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AIA 2015 profit falls on weak Asian currencies, stock rout

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(Bloomberg) — AIA Group Ltd., the third-largest Asia-based insurer by market value, reported a 22 percent decline in full- year profit, as weaker regional currencies and stock-market gyrations detracted from new-business growth.

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, the Hong Kong-based insurer said in a statement to the city’s stock exchange Thursday. Fourteen analysts estimated a profit of $3.35 billion, according to data compiled by Bloomberg.

New business value, a measure of future profitability of new policies that has been the focus of its management, jumped 19 percent to $2.2 billion, compared to a 17.4 percent median estimate of seven analysts surveyed by Bloomberg News.

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 ex-Japan Index dropped 14 percent. Compounding that, China has tightened capital controls to stem money outflows. Analysts, including those at BNP Paribas SA and China International Capital Corp., have recently lowered their target share price and profit estimates for the Hong Kong-listed stock.

Asia Attractive

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. The insurer declared a 50 percent increase in its final dividend to 51 Hong Kong cents, boosting the full-year payout to 69.72 Hong Kong cents, according to the statement.

“Despite the recent volatility and uncertainty in global financial markets, Asia remains the most attractive and dynamic region for life insurance in the world,” Mark Tucker, AIA’s chief executive officer, said in the statement. The final dividend increase “demonstrates our tremendous confidence in AIA’s future growth prospects.”

AIA, which has presence in 18 Asia-Pacific 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’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 Restrictions

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 foreign-exchange 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.

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 two-fastest growing markets. Chinese visitors contribute about 30 percent of sales in Hong Kong, according to a Credit Suisse Group AG report dated Feb. 19. Hong Kong new business value surged 32 percent to $820 million, according to the AIA statement.

The tighter restrictions may stall AIA’s premium growth in Hong Kong, with a smaller impact on new business value, CICC analysts Tang Bolun and Mao Junhua wrote in a Feb. 2 report.

AIA’s annualized new premium grew 8 percent to $3.99 billion last year, or 14 percent without currency translation losses. New business margin, or new business value as a percentage of annualized new premium, widened 4.9 percentage points to 54 percent.

AIA’s shares dropped 16 percent this year through Wednesday, compared with the 18 percent decline of the Hang Seng Finance Index. The insurer’s share price has almost doubled from its October 2010 initial public offering, after profit beat analyst estimates in the first three years as a listed company.

See also:

Aegon falls as U.S. drives quarterly pretax-profit decline

Ameriprise slumps after client pulls funds in liquidity squeeze

Manulife earnings hit hard by sharp drop in energy prices

MetLife profit falls 45% on private equity, hedge fund slump

Global earnings cuts haven’t been this bad in 7 years