AIA Group Ltd, Asia’s No.3 insurer, reported a 40 percent rise in value of new business for its fiscal full year and growth in Thailand despite last year’s devastating floods, surprising analysts and sending its shares up more than 3 percent.
Value of new business (VONB), a key metric for insurance companies that measures the present value of future business, rose to $932 million for the year ended Nov. 30, while VONB margin climbed 4.6 percentage points to 37.2 percent, AIA said.
Those numbers overshadowed a 41 percent drop in net profit that AIA, one-third owned by bailed-out insurer American International Group, suffered due to stock investment losses.
“The value of new business came in way above consensus. We were looking for $883 million and we were at the high end of street estimates,” said Stanley Tsai, an analyst at Keefe, Bruyette & Woods in Hong Kong.
“Volumes were in line or slightly below expectations, but margins were very high. That was driven mainly by Hong Kong and Thailand,” Tsai said.
Embedded value, another measure that analysts watch closely, rose 10 percent to $27 billion for AIA in 2011.
Shares of AIA closed up 3.3 percent, near a seven-month high, at HK$28.30 on the Hong Kong Stock Exchange. The benchmark Hang Seng index was flat.
The margin on new business growth in Hong Kong in 2011 was 56.1 percent. In Thailand, it was 48.8 percent. Singapore also reported a high margin on new business growth of 62.3 percent.
Thailand’s growth and margin on that growth came as a surprise to many analysts who had revised their models to reflect slower growth after last year’s floods.
“The company demonstrated a very strong improvement in the new business margin,” said Bao Ling Chan, regional head of insurance for Asia-Pacific equity research at JPMorgan.
“Shifting toward the sale of protection-type products is gaining traction,” Chan said. The margin on protection-type insurance products is typically higher.
Net profit for the fiscal year fell to $1.6 billion, or 13 cents per share, from $2.7 billion, or 22 cents per share, a year earlier.
The slide in net profit came mainly from $207 million worth of mark-to-market losses in AIA’s equity portfolio. In 2010, that same portfolio provided an $853 million boost.
AIA CEO Mark Tucker told journalists that AIA’s net profit figure does not include $500 million worth of gains on bond investments and that as of Friday morning, AIA estimates its negative mark-to-market movement in equities would have been fully reversed.
With much of the world facing economic uncertainty, Asia’s relatively high savings rate and growing middle class are making it a battleground for insurance companies that can either grow organically or through acquisitions.
Right now, several insurance assets are up for sale, including ING Groep NV’s Asia operations. At the end of last year, ING valued its Asia-Pacific insurance operations at 5.8 billion euros ($7.68 billion), with an additional 0.3 billion euros from the investment management business being attributed to Asia.
Its sale would be the region’s second-biggest insurance sale ever and AIA is expected to be among the bidders, sources have told Reuters.
At the end of November, AIA had cash and cash equivalents of $4.3 billion.
“We’ve not said anything and we have no intention of until the appropriate time,” Tucker said on a conference call on Friday.
“We will look at opportunities, but we are 99 percent focused on organic growth. That’s where our time and energy is spent and that will continue,” he said.
In its results filing with the Hong Kong bourse, AIA broke out its 2011 new business growth by six countries and one “other” category. Of those, four countries had new business growth of 45 percent or higher. Four countries had margins on their new business growth of 47.2 percent or higher.
AIA said its future performance would depend on the global economy, noting continuing uncertainties could “have a negative impact on Asian economic growth rates and consequently upon AIA’s business.”
But it said that, in the absence of major external shocks, an “immense opportunity exists for AIA given present levels of wealth, the significant protection gap across the region and likely future economic growth.”
AIA is the Asian life insurance unit spun off by American International Group in late 2010. Strong results from AIA have helped AIG’s profits.
AIG executives have recently floated the idea of buying back a majority stake in AIA, but they’ve also said it would not happen anytime soon.
Tucker said that AIG had not communicated anything to AIA.
“AIG is an important and a very good shareholder and what they want to do with their stock is completely within their own remit, but they have not communicated anything to us,” Tucker told journalists.
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