valuation losses of its stocks and bonds portfolio. The company’s operating profit after tax rose 5 per cent to of US$6.37 billion.
AIA’s value of new business (VONB), an important measure of sales and future growth in insurance, fell 5 per cent in 2022 to US$3.09 billion, as Hong Kong’s closed borders prevented customers from signing for their coverage in person, a requirement under the city’s rules. Still, VONB picked up by 6 per cent in the second half, as Hong Kong gradually relaxed its border and inbound travelling restrictions.
“Following the reopening of mainland China, we have seen our new business momentum recover swiftly and return to positive value of new business growth in the first two months of 2023”, said Lee Yuan Siong, AIA’s group chief executive and president, in his first in-person media briefing since he took the job in June 2020. Before that, he was co-CEO of Ping An.
Under Lee’s leadership, AIA has expanded via acquisitions, spending HK$2.2 billion (US$280 million) on health insurer Blue Cross (Asia-Pacific) a year ago, and HK$5.07 billion on BEA Life in March, 2021. It also spent 12 billion yuan (US$1.86 billion) on a 25 per cent stake in China Post Life Insurance in mid 2021.
“Our investments in Hong Kong in the past two years showed our confidence in the city”, Lee said.
Chief financial officer Garth Jones said the insurer will be selective in its acquisition targets.
“We have to make sure that the acquisitions that we take on work for us from a strategic perspective, from a financial perspective, from an operational perspective to be able to execute effectively”, Jones said.
AIA’s shares dropped 4.6 per cent in a falling Hong Kong market to close at HK$81.55 on Friday. The broader Hang Seng Index shed 3 per cent.
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The insurer will pay a second dividend of 113.4 Hong Kong cents per share, bringing last year’s total payout to 153.68 cents per share, up 5.3 per cent from 2021.
The full reopening of China’s southern border with Hong Kong on January 8 was a relief for AIA, which counted on the two markets for 50 per cent of new sales in 2022. Sales in Hong Kong to mainland China travellers made up 10 per cent of AIA’s new business in the city last year.
The Hong Kong-based insurer, which traces its roots to 1919 in Shanghai, is hiring and investing for better days ahead, adding 31 per cent agents in Tianjin, Shijiazhuang, Sichuan and Hubei.
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It will open a new branch in Henan province in 2023, after adding Hubei to its mainland China sales network last year. The insurer has also teamed up with the Postal Savings Bank of China to sell its insurance policies across the state bank’s 40,000 branches across the country.
“China’s reopening at the end of 2022 provided a platform for greater economic stability and can help GDP growth return to its potential in 2023”, Lee said. “In Hong Kong, the opening of the border with Mainland China and the rest of the world will reaffirm its status as a vibrant international financial centre and its unique role in connecting East and West.”
The optimism is shared by the analysts of UBS, JPMorgan and Goldman Sachs, all of whom have recommended their clients to “buy” AIA.
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“AIA’s long-term growth is driven by strong agency distribution quality, concentrated exposure to the affluent consumer segment and continued footprint expansion in mainland China, and recovery in sales to mainland Chinese visitors in Hong Kong,” Goldman Sachs said in a note after the result announcement.
AIA’s business grew by between 3 per cent and up to 19 per cent during the second half of 2022 across five major markets: Hong Kong, mainland China, Thailand, Singapore and Malaysia.
Its second-half investment loss also narrowed to US$599 million from the US$4.79 billion unrealised valuation loss during the first six months of 2022 when global stocks and bonds were roiled by rising interest rates and Russia’s invasion of Ukraine.
“Investors are cautiously optimistic in the near term, with mixed hopes of Hong Kong’s V-shape recovery and concerns over its investment headwinds,” said Yu Tianjiao, analyst of Bernstein.
