AIA reports 50% profit jump on surging policy sales to mainland Chinese visitors

Net profit rose 50 per cent in the six months to June to US$2.25 billion (HK$17.6 billion), or 19.39 US cents per share, according to an exchange filing on Thursday. Operating profit after tax increased 0.2 per cent to US$3.27 billion. The insurer adopted the new IFR17 accounting standards for insurance business this year, and adjusted the comparison figure a year earlier.

AIA’s value of new business (VONB), an important measure of sales and future growth, surged 37 per cent to US$2 billion, beating the 29 per cent estimate by Nomura. Income from investments rose 9 per cent to US$1.72 billion, aided by a more stable capital market.

“With the pandemic disruption behind us, the strength of AIA’s unrivalled distribution platform across Asia has powered a return to very strong new business momentum,” CEO and president Lee Yuan Siong said in results media briefing. “All of our reportable segments and distribution channels delivered higher VONB.”

AIA’s improved showing marked an ongoing recovery for many businesses that were affected by the border closure from 2020 to earlier this year. The strong VONB growth came on the back of a 6 per cent increase in the second half, after Hong Kong relaxed its inbound travel restrictions.

In the first half, 13 million travellers visited Hong Kong, including more than 10 million mainland Chinese, according to data published by the Hong Kong government.

AIA grew its business through some acquisitions, spending HK$2.2 billion (US$280 million) on health insurer Blue Cross (Asia-Pacific) a year ago, and HK$5.07 billion on BEA Life in March 2021. It also spent 12 billion yuan (US$1.86 billion) to buy a 25 per cent stake in China Post Life Insurance in mid-2021.

“We are happy with the performance of [the new business from] the three acquisitions and partnership with Bank of East Asia both in Hong Kong and in mainland China. They have actually performed better than our expectations,” Lee said.

Lee said AIA has a US$16.3 billion surplus which could support future expansion.

“Financially, our surplus position is very strong, and we are always on the lookout for opportunities to complement our capabilities. But we remain very disciplined financially,” he said. “Whatever investments or acquisitions will have to make financial sense and aid strategic development.”

AIA’s shares rose 3 per cent to HK$71.7 at the start of trade on Thursday morning after the results announcement which came before the market opened. They later retreated, dropping by 0.4 per cent to close at HK$69.7. The broader Hang Seng Index advanced 2 per cent.

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The Hong Kong-based insurer declared an interim dividend of 42.29 Hong Kong cents per share, up 5 per cent from a year earlier, and payable on September 26.

The full reopening of China’s southern border with Hong Kong on January 8 was a relief for AIA, with the two business areas accounting for 59 per cent of new sales in the first half of 2023.

AIA Hong Kong’s VONB more than doubled to US$681 million as mainlanders return to buy products to hedge the risks of a falling yuan. China’s currency has weakened more than 5 per cent against the US dollar this year and last week reached the lowest level since October.

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The insurer, which traces its roots to 1919 in Shanghai, continued expanding in mainland China with a new branch in Zhengzhou, Henan province in May, after adding Hubei to its network last year. This, together with the removal of all Covid-19 restrictions in the country, boosted mainland China’s VONB by 14 per cent to US$601 million.

AIA’s three biggest markets in Southeast Asia all reported growth in the first half. Thailand saw the biggest growth at 28 per cent, followed by Malaysia and Singapore at 10 per cent and 5 per cent, respectively. Its other markets in Asia and Australia grew by 8 per cent.

“Mainland China offers tremendous potential for AIA, both within our existing footprint and in new geographies,” Lee said. “I am confident that we are well placed to achieve our growth ambitions in the second half of the year and beyond.”

Hong Kong insurers’ sales to Chinese visitors jumped 28-fold in first quarter

Analysts at HSBC, Citi and Jefferies were upbeat about the outlook for the insurer and its stock price.

“We continue to like AIA for its sustainable and consistent results delivery,” Citi said in a research note after the announcement, confirming its “buy” rating for AIA.

HSBC analysts said AIA and Prudential, which will be the next major insurer to announce its results next Wednesday, will see their share prices supported by strong policy sales in Hong Kong to mainland Chinese visitors, developments in the Insurance Connect scheme, and attractive growth in Southeast Asia.

“Growing conviction that new IFRS17 disclosure continues to support the thesis that AIA and Prudential can generate attractive contractual service margin and normalised earnings growth rates compared with the life industry,” HSBC analysts wrote in a report before the results.