AIA 2015 profit falls on weak Asian cur­ren­cies

The Pak Banker - - COMPANIES/BOSS -

AIA Group Ltd., the third­largest Asia-based in­surer by mar­ket value, posted a 22 per­cent de­cline in full-year profit as weaker re­gional cur­ren­cies and stock-mar­ket gy­ra­tions de­tracted from busi­ness growth.

The in­sur­ance com­pany an­nounced an un­ex­pected 50 per­cent in­crease in its fi­nal div­i­dend even as net in­come fell to $2.69 bil­lion, or 22.41 cents a share, in the year to Nov. 30, from $3.45 bil­lion, or 28.73 cents a share, a year ear­lier. Four­teen an­a­lysts es­ti­mated a profit of $3.35 bil­lion, ac­cord­ing to data com­piled by Bloomberg.

AIA has come un­der pres­sure af­ter cur­ren­cies in five of its six-largest mar­kets de­pre­ci­ated by as much as 21 per­cent dur­ing the year, ac­cord­ing to data com­piled by Bloomberg, and the MSCI Asia-Pa­cific exJa­pan In­dex dropped 14 per­cent. Com­pound­ing that, China has tight­ened cap­i­tal con­trols to stem money out­flows.

"Sen­ti­ment may be dented but the fun­da­men­tal growth in the re­gion is not de­railed," Mark Tucker, AIA's chief ex­ec­u­tive of­fi­cer, said dur­ing a call with re­porters on Thurs­day, re­fer­ring to re­cent fi­nan­cial mar­kets volatil­ity and long-term re­gional op­por­tu­ni­ties driven by in­creas­ing ur­ban­iza­tion, grow­ing in­come and de­mand for in­sur­ance poli­cies. The fi­nal div­i­dend in­crease "demon­strates our tremen­dous con­fi­dence in AIA's fu­ture growth prospects" and con­sis­tently strong re­sults over the last five years, he said.

The Hong Kong-based in­surer's 51 Hong Kong-cent fi­nal div­i­dend boosts the ful­lyear pay­out to 69.72 Hong Kong cents, it said in a state­ment to the city's stock ex­change Thurs­day. The ful­lyear num­ber is 39 per­cent higher than a year ago, and fu­ture div­i­dends will grow this higher base, Tucker said dur­ing the call. AIA's shares rose 1.4 per­cent to HK$39.70 at 10:12 a.m. in Hong Kong.

New busi­ness value, a mea­sure of fu­ture prof­itabil­ity of new poli­cies that has been the man­age­ment fo­cus, jumped 19 per­cent to $2.2 bil­lion, com­pared to a 17.4 per­cent me­dian es­ti­mate of seven an­a­lysts sur- veyed by Bloomberg News. Op­er­at­ing profit af­ter tax, which ex­cludes $370 mil­lion net stock in­vest­ment losses, rose 10 per­cent to $3.2 bil­lion. New busi­ness value would have ex­panded 26 per­cent with­out the cur­rency ef­fect.

AIA's new busi­ness value and op­er­at­ing profit were "mod­estly bet­ter than ex­pected," Cit­i­group Inc. an­a­lyst Dar­win Lam wrote in a note. The fi­nal div­i­dend in­crease is "a pos­i­tive sur­prise." AIA, which has pres­ence in 18 Asi­aPa­cific mar­kets, sells poli­cies mostly in lo­cal cur­ren­cies and re­ports fi­nan­cial fig­ures in dol­lars. It tries to match the cur­ren­cies of its in­vest­ments with those of its in­sur­ance sales. AIA books mark-to-mar­ket gains and losses on equity in­vest­ments through its profit and loss ac­count.

BNP Paribas SA's Do­minic Chan, who has a buy rec­om­men­da­tion for the stock, cut his es­ti­mates for AIA profit last year and this year by as much as 15 per­cent be­cause of weak­en­ing Asian cur­ren­cies and pa­per losses on its stock in­vest­ments. China re­cently vowed to tighten en­force­ment of a cap on the pur­chases of in­sur­ance prod­ucts us­ing UnionPay debt and credit cards at $5,000 per trans­ac­tion.

The coun­try's for­eignex­change reg­u­la­tor is tight­en­ing re­stric­tions to help stem money out­flows that topped $1 tril­lion last year as eco­nomic growth slowed and the cur­rency weak­ened. Main­land Chi­nese have been flock­ing to buy in­sur­ance poli­cies in Hong Kong for bet­ter ser­vice and also to skirt curbs on mov­ing money out of the coun­try.

Cap­i­tal-con­trol rules were not new, Tucker said on Bloomberg Tele­vi­sion on Thurs­day af­ter the earn­ings. China's tighter en­force­ment of those rules will have "min­i­mal im­pact" on AIA as the amount of poli­cies af­fected is small, he added. Hong Kong and China ac­counted for al­most 50 per­cent of AIA's new busi­ness value in 2015, up from 44 per­cent a year ear­lier, its twofastest grow­ing mar­kets. Chi­nese vis­i­tors con­trib­ute about 30 per­cent of sales in Hong Kong, ac­cord­ing to a Credit Suisse Group AG re­port dated Feb. 19.

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