Posted on Aug 01, 2011 by Sergio Ulloa
The pan-Asian insurance giant American International Assurance (AIA) has posted stronger-than-expected financial results for the first half of 2011. The Hong Kong-listed insurance company reported last week that net profit for the first six months of its fiscal year had risen by almost a quarter due to increased agent productivity and the continued success of its insurance businesses in key Asian markets, a trend AIA expects to continue.
In a company statement released on Friday, AIA confirmed a 24 percent rise in net profit, from US$1.06 billion up to US$1.31 billion, for the first six months of 2011 ending May 31. AIA attributed these positive results largely to new incoming business from its life insurance operations in more developed Asian economies, which grew by 32 percent to US$399 million from US$303 million from the same period a year prior. Total annualized premiums from these new businesses in turn rose by 23 percent to US$1.09 billion.
AIA has credited much of this success to the continued development and improvement of its agency model in the large Asian insurance markets it operates in. The company stated that they had increased their number of active agents by 9 percent during the first half of the year and had seen an ensuing 17 percent increase in productivity per agent since 2010. AIA has in turn been introducing the higher-margin traditional life, health and accidental insurance policies into these large markets and encouraging agents to also sell more riders and supplemental products to these populations with newfound wealth. According to AIA, the tied agency force was accountable for 78 percent of the insurance group's new business and for 72 percent of the group's total annualized new premiums in the first half of 2011.
The insurer has also worked hard this year to cultivate relationships with bank partners and improve upon its alternative bancassurance and direct marketing distribution platforms, currently comprising 25 percent of the company's business. AIA has established regional bancassurance partnerships with several firms, including Australia's ANZ Bank and Citibank, who operate out of 14 major Asian markets. The insurer has then been able to both upgrade the value of and increase sales of its banacassurance operations by adjusting and re-pricing the products sold through its bank partners. According to AIA, these measures have enabled bancassurance to grow by up to 18 percent during this period.
Broken down more specifically market-by-market, the value of AIA's new business portfolio in China grew by 47 percent in the first half of the year to US$44 million, while Hong Kong increased 27 percent to US$121 million, and both Singapore and Thailand posted over 50 percent growth rates with US$78 million and US$101 million in new business during the first six months of 2011 respectively. China has now become the group's third largest growth driver.
Cumulatively, AIA said its net premiums and fee income for the period had risen 13 percent to US$5.78 billion. Operating profit after tax meanwhile rose 8 points to US$967 million, from US$899 million in the first half of 2010. As a result of these positive figures, which consistently beat market estimates, the insurer announced that it would pay out HK$0.11 per share as a half-year dividend. The company would finance the dividend payout from operating cash-flow generated by the group's ongoing businesses and would represent about a third of the 2011 full-year dividend, according to AIA's statement.
This would be the company's first dividend payment since it was first listed in Hong Kong on October 29 last year, when AIA raised record proceeds of HK$138.33 billion from the international placement of its new shares which was the world's third-largest initial public offering at the time. Meanwhile, the price of AIA shares jumped up 4.7 percent to a record HK$29 a share in early trading last Friday before falling back to HK$28.55, or 3.4 percent up, at close, still around 45 percent above their HK$19.68 initial public offering
price. Confidence in AIA has been sustained, with investment income rising by 17 percent to US$2.04 billion despite the continued volatility in the global capital markets.
AIA's Chief Executive and President, Mark Tucker
said in a press conference that the dividend payment was demonstrative of the robust cash flow intrinsic to AIA's business. The company now has a solvency ratio exceeding 356 percent, equating to roughly US$5 billion in reserves. "We are confident in our ability to maintain a prudent and progressive dividend, in addition to being able to self-finance our strong new business growth," said Mr. Tucker.
Asia's promising long-term economic forecast coupled with the region's demographic trends will continue to fuel a substantive demand for AIA's savings and protection products. The insurer has maintained limited exposure to the sovereign debt problems in the United States in Europe and has intimated that the majority of the company's investment rests in Asia in order to match its assets and liability locally. Mr. Tucker concluded that there could be much more to come as the insurance giant aims to close the trillion dollar gap in coverage between the West and the East. "The scale of our franchise, our financial strength, our motivated staff and agents, our product innovation and pan-regional expertise are some of the competitive strengths we can deploy to create value from this Asian opportunity. We are highly confident about AIA's ongoing growth in Asia."
Insurance Company Mentioned
AIA is a Hong Kong-based life insurance company doing business across Asia that has been in business since 1919. They service over 20 million policies through 23,000 employees and 300,000 agents throughout markets in Asia, including; Vietnam, Thailand, Taiwan, South Korea, Singapore, Philippines, New Zealand, Malaysia, Macau, Indonesia, India, Hong Kong, Mainland China, Brunei and Australia.