AIA Shares Gain on Record New Business, Operating ProfitBei Hu
AIA Group Ltd., the second-largest Asia-based insurer, said the value of new business and its operating profit hit records in 2013 even as profit dropped in the year to November on weaker stock markets.
AIA reported a 25 percent increase in the value of new business in 2013 to $1.5 billion, it said in a statement to the Hong Kong Stock Exchange today. That surpassed the 23.4 percent growth median estimate of eight analysts surveyed by Bloomberg. After-tax operating profit grew 16 percent to a record $2.5 billion from a year earlier while net income slipped 7 percent.
Chief Executive Officer Mark Tucker has said investors should look beyond short-term swings in net income and focus instead on new business value, a gauge of projected future profitability of new policies that he has adopted as the management team’s key performance measure.
“AIA could easily beat our 17 percent value of new business growth forecast for 2014 and remains the best of the pack,” Bank of America-Merrill Lynch analysts Karen Chan and Charles Zhou wrote in a research note today.
AIA’s new business value is on track to triple since 2009 as it increases the number of agents, improves their productivity and shifts toward more profitable products. The cumulative increase in its operating profit since public listing is about half, the Hong Kong-based company said.
Annualized new premium, which tracks new policy sales, grew 24 percent to $3.3 billion. New business margin, or new business value as a percentage of annualized new premium, widened by 0.5 percentage point to 44.1 percent over the 12 months.
AIA’s net income beat analyst estimates in two of the three years since the former unit of American International Group Inc. went public in October 2010.
The insurer’s shares slipped 0.1 percent to close at HK$37.30. The shares gained 90 percent over the initial public offering price, outperforming the 8.8 percent retreat of the Bloomberg Asia-Pacific Insurance Index, which tracks 24 insurers in the region. AIA fell as much as 14 percent since an October peak as worries about the global economy fueled stock market corrections.
Before today’s announcement, analysts at Credit Suisse Group AG and Deutsche Bank AG had highlighted challenges including weaker Asian currencies and stock markets as well as political turmoil in Thailand, one of AIA’s largest markets.
AIA’s net income slipped to $2.82 billion, or 23.5 cents a share, in the 12 months through November, from $3.02 billion, or 25.1 cents a share, a year earlier. The profit compared with the $2.83 billion mean estimate of 10 analysts, according to data compiled by Bloomberg.
AIA booked $424 million of net gains from stock investments in its income statement, 46 percent less than in 2012. Stock losses led to a 41 percent drop in AIA’s profit for 2011, the only previous year when its earnings missed analyst estimates compiled by Bloomberg.
The insurer operates in 17 markets, selling policies in local currencies and reporting financial figures in dollars.
Currencies in Thailand and Malaysia, its second and fifth markets by new business value, have depreciated more than 6 percent against the greenback since the end of May 2013 as the anticipated scale-back of monetary stimulus in the U.S. reduced demand for emerging market currencies.
“We’re deeply committed to all the countries we’re currently in,” Tucker said during a call with reporters today. “No amount of volatility will change our commitment. We’re here for the long term.”
Political turmoil in Thailand may create opportunities for AIA because the country’s economy is sound and as rivals with marginal business in the country reassess their presence, Tucker said.
AIA signed in December that an exclusive 15-year bancassurance agreement with Citibank to sell policies in 11 Asia-Pacific markets, which involved a $800 million initial payment, it said in today’s statement. AIA plans to start selling policies under the deal in Hong Kong and Singapore in the second quarter, expanding to other locations later and gradually building up the scale of distribution, Tucker said during the call.
AIA’s embedded value increased 8 percent to $33.8 billion last year. The measure is used to assess the economic worth of life insurers.
The company declared a final dividend of 28.62 Hong Kong cents a share, bringing full-year payout to 42.55 Hong Kong cents, 15 percent more than last year.