AIA The Real Life Company

It often pays for a local player to go it alone rather than piggyback on a global giant. In the aftermath of the financial crisis, AIA Group, the largest pan-Asian life insurer and the regional subsidiary of then-troubled American International Group, was in a quandary: Should it stay tied to its parent, which was being bailed out by the U.S. government or accept a $35 billion takeover bid from U.K. insurer Prudential? AIA decided to go it alone, listing in Hong Kong in late 2010. The stock has more than tripled since then.

After eight years, AIA (ticker: 1299.Hong Kong) has a market value of $105 billion, twice that of Prudential (PRU.UK) at $51 billion and almost twice former parent AIG’s (AIG) $54 billion. For most global investors it remains one of the most attractive insurance stocks around.

What has made AIA such a success? For one thing, it’s smack in the heart of the world’s fastest-growing life-insurance market with to-die-for demographics. For another, AIA has made several bolt-on acquisitions to grow its Asian franchise, including a $1.7 billion purchase of the Malaysian arm of Dutch giant ING and the Australian and New Zealand insurance businesses of Commonwealth Bank of Australia for $3.1 billion. It has also woven together partnerships, such as a deal with Citigroup, to sell policies in 11 key Asian markets, including India, China, Indonesia, and Korea. “AIA is the best-positioned player in Asian insurance. 

Earnings likely surged 30% in the year ended in November, on strong growth in net premiums and improvements in investment returns. While growth is slowing after a strong 2017 performance, AIA should do well in key markets, such as China, Southeast Asia, and Hong Kong.

Asia offers a $10 trillion market to life insurers, seven times the size of that in the G7 developed countries. Higher wages, a rising per-capita gross domestic product, and a large and growing mortality-protection gap is driving insurance penetration rates. McKinsey estimates that Asia ex-Japan will soon overtake Europe as the world’s largest life-insurance market with gross premiums of $1.55 trillion.

A KEY FOR AIA is China, where it has just over a 2% share of a market dominated by local giants, including China Life Insurance and Ping An Insurance. “They are not competing with China Life for low-end customers, but are a very focused player aiming for niche high-end customers in affluent areas or big cities,” says Tan. “AIA’s new-business value margins are 80% to 90%, compared to 20% to 40% for local players like China Life and Ping An.”

AIA relies on a network of agents. That works well in a high-end niche market with fat margins, but generates only high single-digit annual new premium growth. To boost growth, it’s turning to technology: insuretech and fintech.

AIA stock, up 50% over the past year, and 80% from its February 2016 low, fetches just under 17 times expected current fiscal-year earnings and a bit over 14.5 times next year’s likely net.