Companies with established Asian life operations already appear to be generating solid returns on capital.[@@]

Market conditions should continue to produce robust life sales growth in Asia over the next few years, according to Andrew Kligerman, a lead analyst at UBS Investment Research, New York.

Kligerman writes in a new research note that the operations of one major Western player in the Chinese life market, American International Group Inc., New York, remain strong as they continue to benefit from scale, efficiency, distribution reach and AIG’s well-known brand name.

“Although outweighed by positives, [AIG] faces challenges arising from unlicensed sales in mainland China and narrow profit margins in Taiwan,” Kligerman writes.

AIG did not give a specific figure, but Kligerman says the company did suggest that its Hong Kong return-on-equity ratios have been significantly higher than those achieved in the United States.

In addition to meeting in Asia with representatives from AIG, Kligerman met with representatives from AXA S.A., Paris; Manulife Financial Corp., Toronto; and Prudential P.L.C., London.

Kligerman says the key “takeaway” was that life insurers in Asia appear to achieve ROEs greater than 20% across the region.

“Prudential P.L.C. indicated that Prudential Corp. Asia’s new business margin was 54% in 2004, twice the level of its U.K. new business margin and over 1.5 times the level of its U.S. new business margin,” he writes.

Some of the conditions in Asia that will continue to support robust market growth are low life insurance penetrations in China, India and Southeast Asia and high expected GDP growth in most Asian markets other than Japan and South Korea, Kligerman writes.