AIA, one of the world’s largest insurance companies, posted strong interim results last week and is confident about its prospects. Yet, the Asia-focused firm, led by chief executive Mark Tucker, has endured a difficult recent history.
It was tainted by its ownership by AIG, one of the biggest villains and casualties of the 2008 financial crisis. Its future was in abeyance as the UK’s Prudential subsequently made a rejected bid, until a successful IPO in 2010 set it towards a more secure future.
“The IPO in 2010 drew a line between AIA’s past and its future,” Tucker told FinanceAsia in an exclusive interview. “AIG has been a supportive and an excellent shareholder, but we are emphatically on an independent course.”
The company operates in a growth region. Its net profit rose 10% to $1.4 billion during the six months to May 31, while its own key measures of success were even stronger. Operating profit increased by 12% to $1.08 billion, while embedded value (EV) jumped $1.6 billion to $28.84 billion. More significantly, in a region with such potential, AIA’s value of new business (VONB) grew by 28% to $512 million compared with the first half of 2011.
“The VONB measure, which discounts future premiums, is a key indicator of insurance business in growth markets; EV reflects how well existing policyholders are protected,” said Tucker.
The AIA group is the biggest independent listed pan-Asian life insurance company in the world, with total assets of around $119.5 billion. It has operating subsidiaries or branches in 14 countries in Asia-Pacific, and was first established in Shanghai more than 90 years ago.
Tucker, a former professional footballer in England and Uefa qualified coach, says that attending the 2012 Chelsea champions league victory in Munich was his favourite football highlight. He also insists that his job at AIA will be the peak of his business career, and he is clear about the firm’s strategic objectives within the region.
“Recent studies have revealed a ‘protection gap’ of $40 trillion in Asia, so clearly the region has enormous potential. And that is just mortality protection. If you add health cover, you could be close to doubling that figure. Compare that with the US and UK, where net new life polices haven’t been sold for over a decade. Hong Kong and Singapore are significant more mature markets for us, while China, Malaysia and Thailand are now making important contributions to our revenue base,” said Tucker.
“But one-size certainly doesn’t fit all. Each country has distinctive regulatory regimes and operating environments, as well as customer preferences and cultures. AIA’s federalist structure, that allows considerable autonomy for its agencies in each country under regional CEOs, promotes sensitivity to those differences and looks to enhance our competitive advantage.”
AIA will pay an interim dividend of HK$0.1233 a share, an increase of 12%, and expects its final dividend to be twice that amount, despite a tough investment environment.
“AIA’s investment strategy is conservative and prudent, closely matching assets and liabilities, vigilant about the effects of falling bond yields and volatile equity markets, and looking to avoid currency risk altogether,” said Tucker. “We focus on taking underwriting risk, not investment risk. That’s the nature of our business and expertise. Nevertheless, investment income makes up around half of our revenues.”
He is also sensitive to the dangers of selling inappropriate products to a new and perhaps unsophisticated customer base. After all, the industry has had its critics in the US and UK in recent years.
“Although many of our life products are linked to regional equity markets or other financial assets, capital protection is a priority of those products,” he said. “For instance, dollar-cost averaging is usually deployed for the investment of premiums, reflecting also the strong savings element of our policies.”
“Strong management, governance, audit and compliance systems are essential, especially as we grow our business,” said Tucker. “We’re confident that our standards and systems are first class and international in standard.”
