AIA Group Ltd. (1299), the third-largest Asia-based insurer by market value, reported a stronger-than- estimated 24 percent increase in first-half profit, sending its shares to a record in Hong Kong trading.
Net income climbed to $1.31 billion in the six months to May, from $1.06 billion a year earlier, the Hong Kong-based company said in a statement to the city’s stock exchange. That beat the average estimate of $1.09 billion by five analysts surveyed by Bloomberg.
AIA Chief Executive Officer Mark Tucker, 53, set out to revive agent productivity and new policy sales after assuming leadership a year ago of the largest Asia-wide insurer by the 15 markets it operates in. The value of new business, Tucker’s key focus, surged 32 percent to $399 million in the first half, paving the way for future earnings growth.
The result “reflects success of management focus on higher margin products,” Credit Suisse Group AG’s Hong Kong-based analyst Arjan van Veen said in an e-mail.
The group declared its first dividend of 11 Hong Kong cents for the six months. Its shares climbed 3.4 percent to a record HK$28.65 at the close of Hong Kong trading.
Barclays Plc, Citigroup Inc. and Credit Suisse Group AG analysts expected AIA’s value of new business to have grown 19 percent to 25 percent in the six months. The gauge measures projected future after-tax profits of new policies sold in the period, minus the costs of holding capital in addition to regulatory reserves to support the business.
New business margin, or value of new business as a percentage of annualized new premium, widened by 2.3 percentage points to 36 percent, AIA’s statement said.
Annualized new premiums, which include all of the annualized first-year premiums and 10 percent of single premiums, rose 23 percent as the number of agents and their productivity increased in most of its markets, it added.
Embedded value, the estimated net worth of a life insurer excluding new business using actuarial and investment return assumptions, expanded 11 percent since November to $27.4 billion.
“This is an on ongoing journey,” said Tucker in a call with journalists. “While we see material growth, we’re really just getting started.”
AIA, which listed in Hong Kong in October, has been on a recovery path from troubles at bailed-out parent American International Group Inc. (AIG) following the collapse of Lehman Brothers Holdings Inc. in 2008 and a failed attempted takeover by Prudential Plc. (PRU)
AIA increased the number of active agents by 9 percent during the period and boosted agent productivity by 17 percent from a year ago, the statement said.
It introduced higher-margin traditional life insurance, accidental and health policies in its largest markets including Hong Kong, Thailand and Singapore, Goldman Sachs Group Inc. analysts Mancy Sun and Philippa Rogers said in a June 19 report.
It has also pushed agents to sell more riders, supplemental products attached to a basic policy typically for additional fees, they added.
AIA, which reports its results in dollars, further gained from appreciating currencies in the markets it operates in, Credit Suisse analysts said.
AIA declared it maiden dividend as its solvency ratio increased by 19 percentage points to 356 percent over the six months. The interim dividend is expected to account for about one-third of the full-year payment.
It may pay out 20 percent to 30 percent of its 2011 earnings in dividends, Citigroup and Barclays analysts estimated before the results announcement. Tucker declined to reveal the internal target ratio for dividend payout.
“This is the first step the company has taken to utilize its excess capital,” Barcalys analysts Mark Kellock and Thomas Wang said in a report today. “We see it as the first step taken to improve capital efficiency.”
Yet the European and U.S. debt crises may limit the company’s willingness to adopt an “aggressive” dividend policy, they added.
AIA seeks to match its local insurance liabilities with long-term investments in Asian bonds and stocks, Tucker said. The debt crises will not have a major impact on the insurer’s operations.
“We don’t have exposure to U.S. treasuries,” he added. “We have very tiny exposure to the countries in Europe and the sovereign issues there.”
It is too early to tell whether global economic conditions and investment environment would call for a revision of its operating assumptions, including investment yield, Tucker said.
Tucker, who said there was “at least one more big job in me” upon stepping down as Prudential group CEO in 2009, has “no immediate plan” to retire from AIA, he said in an interview with Bloomberg Television today.
Prudential attempted a $35.5 billion bid for AIA last year. The talks collapsed in June 2010 after AIG, which was selling assets to repay a U.S. government bailout, rejected Prudential’s revised offer of $30.4 billion after the British insurer’s shareholders baulked at the original price tag.
Shares of AIA, whose 54 percent profit surge in 2010 beat analysts’ estimates, advanced 27 percent this year through yesterday, the best performer of the 12 stocks in the Hang Seng Finance Index. (HSF) The index declined 6 percent in the same period.
Citigroup has a HK$30.2 price target for the stock, valuing it at 1.7 times this year’s estimated embedded value, a reported dated today said.
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