Positive momentum in China to prop up AIA's business growth

Strong capitalisation is likely to be maintained despirte headwinds.

Stronger growth expectations in China should drive up AIA’s new business value growth over the medium term, whilst it should be able to sustain capital strength despite higher dividends. Key Asia Pacific markets are also likely to recover but pre-COVID-19 levels will not be on the horizon soon.

Even with the 33% fall in value of new business (VONB) in 2020, the insurer reported a 5% increase in operating profit after tax (OPAT) with AIA China becoming the largest VONB contributor for the group. With AIA's ongoing expansion across China following the July 2020 set up of AIA China as a subsidiary, the insurer will lead the group's business, according to an S&P analysis.

Notwithstanding the fall in new business in Hong Kong due to a lower volume of Mainland Chinese visitors (MCVs), better traction was evident in Macau, Thailand, Singapore, and Malaysia in H2 which should carry over in 2021, an OCBC report noted. For example, Macau’s resumption of individual visit scheme from late September resulted in sales to MCVs making up more than a third of its annualised new premiums in Q4.

However, near-term growth headwinds are expected given the resurgence of COVID-19 in some parts of the region which will affect sales recovery, OCBC added. Higher reserve positioning will also put pressure on AIA’s capitalisation, S&P said, but its investment strategy which targets a high-quality fixed-income portfolio should help.

On the brighter side, new policy sales momentum should pick up hand-in-hand with the vaccine rollouts over the coming quarters. Its digitalisation efforts will prove to be effective as customers prefer buying policies online.