AIA reports robust results under shadow of dim outlook amid China’s capital controls
AIA Group, the world’s third-largest life insurer by market value, posted better than expected growth in new business value and net profit for 2016, thanks to robust growth in the mainland and Hong Kong.
The insurer announced on Friday morning that its net profit rose 50.6 per cent to US$4.16 billion for the 12 months ended November 30, 2016.
AIA’s value of new business (VONB), a key measure in insurance industry that indicates future profitability, surged 25 per cent year on year to US$2.75 billion based on actual exchange rates.
The VONB growth also slightly beat analysts’ estimates of 20 to 24 per cent, despite the negative effect from the strong US dollar against Asian currencies.
The Pan-Asia insurer declared 63.75 HK cents final dividend per share, up 25 per cent year on year. Combined with the interim dividend, total dividend for 2016 was 85.65 HK cents, up 23 per cent from a year earlier.
“2016 is our most successful year yet...We have made an excellent start to 2017 with strong value of new business growth in the first two months of our financial year,” said Mark Tucker, AIA’s Group chief executive and president.
VONB in Hong Kong – AIA’s largest regional market – soared 42 per cent to a record high of US$1.16 billion in terms of actual exchange rate. Mainland China market recorded the sharpest growth, up 46 per cent to US$536 million, surpassing Thailand to become AIA’s second largest regional market in terms of VONB.
VONB in Thailand fell 3 per cent to US$384 million, due to reduced activity during the mourning period following the passing of King Bhumibol Adulyadej in October.
Mainland visitors made up a half of AIA’s Hong Kong business in 2016, Tucker said, but he declined to give data on the portion for December and January.
Tucker said AIA’s Hong Kong business has been driven by a wide range of products and different source of clients, while the overall growth for the group is robust in the start of 2017.
China’s state-backed UnionPay in October banned mainland customers from buying investment-related products in Hong Kong.
In early January, China’s State Administration of Foreign Exchange restricted mainland individuals and companies buying foreign currencies for insurance and properties overseas, in another move to tighten capital control amid the depreciation of the yuan.
“January’s ban is a heavy blow for Hong Kong insurers. We are not very positive about AIA’s Hong Kong business this year, as mainland clients will hardly find a way to pay the premiums after purchasing the products,” Jerry Li Wenbing, an analyst at China Merchants Securities Hong Kong, said.
Li expects to see a decline of AIA’s VONB in Hong Kong this year.
“Business in south-east Asia may remain weak especially when the US dollar is strengthening...the momentum depends on China market,” Li said.
In a new research report, Nomura said there was limited room for Hong Kong market growth following Beijing’s tighter capital controls.
Tucker said China needs only 15 years to achieve 7 per cent insurance penetration, compared with the 55 years that it took the United States to do the same.
“The size of opportunities is big enough for any player to join the market,” he said, adding that China will ultimately become its largest market.
Regarding AIA’s letter to private doctors saying that it may no longer cover hospitalisation fees for simple procedures, Tucker said: “We are committed to taking care of our customers over their lifetimes. This is really why we began the dialogue about how to ensure all of our customers enjoy quality medical care at affordable premiums. This requires all of us to focus on efficiency in the system....to minimise the increase in insurance premiums in Hong Kong.”
The insurer didn’t change terms and conditions of any medical products, he said.