Hong Kong company reporting season

Insurance giant AIA reports worse-than-expected earnings for first half of the year

Net profit was down more than 50 per cent year on year to US$1.66 billion – a bigger drop than expected by Bloomberg analysts

PUBLISHED : Friday, 24 August, 2018, 10:36am
UPDATED : Friday, 24 August, 2018, 4:22pm

AIA, the largest listed pan-Asia life insurer, reported worse-than-expected earnings for the first half of the year on Friday, as net profit dropped despite a growth in new business.

Net profit to the end of June was down more than 50 per cent year on year to US$1.66 billion, from US$3.24 billion in the same period in 2017. That was below Bloomberg analysts’ estimates of a 33 per cent fall to US$1.95 billion.

It may have been weighed down by equity market volatility and a high-base comparison a year earlier, said analyst Steven Lam, quoted by Bloomberg Intelligence.

Operating profit after tax, meanwhile, rose 14 per cent to US$2.65 billion, from US$2.23 billion a year earlier. At the same time AIA’s operating expenses grew 4 per cent to US$1 billion, from US$949 million in the same period last year.

The drop in net profit was mostly due to a significant decline in equity markets during the first half of the year, and partly as the figure stands in comparison to unusually high gains last year.

“We need to look at the long term. There will be volatility, but if you look at mainland business in Hong Kong it has been there for a long time, and it is growing,” said Ng Keng Hooi, AIA’s group chief executive and president. “Last year was an exceptional first half. We want to make sure the market doesn’t assume that is going to be the norm, so after normalisation we will see a more steady growth going into the future.”

US-China tensions presented “short term macroeconomic volatilities,” he added. “Obviously it affects some sentiment, but while China is slowing down it still has a very high growth, so I don’t think it will affect the longer term drive for our business.”

The Hong-Kong based insurance giant’s revenue rose to US$1.95 billion, from US$1.84 billion a year earlier. The company declared an interim dividend of 29.20 Hong Kong cents per share, representing a 14 per cent increased when compared to 2017.

AIA’s value of new business, a key measure in the insurance industry that indicates profitability, grew 17 per cent year on year to US$1.95 billion, from US$1.6 billion a year earlier. A strong momentum in China and a recovery in Thailand and Singapore would have led new business value growth, Lam said.

AIA enters insurtech arms race with snappy 3-minute-to-buy online platform

Hong Kong led the way with US$796 million worth of new business growth, followed by China with US$556 million, and Thailand with US$204 million.

AIA declared basic earnings per share of US$0.19, a drop from US$0.24 a year earlier, while diluted earnings per share were also down to US$0.18, compared to US$0.24. Results were slightly ahead of analyst’s estimates of a 29 per cent fall for year-on-year growth, to US$0.17.

Shares of the company opened down 3.8 per cent after the results were announced, and were trading off just over 3 per cent at 10am at HK$65.85.

Asia’s exploding middle class, including China, will drive AIA’s insurance growth, says CEO

The insurer, which counts Hong Kong as its largest regional market, had reported a 20 per cent rise in new business in its first quarter this year, led by demand in China and Hong Kong. In 2017, China, the world’s third-largest life insurance market, was its fastest growing business, thanks to the increase in the number of active agents and the extensive use of digital technology, which drove higher agent productivity levels.

The company highlighted in February that it was ready to expand in China once the government fully opened up the sector to foreign firms and relaxed limitations on overseas insurance businesses, in 2021. Currently, AIA’s China unit is already 100 per cent owned by the firm and it has licences to operate in selected provinces and cities, including Guangdong, Jiangsu, Beijing, Shanghai and Shenzhen.

“With the drivers underlying our business – growing populations; the awareness and need for protection, the lack of social care and greater incomes – we see there is a big demand for our services,” said Garth Jones, AIA’s chief financial officer. “We think there is a big protection gap between how much coverage people have, and how much we feel they should have. Our job is to do what we can for society to increase the penetration of insurance.”

Fintech has been a key focus for the insurer this year.

In June, it launched a new online sales platform via smartphone or computer, to enable customers to buy products in three minutes. The move came in the wake of a push by the Insurance Authority last September to encourage insurers to use technology to reduce costs and enhance services.

AIA also introduced a robot named Andy in May, to answer insurance-related questions from customers.

“At least 80 per cent of our new sales in all markets are done digitally,” said Ng. “This will be a very important part of how we continue to drive productivity and a new way of engaging with our customers.”

Insurtech, or the use of big data technology, is a fast-growing global sector, with the Asia-Pacific region behind the US and Europe. Data from venture capital database CB Insights indicates insurtech investment globally totalled US$1.7 billion in 2016, double that of 2014.

In February AIA changed its financial year-end date from November 30, to December 31. It will celebrate its 100th anniversary in 2019.