AIA's first-half operating profit rises 9% on Hong Kong, China

[HONG KONG] AIA Group, the third-largest Asia-based insurer by market value, said operating profit rose 9 per cent in the first half, as business growth in Hong Kong and China helped to offset weaker stock markets and regional currencies.

After-tax operating profit climbed to US$1.96 billion in the six months to May 31, from US$1.8 billion a year earlier, the Hong Kong-based insurer said in a statement to the city's stock exchange Thursday.

Net profit, which accounts for paper losses on stock investments, declined 6 per cent to US$2.1 billion, or 17.2 cents per share, beating the US$1.64 billion average estimate of five analysts, according to data compiled by Bloomberg.

New business value jumped 31 per cent to US$1.3 billion, higher than the 30 per cent growth median estimate of eight analysts surveyed by Bloomberg. It declared an interim dividend of 21.9 Hong Kong cents per share, a 17 per cent increase from a year earlier.

AIA weathered the six months when Chinese regulators tightened control over its citizens' purchases of insurance policies in Hong Kong in a bid to curb capital outflows as economic growth slowed and the currency depreciated. Stocks in the markets AIA operates in retreated on average 2.1 per cent from the previous six months, and their currencies also fell from a year earlier, Credit Suisse Group AG analyst Charles Zhou wrote in a June 30 note.

Hong Kong, China operating profit would have grown 14 per cent without currency fluctuations for the insurer, which collects premium in local currencies while reporting financial results in dollars. New business value, a profitability measure of new policies which Chief Executive Officer Mark Tucker has adopted as the main performance gauge, would have increased 37 per cent.

Operating profit rose 15 per cent in Hong Kong. New business value jumped 60 per cent in the city.

Policy sales by AIA's Hong Kong unit to offshore clients, believed to consist mainly of Chinese visitors, surged 136 per cent between January and March from a year earlier, even after China tightened payment restrictions for such purchases, Jefferies Group analyst Baron Nie wrote in a July 19 note, citing data from the city's insurance regulator.

Restrictions on how Chinese visitors pay for their Hong Kong policies may have led them to opt for long-term regular-pay policies in the first quarter, instead of single-premium policies that require one large lump-sum payment, Bloomberg Intelligence analyst Steven Lam wrote in June.

In China, AIA's new business value surged 49 per cent in the six months and operating profit increased 16 per cent.

AIA's overall annualised new premium grew 25 per cent to US$2.4 billion, according to the statement. New business margin, the value of new business as a percentage of annualized new premiums, expanded 2.5 percentage points to 52.7 per cent.

AIA shares have advanced 6.6 per cent in Hong Kong this year through Wednesday, recouping ground lost in February when the Chinese curbs came to light. That compares with a 6.6 per cent retreat in the Hang Seng Finance Index, tracking banks, insurers and operator on the city's stock exchange, in the period.

BLOOMBERG