AIA 2015 Profit Falls on Weak Asian Currencies, Stock Rout

We're Delivering on Our Promises: AIA's Tucker
  • Net income falls 22% from year earlier to $2.69 billion
  • The insurer announced a surprise 50 percent dividend increase

AIA Group Ltd., the third-largest Asia-based insurer by market value, posted a 22 percent decline in full-year profit as weaker regional currencies and stock-market gyrations detracted from business growth.

The insurance company announced an unexpected 50 percent increase in its final dividend even as net income fell to $2.69 billion, or 22.41 cents a share, in the year to Nov. 30, from $3.45 billion, or 28.73 cents a share, a year earlier. Fourteen analysts estimated a profit of $3.35 billion, according to data compiled by Bloomberg.

AIA has come under pressure after currencies in five of its six-largest markets depreciated by as much as 21 percent during the year, according to data compiled by Bloomberg, and the MSCI Asia-Pacific ex-Japan Index dropped 14 percent. Compounding that, China has tightened capital controls to stem money outflows.

"Sentiment may be dented but the fundamental growth in the region is not derailed,” Mark Tucker, AIA’s chief executive officer, said during a call with reporters on Thursday, referring to recent financial markets volatility and long-term regional opportunities driven by increasing urbanization, growing income and demand for insurance policies. The final dividend increase "demonstrates our tremendous confidence in AIA’s future growth prospects" and consistently strong results over the last five years, he said.

The Hong Kong-based insurer’s 51 Hong Kong-cent final dividend boosts the full-year payout to 69.72 Hong Kong cents, it said in a statement to the city’s stock exchange Thursday. The full-year number is 39 percent higher than a year ago, and future dividends will grow this higher base, Tucker said during the call. AIA’s shares rose 1.4 percent to HK$39.70 at 10:12 a.m. in Hong Kong.

Operating Profit

New business value, a measure of future profitability of new policies that has been the management focus, jumped 19 percent to $2.2 billion, compared to a 17.4 percent median estimate of seven analysts surveyed by Bloomberg News. Operating profit after tax, which excludes $370 million net stock investment losses, rose 10 percent to $3.2 billion. New business value would have expanded 26 percent without the currency effect.

AIA’s new business value and operating profit were "modestly better than expected," Citigroup Inc. analyst Darwin Lam wrote in a note. The final dividend increase is “a positive surprise."

AIA, which has presence in 18 Asia-Pacific markets, sells policies mostly in local currencies and reports financial figures in dollars. It tries to match the currencies of its investments with those of its insurance sales. AIA books mark-to-market gains and losses on equity investments through its profit and loss account.

BNP Paribas SA’s Dominic Chan, who has a buy recommendation for the stock, cut his estimates for AIA profit last year and this year by as much as 15 percent because of weakening Asian currencies and paper losses on its stock investments.

China Restrictions

China recently vowed to tighten enforcement of a cap on the purchases of insurance products using UnionPay debt and credit cards at $5,000 per transaction.

The country’s foreign-exchange regulator is tightening restrictions to help stem money outflows that topped $1 trillion last year as economic growth slowed and the currency weakened. Mainland Chinese have been flocking to buy insurance policies in Hong Kong for better service and also to skirt curbs on moving money out of the country.

Capital-control rules were not new, Tucker said on Bloomberg Television on Thursday after the earnings. China’s tighter enforcement of those rules will have "minimal impact" on AIA as the amount of policies affected is small, he added.

Hong Kong and China accounted for almost 50 percent of AIA’s new business value in 2015, up from 44 percent a year earlier, its two-fastest growing markets. Chinese visitors contribute about 30 percent of sales in Hong Kong, according to a Credit Suisse Group AG report dated Feb. 19. Hong Kong new business value surged 32 percent to $820 million, according to the AIA statement.

AIA’s annualized new premium grew 8 percent to $3.99 billion last year, or 14 percent without currency translation losses. New business margin, or new business value as a percentage of annualized new premium, widened 4.9 percentage points to 54 percent.

AIA’s shares dropped 16 percent this year through Wednesday, compared with the 18 percent decline of the Hang Seng Finance Index. The insurer’s share price has almost doubled from its October 2010 initial public offering, after profit beat analyst estimates in the first three years as a listed company.

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