Posted on Feb 24, 2012 by Sergio Ulloa
AIA Group Ltd, Asia's third largest insurer by market value, has posted a stronger than expected rise in new business value for 2011, driven by sustained premium income growth in Malaysia, Singapore and China over the past year.
The Hong Kong-based insurance giant has been able to build on the strong sales momentum throughout the year to provide life insurance protection and savings solutions to an increasing number of clients worldwide.
In a company statement filed to the Hong Kong Stock Exchange on Friday, AIA reported that the value of new business (VONB) had risen by a record 40 percent for the year ending November 30th 2011. VONB, a measure AIA uses to project future profitability for its new business, improved to US$932 million in the last fiscal year from US$667 million in 2010. This considerable growth was made further evident in the underlying VONB margins, which rose by 4.6 percentage points from a year ago to 37.2 percent, AIA said. Annualized-new-premium (ANP), a periodic gauge for new sales, meanwhile managed to grow by 22 percent up to US$2.47 billion for the year. These figures beat out a consensus of industry analyst's estimates that originally forecast a 30 percent increase in VONB, with around US$870 million in new business value projected for AIA for the year.
AIA has attributed the substantial increase in new business value to improved recruitment efforts, productivity boosts, product pricing improvements and margin growth across Asia. In the breakdown, AIA's Hong Kong operations, the insurer's home and most lucrative market, reported a 45 percent rise in VONB year-on-year to US$305 million due to improved agency sales and higher margins combined with a better product mix, the company said. The Chinese city-state accounted for almost 30 percent of the company's new business value in 2011, with an operating profit after tax of US$736 million. AIA's Business on the Mainland meanwhile achieved an excellent 50 percent increase in VONB during the year to US$102 million by November. China has become AIA's third largest growth driver in the past year. According to the company statement, AIA's operating profit after tax in China jumped by 70 percent last year to US$119 million, helped by a one-off US$14 million tax provision the insurer received in 2010. New-business value also surged by 58 percent in Singapore, while in Malaysia it jumped by 49 percent. Thailand was another country which delivered better-than-expected results. The emerging Southeast Asian power accounted for US$227 million in VONB for 2011, 22 percent of AIA's year-end total. The value of new insurance business in Thailand was able to grow by 30 percent for the year despite severe losses in the fourth quarter caused by heavy flooding around the Bangkok region.
AIA has worked to boost the profitability of new business and agent productivity over the past few years by launching higher-margin life, health and accident insurance products in Asia's emerging powerhouse economies, re-pricing existing protection products, and encouraging agents to offer supplemental riders to these sizeable populations with newfound disposable income. The insurer has also worked to increase its number of regional bank partners and improve its bancassurance, promotion and distribution platforms. AIA's bank partners in the region now include Australia's ANZ Bank and Citibank, who have a presence in 14 major Asia Pacific markets. Going forward, the insurer's ability to develop new business partners, adjust, and move away from lower margin products in Asia will continue to boost earnings.
Despite the considerable business growth however, AIA's net profit attributable to shareholders fell by 41 percent to US$1.6 billion from US$2.7 billion a year earlier. The insurer attributed this sharp drop to investment losses and ongoing international equity market turbulence, which affected the value of its assets in the second half of the year. AIA's operating profit after tax (OPAT) meanwhile, before these investment losses, was 13 percent higher than 2010's figures, at US$1.9 billion.
Going forward, AIA will remain focused on developing their business in Asia Pacific insurance markets due in no small part to the relatively stagnant economic forecasts in Europe and the United States as well as ongoing concerns surrounding the Euro-zone sovereign debt crisis. Asian markets, with predominantly younger workforces and higher savings rates, are better poised for sustained premium growth at this moment. The rise in per capita wealth and affluence in Asia has come alongside rising global healthcare costs and increased demands for secure and stable long-term savings and investment solutions. Asian markets "put us in a very strong position to optimize opportunities for further growth and generate strong and sustainable returns for our shareholders," AIA Chief Executive Mark Tucker said in the statement.
While Tucker further admitted that "the potential exists for continuing global economic uncertainties to have a negative impact upon Asian economic growth rates and consequently upon AIA's business," in the absence of such an event under-penetrated insurance markets should present ample opportunity for further business development. Asia's present wealth, favourable demographics, low-penetration rate and promising long-term economic forecast will continue to drive a substantive demand for AIA's savings, investment-linked and life insurance products.
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.