AIA Group Ltd. (1299), the third-largest Asia-based insurer by market value, posted a higher-than- expected 10 percent increase in first-half profit from a record new business performance.
Net income of the Hong Kong-based company climbed to $1.44 billion in the six months to May 31, or 12 cents a share, from $1.31 billion, or 11 cents a share, a year earlier, it said in a statement to the city’s stock exchange today. The number compared with the average estimate of $1.29 billion by five analysts surveyed by Bloomberg.
Value of new business, a gauge of projected future profitability of new policies, which has been a focus of Chief Executive Officer Mark Tucker, increased 28 percent to a record $512 million, according to the statement. AIA’s Hong Kong-quoted shares slipped 0.2 percent to close at HK$26.75 after rising as much as 3.5 percent earlier.
Tucker, 54, is being watched for his ability to continue to boost new business profitability after consecutive quarters of improvements since joining AIA in July 2010. He has been on a mission to rejuvenate the company, which had lost share of new business during the global financial crisis because of woes at its one-time parent American International Group Inc. (AIG:US)
“These have also been delivered at a time of capital market volatility and global economic uncertainty,” which may continue for some time, Tucker said on a conference call with wire services reporters today. “We have substantial opportunities given the size of the protection gap” in Asia, he said.
Regional trends such as low insurer ownership among the populations, increasing urbanization, growing savings and emerging middle class remain in place, he added.
AIA’s annualized new premium, a measure of new business sales, rose 9 percent to $1.2 billion. New business margin, or the value of new business as a percentage of annualized new premium, expanded by 6.6 percentage points to 42.6 percent in the six months, another record, according to Tucker.
Consensus estimates of analysts earlier put AIA’s first- half value of new business growth at 25 percent, according to Credit Suisse Group AG’s Arjan van Veen.
AIA’s better-than-expected profit also reflected stronger investment income and outperformance in Thailand, van Veen said in an e-mail today.
Stocks in the major markets that AIA operates in, including Hong Kong, Thailand, China, Singapore, Malaysia and South Korea, gained 5.5 percent in the first half, van Veen and colleague Frances Feng wrote in a July 23 note.
AIA’s net income dropped 41 percent last year with stock investment losses trumping gains in new business sales and profitability as the European debt crisis and specter of global economic recession damped markets. It recognizes all fair-value changes of its equity investments in the profit and loss account.
AIA’s embedded value, an actuarial estimate of the economic value of life insurers, gained 6 percent from November to $28.8 billion in May.
The solvency ratio, which measures the actual capital against the minimum regulatory capital requirement, climbed 10 percentage points since November to 456 percent at the end of May. It gave AIA excess capital of $3.8 billion, van Veen said.
“What is strong enough in this environment is a very good question,” Tucker said. Calling capital “a rare commodity” amid the uncertainties, he added that the cash will be used to invest in new business and give it flexibility to pursue possible acquisitions.
He declined to comment on any specific acquisitions beyond saying that AIA has the capability to pursue such opportunities that make financial sense and benefit shareholders.
AIA is bidding for ING Groep NV’s Asian insurance business, three people with knowledge of the matter told Bloomberg earlier this month. It is also a contender to buy Aviva Plc (AV/)’s life insurance venture in Malaysia, Reuters reported last month, citing unidentified people.
AIA’s shares have declined 9.5 percent since peaking on Feb. 28, paring their year-to-date gain to 10 percent. The stock has outperformed the 12-member Hang Seng Finance Index, which has advanced 2.6 percent this year.
AIA declared an interim dividend of 12.3 Hong Kong cents, 12 percent more than a year earlier. Pending board and shareholder approval, the interim dividend will represent about one-third of full-year payment, should the trading conditions continue to meet current expectations, it said in a separate e- mailed statement today.
The insurer may have to pay lower-than-expected dividends to support business growth and potential acquisitions, Morgan Stanley analysts, led by Ben Lin, wrote in a July 13 report.
New York-based AIG will be free to sell its remaining 18.6 percent stake in AIA after Sept. 4.
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