Hong Kong-Based AIA Group Beats Estimates With 22% Jump in Profit

By | February 26, 2015

AIA Group Ltd., the third-largest Asia-based insurer by market value, posted a bigger-than-expected 22 percent increase in full-year profit, led by business growth in China and Hong Kong.

Net income climbed to $3.45 billion, or 28.73 cents a share, in the 12 months through November, from $2.82 billion, or 23.5 cents a share, a year earlier, the Hong Kong-based insurer said in a statement to the stock exchange Thursday. The value of new business, a measure of future profitability of new policies, jumped 24 percent to $1.85 billion.

AIA beat estimates for the third time in the past five full years. Chief Executive Officer Mark Tucker has boosted the number of agents, improved their productivity and shifted toward more profitable products since taking over as CEO months before AIA went public in October 2010. The insurer’s new business value has nearly tripled since 2010 and share price more than doubled over that of its initial public offering, outperforming peers.

“The general quality of the business continues to grow, continues to put the right foundation into place,” Tucker said in a Thursday interview with Bloomberg Television, adding he’s “tremendously excited about the future.”

AIA’s profit beat the $3.19 billion average estimate of 14 analysts, according to data compiled by Bloomberg. The increase in the value of new business exceeded the 22 percent median projection of five analysts surveyed. Tucker has singled out the figure as a key measure of management performance.

Stock Rally

The markets that AIA operates in will have four times the total population, twice the urban residents and eight times the spending power of Group of Seven nations by 2020, Tucker said in a separate call with reporters on Thursday. There will be an “immense need” for AIA’s life-insurance products, given the low government social spending and private insurance ownership in the company’s markets, he said.

Shares of the insurer was little changed in Hong Kong trading today, closing at HK$45.75 after touching a high of HK$46.45 in the morning session.

“The results were good,” Andrew Sullivan, head of sales trading at Haitong International Securities Group in Hong Kong, said in an e-mail. As the stock approaches its Jan. 28 record of HK$46.35, “it will need a catalyst to break out.”

Shares of AIA have surged about 132 percent since its IPO through Wednesday, outperforming the 29 percent advance of the Bloomberg Asia-Pacific Insurance Index, which tracks 24 such companies. Bullish bets on the stock climbed to the highest in four years before Thursday’s announcement.

Regional Markets

Operating profit after tax, which excludes $508 million of net stock investment gains, rose 16 percent last year to $2.9 billion. Annualized new premium, which tracks new policy sales, grew 11 percent to $3.7 billion after depreciating local currencies hit markets including Thailand, Singapore and Malaysia. The insurer sells policies in local currencies in 17 regional markets and reports financial results in the dollar.

Operating profit in China, where AIA runs the only fully foreign-owned life insurer, increased 38 percent, according to the statement. The value of new business in China for the insurer, which traces its roots to Shanghai more than 90 years ago, jumped 55 percent to $258 million. The country is now AIA’s fourth-largest market by both measures.

Industry sales in China had declined since 2011 amid tightening regulation over bancassurance and as yields on insurance policies became less attractive compared with bank deposits or wealth management products, Credit Suisse Group AG analysts Arjan van Veen and Frances Feng wrote in a Feb. 12 report. It has been recovering since early 2013, they added.

China Opportunity

“The China opportunity is a phenomenal one,” Tucker said in the interview, adding that the size of AIA’s China business has quadrupled in the last four years.

AIA’s new business in Hong Kong surged 32 percent to $619 million, while operating profit in the city rose 17 percent to $905 million, the largest among its markets.

The value of new business jumped 34 percent in Malaysia, and expanded at least 11 percent in Thailand and Singapore.

AIA’s embedded value increased 10 percent to $37.2 billion last year. The measure is used to assess the economic worth of life insurers. It had $7.8 billion of free surplus at the end of November, an indicator of its ability to do deals such as acquisitions and add new bancassurance channels in addition to support new policy sales.

The insurer announced in December 2013 an exclusive 15-year bancassurance agreement with Citibank in 11 Asia-Pacific markets. It began to sell policies under the deal in Hong Kong and Singapore in the second quarter.

AIA was among insurers shortlisted for a 15-year exclusive bank distribution deal, valued at $1.5 billion, with Singapore’s DBS Group Holdings Ltd., Reuters reported earlier this month, citing unidentified people.

AIA raised its final dividend by 19 percent to 34 Hong Kong cents a share, bringing full-year payout 18 percent higher at 50 Hong Kong cents, according to the statement.

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