AIA loosens tight Chinese purse strings
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Katrina Hamlin
HONG KONG, Aug 22 (Reuters Breakingviews) -AIA 1299.HK is prising open the wallets of consumers in China. The Asian insurer’s value of new business rose 25% year-on-year to $2.5 billion in the first half, results on Thursday showed, and things look especially bright in the mainland. Boss Lee Yuan Siong's rapid expansion in the market is paying off, even if the mix of business is less than ideal.
Onshore China delivered the fastest growth while its business in Hong Kong, which targets visitors from the mainland, also rose sharply. AIA's Hong Kong-listed shares rose more than 4% by midday. It's welcome cheer from a $70 billion company that is well-placed to defy the sputtering Chinese economy.
It helps that its insurance market is still maturing, with around 4% penetration versus 10% in Japan last year, per the World Economic Forum. What's more, AIA, like its peers, is also selling policies that serve as savings and pension products. Those are in hot demand from a population that Beijing offers scant security, especially as other stores of wealth such as stocks and property fizzle. Saving products were a key factor for AIA's success in Hong Kong, the group's largest market, regional CEO Jacky Chan said following the results.
The company is also well-positioned thanks to its army of agents in China: in the first six months of the year, it increased the number of new recruits by a quarter. It’s pushing into new regions too, expanding into megacity Tianjin and four provinces, and plans to acquire at least one additional local licenceeach year going forward.
Yet China's weak economy is leaving a mark. On the mainland, traditional protection policies accounted for 45% of its value of new business generated by agents. In 2019,they made up 84% of total value of new business in the market. Softer demand for these could weigh on margins, Morningstar analysts notes. Investors too are less willing to pay up: the stock is priced at around 12 times estimated earnings, more than peer Prudential PRU.L, 2378.HK, but almost half the valuation AIA commanded three years ago. Business is good, but it is also different.
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CONTEXT NEWS
Insurer AIA on Aug. 22 reported a 25% year-on-year increase in the value of new business to a record $2.5 billion in the first six months of 2024, on a constant exchange rate basis.
The value of new business in China grew 36% and also hit a record. The Hong Kong market grew 26%, supported by strong sales of savings products popular with mainland visitors to the city. Overall, AIA grew its embedded value operating profit to $5.4 billion, up 29% from a year earlier.
The company's Hong Kong listed shares rose more than 4% to HK$53.5 in morning trade.
Graphics: Savings products support AIA's business in China https://reut.rs/4fREJnn
Editing by Una Galani and Ujjaini Dutta
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