AIA profit for 2015 falls on weak Asian currencies, stock rout

A panel on top of AIA Central flashes the company sign at Hong Kong's financial Central district in this Feb 12, 2010 file photo.
A panel on top of AIA Central flashes the company sign at Hong Kong's financial Central district in this Feb 12, 2010 file photo. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - AIA Group, the third-largest Asia-based insurer by market value, reported a 22 per cent decline in full-year profit, as weaker regional currencies and stock-market gyrations detracted from new-business growth.

Net income fell to US$2.69 billion, or 22.41 cents a share, in the year to Nov 30, from US$3.45 billion, or 28.73 cents a share, a year earlier, the Hong Kong-based insurer said in a statement to the city's stock exchange on Thursday (Feb 25). Fourteen analysts estimated a profit of US$3.35 billion, according to data compiled by Bloomberg.

New business value, a measure of future profitability of new policies that has been the focus of its management, jumped 19 per cent to US$2.2 billion, compared to a 17.4 per cent median estimate of seven analysts surveyed by Bloomberg News.

AIA has come under pressure after currencies in five of its six largest markets depreciated by as much as 21 per cent during the year, according to data compiled by Bloomberg, and the MSCI Asia-Pacific ex-Japan Index dropped 14 per cent. Compounding that, China has tightened capital controls to stem money outflows. Analysts including those at BNP Paribas and China International Capital Corp. have recently lowered their target share price and profit estimates for the Hong Kong-listed stock.

Operating profit after tax, which excludes US$370 million net stock investment losses, rose 10 per cent to US$3.2 billion. New business value would have expanded 26 per cent without the currency effect.

The insurer declared a 50 per cent increase in its final dividend to 51 Hong Kong cents, boosting the full-year payout to 69.72 Hong Kong cents, according to the statement.

"Despite the recent volatility and uncertainty in global financial markets, Asia remains the most attractive and dynamic region for life insurance in the world," Mark Tucker, AIA's chief executive officer, said in the statement. The final dividend increase "demonstrates our tremendous confidence in AIA's future growth prospects."

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'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 per cent because of weakening Asian currencies and paper losses on its stock investments.

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

The country's foreign-exchange regulator is tightening restrictions to help stem money outflows that topped US$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.

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

The tighter restrictions may stall AIA's premium growth in Hong Kong, with a smaller impact on new business value, CICC analysts Tang Bolun and Mao Junhua wrote in a Feb 2 report.

AIA's annualized new premium grew 8 per cent to US$3.99 billion last year, or 14 per cent 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 per cent.

AIA's shares dropped 16 per cent this year through Wednesday, compared with the 18 per cent 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.