(Bloomberg) -- AIA Group Ltd. shares rose the most in three months after the insurer showed signs of recovering from a slump in first-half sales fueled by Covid-19 restrictions in China.
New business value dropped 15% from a year earlier to $1.5 billion, the Hong Kong-based insurer said Thursday, in line with analysts’ estimates. The stock climbed as much as 4.8% in Hong Kong trading, the biggest intraday gain since May, after AIA said the measure of profitability of new policies showed positive growth in June.
In mainland China, its biggest market, new business value fell 24%, before resuming growth in July after the pandemic curbs eased. Hong Kong saw an increase in the six months as margin expanded.
Read a Street Wrap of AIA’s results
The insurer that operates in 18 Asian markets has long taken pride in an agency force that can sell more profitable products than peers. That strength worked against it in the first half, as a two-month lockdown of the Chinese financial hub of Shanghai and sporadic curbs in Beijing hampered efforts to generate new clients.
“The initial outbreak of the omicron variant in the first quarter affected consumer demand across many of our markets, and extended into the second quarter especially in mainland China,” AIA said in the statement.
The drop in new business value for China compares with a 5% decline in a similar measure at peer Prudential Plc, whose local venture with Citic Group sells insurance through multiple channels, including agents and banks, throughout the country. By contrast, Shanghai and Beijing contributed about 40% of AIA’s mainland China new business value, Credit Suisse Group AG analyst Charles Zhou wrote in a July 21 note.
But AIA has steadily expanded into other Chinese provinces including Hubei, and there are early signs that the move is paying off, with new business value in these regions growing 47% in the first half.
New markets “performed really very well,” Chief Financial Officer Garth Jones said in an interview with Bloomberg Television. AIA has received regulatory approval to open a branch in Henan, and begun preparatory work to add two more locations next year, he said.
It began sales in Shenzhen through a fresh partnership with Postal Savings Bank of China Co. in the second quarter. The collaboration expands its geographical reach and gives it access to a population that’s less affluent than the traditional customers of its agency force.
Hong Kong
New business value rose 3% in AIA’s home base of Hong Kong, its second-largest market by the measure. The insurer has refocused its energy to boost sales to local customers, after a border closure largely dried up the mainland Chinese visitor business which had driven growth for the Hong Kong unit for years. In the six months, a nearly 12 percentage points jump in value of new business margin more than offset a 12% drop in new policy sales.
Quarantine-free travel between Macau and mainland China resumed earlier this month, after a six-week halt as the territory tried to contain a Covid outbreak. AIA’s Macau business, part of its Hong Kong unit, has benefited from the shift of some mainland visitor purchases to the city better known for its gambling industry. This part of the business nearly doubled in Macau in the first half, said Jones.
“The growth in Macau gives us great optimism for the future in the mainland Chinese visitor business when the border eventually opens,” he added in a separate call with journalists.
What Bloomberg Intelligence Says:
Its value of new business may resume growth in 2H on easier comparisons and as movement restrictions ease in the region, although Covid-19 curbs may continue in China and delay quarantine-free travel between the mainland and Hong Kong.
--Steven Lam, BI insurance analyst
For more of the research, click here
AIA’s Singapore unit saw a 9% drop in new business value in the six months. But the second quarter brought double-digit growth as residents in the city-state learned to live with the virus.
At the group level, annualized new premiums slid 9% while value of new business margin shrank by 3.8 percentage points. Operating profit edged up 1% to $3.2 billion.
AIA declared an interim dividend of 40.28 cents, a 6% increase.
The insurer’s Hong Kong shares have lost less than 2% this year, outperforming the Hang Seng Finance Index’s 9% decline.
©2022 Bloomberg L.P.
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