Bloomberg News

AIA Group Value of New Business Rises 53% in Third Quarter

October 14, 2011

(Closing share price in fifth paragraph.)

Oct. 14 (Bloomberg) -- AIA Group Ltd., the third-largest Asia-based insurer by market capitalization, said its value of new business expanded 53 percent in the third quarter, led by higher sales in Malaysia and China.

The gauge of projected future profitability of new policies rose to $245 million, from $160 million a year earlier, the Hong Kong-based insurer said in a statement to the Hong Kong stock exchange today. It beat consensus analyst estimate of $213 million, according to a note from Barclays Plc analysts Mark Kellock and Thomas Wang today.

AIA, under the leadership of Chief Executive Officer Mark Tucker since July 2010, has been focusing on lifting new policy sales and agent productivity to secure long-term growth. The insurer is recovering from troubles at its largest shareholder American International Group Inc. since 2008 and uncertainties during the attempted takeover by Prudential Plc last year.

“With these results, we now have key quarterly financial data for seven sequential quarters,” Samsung Securities Co. said in a research note today. “We can see clearly the turmoil that AIA has endured in the run-up to the initial public offering and the upward trajectory since.”

AIA dropped 2.1 percent to HK$23.90 in Hong Kong trading, compared with the 1.4 percent loss of the city’s benchmark Hang Seng Index. The stock has advanced 9.4 percent this year, while the Hang Seng Finance Index, which tracks 12 banks and insurance companies listed in Hong Kong, declined 26 percent.

New Business Value

Value of new business measures the projected future after- tax profit of new policies sold in the period minus the costs of holding capital in addition to regulatory reserves to support the business.

The third quarter brought AIA’s new business value growth to 39 percent in the nine months to August 31, accelerating from the 32 percent jump in the first six months.

Annualized new premiums, a gauge of new business sales, jumped 52 percent to $766 million in the third quarter, AIA said. The nine-month figure rose to $1.86 billion, 34 percent more than the year before.

New business margin, or value of new business as a percentage of annualized new premiums, widened by 4.5 percentage points to 36 percent in the third quarter.

Protection Element

The margin expansion “reflects success with new product launches and the ability to increase the protection element embedded within its product features,” the Barclays analysts said in the note.

AIA has one of the largest pools of existing policies among regional insurers. Yet it had generated new business at half the rate of China Life Insurance Co., Asia’s largest insurer, in terms of the ratio of new business to in-force policies, Credit Suisse Group AG analyst Arjan van Veen wrote in a Sept. 14 report.

AIA booked a 14 percent increase in total weighted premium income, an indicator of long-term business volume, as it includes renewal premiums, to $3.75 billion. Nine-month total weighted premium income rose 13 percent to $10.5 billion.

The insurer may be forced to mark down equity investments after the six Asia-Pacific stock markets it is heavily invested in fell by a weighted average of 16 percent since the end of May, MF Global Securities Ltd. said in a note today.

AIA may also suffer from the weighted average of 1.6 percent depreciation of those countries’ currencies against the dollar, MF Global added. The insurer collects premiums in local currencies and reports its results in the dollar.

Investment and currency-related markdowns may reduce AIA’s embedded value by $2.8 billion, MF Global said. Embedded value is the net worth of a life insurer excluding new business estimated with actuairal and investment return assumptions.

AIA, which last reported embedded value of $27.4 billion at the end of May, didn’t disclose investment, currency gains or embedded value changes today.

--Editors: Andreea Papuc, Malcolm Scott.

To contact the reporter on this story: Bei Hu in Hong Kong at bhu5@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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