Sasfin Global Equity Fund spotlight: AIA - Changing Asian demographics provide a long-term tailwind to earnings
The Sasfin Global Equity Fund seeks to grow capital over the longer term by investing in large capitalisation, quality companies with a good growth trajectory, strong management and where possible, a strong moat. That moat may be an established barrier to entry for competitors or some unique company offering that isn’t easily replicable.
One of the Sasfin Global Equity Fund’s holdings is Hong Kong Stock Exchange-listed AIA, the world’s largest life insurer by market capitalisation (HK$847bn or US$108bn)
The fund looks to acquire such companies at a fair price and to de-risk the overall fund by being well diversified across geographies, currencies, and industries. One of the fund’s holdings is Hong Kong Stock Exchange-listed AIA, the world’s largest life insurer by market capitalisation (HK$847bn or US$108bn). AIA was first established in Shanghai in 1919 and today maintains its 100% focus on the Asia-Pacific region with a presence in 18 markets (from China, Hong Kong, Thailand, Taiwan and Singapore to Australia, New Zealand, the Philippines, Sri Lanka, and Vietnam). AIA also owns 49% of a joint venture in India. Apart from life insurance, the company offers accident and health insurance along with savings and investment products and services and promotes itself with the tagline “Healthier, longer, better lives”.
In 2021 AIA paid out $16bn in benefits and claims over a total sum assured book of $2 trillion
In the previous financial year, AIA served the holders of over 39 million individual policies and over 16 million participating members of group insurance schemes. In 2021 the company paid out $16bn in benefits and claims over a total sum assured book of $2 trillion. In 2022 the company notched up its eighth consecutive year atop the global Million Dollar Round Table (“MDRT”) leader board with the most MDRT members at its service. MDRT, considered the premier global association of financial professionals, sets strict ethical conduct and service standards for its members, and sets the bar for excellence in the life assurance and financial services industries.
AIA sees significant opportunity in Asia
AIA sees significant opportunity in Asia over the next decade with 30 million people expected to be added to the population between 2020 and 2030 and with 50% of global growth over that period expected to come from Asia ex-Japan. Coupled with that, the middle class is expected to grow by 1.1 billion people to 2.6 billion people by 2030 with an estimated 850 million of those over 60 years of age by the end of the decade. The COVID-19 pandemic has also driven home a greater focus on health and health protection in the region. With its scale, expansive MDRT distribution network and its market-leading position in many of the territories in which it operates, AIA is well-placed to benefit from these changing demographic trends. Key partnerships in the health and wellness space complete the AIA offering and AIA has joint ventures with JSE-listed Discovery in AIA Vitality and amplify health.
AIA should contribute positively to the longer-term returns of the Sasfin Global Equity Fund
The company’s recent interim results reflected a 13% decline in the value of new business (“VNB”) as a result of the Chinese lockdown restrictions. The VNB, however, turned positive for the group in June and the trend in Mainland China has been improving month by month (although still modestly negative in June). With new business and the returns from the existing book of business, AIA reported an 8% increase in its embedded value (“EV”) operating profit, a 4% increase in operating profit after tax, a 3% increase in Group EV and a 6% increase in its interim dividend per share. The weaker financial markets over the period, however, resulted in substantial investment write-downs that left the company in a net loss position for the six months. The investment returns will take care of themselves over time and the strong management team will focus on what they can control, the operational side of the business.
The key takeaway
With its strong cash flows, strong balance sheet and growing VNB in the years to come, AIA should experience a re-rating over time that should contribute positively to the longer-term returns of the Sasfin Global Equity Fund
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