Hong Kong company reporting season

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

Pan-Asian life insurer ready to expand in China as soon as government liberalises sector

PUBLISHED : Tuesday, 27 February, 2018, 8:42am
UPDATED : Tuesday, 27 February, 2018, 4:53pm

AIA Group, the largest pan-Asian life insurer, is upbeat on future growth and is ready to expand in China once the government fully opens up the sector to foreign firms, chief executive Ng Keng Hooi, said on Tuesday.

AIA also reported better-than-expected earnings for 2017, with a key gauge of the company’s future profitability hitting a new high, thanks to continued strong growth in new business in China and Hong Kong and a surge in investment returns because of capital market gains.

The China unit was the fastest growing business, with the value of new business up 60 per cent from a year ago to US$828 million on a constant exchange basis, thanks to the increase in the number of active agents and the extensive use of digital technology that has driven higher agent productivity levels, the company said.

“We are confident we can sustain our new business margin in China in the future,” Ng said.

The changes in the spending habits of China’s growing middle class as result of their increasing disposable incomes will be a key driver of AIA’s insurance business in the long term, he added.

The margin for the value of new business in China reached 85.5 per cent in 2017, the highest among regions.

Ng said the Chinese government announced late last year it would open up the finance sector and allow full foreign ownership of insurers in five years.

AIA’s China unit is already 100 per cent owned by the firm and currently has a licence to operate in selected provinces and cities, including Guangdong, Jiangsu, Beijing, Shanghai and Shenzhen.

Still, Ng expected the company to benefit if China further relaxes limits on foreign insurance business.

“We are excited about the announcement. We are ready to move into new provinces if they are open to us.”

He also expected Asia as whole to post strong growth in the next decade and said AIA will focus on organic growth, as the number of middle class people is estimated to double by 2025, which will drive demand.

Net profit for AIA jumped 48 per cent to US$6.12 billion for the twelve months ended November 30 on a constant exchange rate basis, compared with US$4.16 billion a year earlier, the company said in a filing to the Hong Kong stock exchange.

On an actual exchange rate basis, profit increased 47 per cent from a year earlier.

Previously, market estimates for 2017 net profit were between US$4.5 billion and US$5.8 billion, up 8 per cent to 39 per cent from a year earlier.

AIA’s stock jumped as much as 5.2 per cent to HK$66.5 on Tuesday, before closing up 3.7 per cent at HK$65.55.

The company collects most premiums in local currencies and reports financial results in US dollars.

The increase in profit was because of strong growth in operating profit after tax of 16 per cent to US$4.65 billion and positive short-term fluctuations in investment return of US$1.74 billion compared to US$97 million in 2016, AIA said.

The value of new business, a key gauge of the insurer’s future profitability which measures expected profits from new premiums, increased 28 per cent to a record US$3.51 billion on a constant exchange rate basis.

The figure was within the range of market expectations of US$3.38 billion to US$3.55 billion.

Basic earnings per share was 51 US cents, up 47 per cent year on year.

The China unit collected 56 per cent more annualised new premiums last year than 2016.

Hong Kong’s value of new business also expanded by double-digit growth, up 34 per cent year on year to US$1.55 billion. The city’s annualised new premiums were up 24 per cent from the previous year

Ng said Hong Kong’s business growth was largely thanks to strong agency force and diversified customer mix in the market.

AIA declared a final dividend of 74.38 Hong Kong cents per share, up 17 per cent from a year earlier, bringing the total dividend for 2017 to HK$1.

During an analyst briefing on Tuesday, AIA said it has used digital technology to raise the efficiency of its agents, claims and premium payment.

Still, the management emphasised they still see face-to-face interaction as the company’s key proposition.

“In our view, what stands out from the briefing is that the management talked about digital in more detail for the first time,” said Darwin Lam and Michelle Ma, analysts for Citi Group.

“[But] digital is an enabler [to raise efficiency] rather than disrupting AIA’s agency model.”