AIA Group – FY2019 Results

The Covid-19 pandemic will cause a significant disruption to business in the short term but AIA is well positioned to benefit from strong domestic drivers of demand and major demographic trends in Asia.

AIA is the largest publicly listed pan-Asian life insurance group with a presence in 18 markets across the Asia-pacific region including: Hong Kong, China, Thailand, Singapore, Malaysia, Philippines, Australia, New Zealand, Sri Lanka and India. AIA was previously part of AIG prior to listing in Hong Kong in 2010.

Despite the challenges it had to face during the year, in particular the Hong Kong protests, AIA delivered a resilient performance in FY2019. Value of new business (“VONB”), the present value of future profits associated with new business written during the year, is a key metric watched by insurance analysts. VONB grew by 6% to $4.2bn in FY2019 as very strong growth in Mainland China (+27%) was largely offset by a decline in Hong Kong (-5%).  Social unrest in Hong Kong during the second half of the year in Hong Kong led to a substantial decline in VONB from the Mainland Chinese visitor segment. Agency distribution, which accounts for roughly 75% of VONB grew 11% during the year whereas partnership distribution VONB reduced by 1%. Embedded value (“EV”), the present value of future profits and adjusted net asset value is another key metric that is watched by insurance analysts, had strong growth ending the year at $62.0bn (+12%).  From an IFRS perspective operating profit after tax (“OPAT”) increased by 9% to $5.7bn despite low interest rates in the second half of the year. The OPAT margin decreased 50bps to 17% due to change in product mix in the portfolio. Operating ROE remained constant at 14.4%.

AIA faced significant headwinds during F2019 namely the trade tensions between the US and China as well as the impact of the Hong Kong protests. Covid-19 will also provide a significant challenge to AIA. Management expect a temporary but significant disruption in the near-term. The speed of the recovery and extent of any long-term impact remain uncertain but will depend on the duration and severity of the outbreak as well as associated containment measures.

Despite these headwinds AIA remains well positioned to benefit from strong domestic drivers of demand and major demographic trends in Asia that provide powerful structural support for the long-term prospects of AIA’s business. Insurance products have attractive growth prospects given the rising incomes, low levels of private insurance penetration and limited social welfare coverage. AIA is also exposed to a well-diversified customer base across 18 different geographical markets. Through its competitive advantage in distribution, a mix of agencies (74%) and partnerships (26%), AIA is able to reach millions of customers across these markets.

AIA is well capitalised with a solvency ratio of 362% which is more than two times the statutory minimum requirement. The Insurance group has submitted an application to convert its Shanghai Branch to a 100% wholly-owned subsidiary. The conversion has the potential to free up capital as the Shanghai branch is currently subject to Hong Kong capital requirements which are generally more stringent that other regions.