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Thursday, July 28, 2016, 22:40

AIA sees record $1.3b growth in businesses

By Lin Wenjie
AIA sees record $1.3b growth in businesses
The AIA Central building (left), home to the headquarters of AIA Group Ltd, is seen in the business district of Central, Hong Kong. Although Hong Kong remains the group’s strongest market, 50 percent of its new businesses in the city came from Chinese mainland visitors — up from 30 percent from the previous year. (Xaume Olleros / Bloomberg)

Hong Kong insurance giant AIA Group saw the value of its new businesses — a key measures of insurers’ profitability — soar 37 percent to a record $1.3 billion for the six months ended May 31, 2016, compared with the corresponding last year.

The result, which was within market expectations, was attributed mainly to the huge demand from Chinese mainland travelers who came to Hong Kong seeking insurance products.

According to AIA’s interim results released on Thursday, the group’s net profit fell 2 percent to $2.1 billion due to headwinds in the equity and real estate markets in the first half of the year. However, shareholders’ allocated equity went up by 6 percent to $28.2 billion.

AIA’s share price slipped 1.2 percent on Thursday to close at HK$49.05, while the Hang Seng Index closed down 0.2 percent to 22,174.34 points.

The company said the robust growth of its new businesses was driven mainly by the strong business momentum in the Hong Kong and mainland markets, which recorded 60-percent and 56-percent growth, respectively.

“The growth in the number of mainland customers in Hong Kong was due to a small base. Despite the strong growth rate, mainland customers only accounted for less than 10 percent of the total in-force policies,” AIA Chief Executive Officer Mark Tucker said.

“It’s also a trend for mainland people to buy insurance products both in Hong Kong and on the mainland due to rapid urbanization, increasing disposable income and population growth in the country,” he said.

AIA’s annualized new premiums climbed 31 percent to $2.4 billion, and the value of the new business margin rose 2.4 percentage points to 52.7 percent. Embedded value equity grew by 5 percent to $40.1 billion, driven by a strong embedded value operating profit growth of 28 percent. The solvency ratio remained strong at 381 percent.

Earnings per share were 0.17 Hong Kong cents and an interim dividend of 21.9 Hong Kong cents per share was recommended — 17 percent higher than that for the same period in the previous year.

Although Hong Kong remains the group’s strongest market, 50 percent of its new businesses in the city came from mainland visitors — up from 30 percent from the previous year.

Tucker is confident that the Hong Kong and mainland markets will continue to expand as both places don’t have enough insurance coverage.

“The mainland’s protection gap is $32 trillion, much higher than the $600 billion in Hong Kong,” he said. “So, we can see in the future that the mainland will become the largest market for AIA.”

Turning to the recent fluctuations in the currency markets, Tucker said AIA’s businesses are all calculated in US dollar terms, with a presence across 18 markets in the Asia-Pacific region. Therefore, the volatility in the currency market is not a big problem for the company.

He also noted that the direct real impact of Brexit is likely to be limited to the company’s daily insurance and investment operations given that AIA is a pure pan-Asia focused firm with no operations in the United Kingdom or the European Union.
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