Better Hong Kong margins a tailwind for AIA Group’s growth: analyst

However, the weakening Asian currency may keep the group from soaring too high.

AIA Hong Kong’s improving value of new business (VONB) margins is the main driver of the AIA Group’s VONB growth in the first half of 2022, according to a report by CGS-CIMB.

The rapid improvement of AIA Hong Kong’s VONB was mainly powered by the sharp rise in US 10-year treasury yields coupled with a shift towards protection products.

“We see this offsetting the falls in HK annualised new premiums (ANP) driven by falling agency sales amidst HK’s fifth Covid-19 wave and weakening system agent numbers (down 11% year-on-year in May 2022), with the rate of fall of system agent numbers YoY the worst in at least eighteen years,” CGS-CIMB analyst Michael Chang said.

Despite strong tailwinds from its improving VONB in Hong Kong, the strength of the US dollar against Asian currencies (excluding the Hong Kong dollar) may lead to a drag on VONB growth of 4 percentage points YoY from Q2 2022 to Q4 2022. Chang estimates a 10% depreciation of Asian currencies against the US$ leads to a 7 percentage point drag on VONB growth YoY.

Meanwhile, AIA’s Singapore and Thailand business is expected to perform better than other ASEAN markets as these markets have changed their approach to ‘living with the virus’.

“The worst has passed in our view, with certain markets in ASEAN performing better than others. As 42% of AIA China’s 2020 gross written premiums are from Shanghai and Beijing, two regions that were relatively worse hit by Covid-19 in Q2 2022, we see China’s growth lagging behind other regions,” Chang said.