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Nikkei Markets

AIA and China Life upbeat on mainland after robust first half

Insurers acknowledge trade war, slowing growth among adverse macro factors

The value of AIA Group's new business grew faster in China than anywhere else in Asia in the first six months of 2019.    © Reuters

HONG KONG (Nikkei Markets) -- AIA Group and China Life Insurance, two of the largest listed insurers in Hong Kong, on Friday painted a rosy outlook for growth in Asia's largest economy, pinning hopes on the growing need for protection in an aging society despite macroeconomic headwinds.

During the first half of 2019, AIA's growth in the value of new business was the fastest in China among the 18 markets in the Asia Pacific where it has operations. The company's presence in the mainland is currently limited because of restrictions on foreign insurers that are set to be relaxed next year, one year earlier than previously planned. AIA said its new sales and service centers in Tianjin and Shijiazhuang in Hebei Province started operations in July after being allowed to do so earlier this year by Chinese authorities.

China Life, the country's biggest life insurer by assets, is on the other hand on a comeback trail, after poor market returns on its investment portfolio and an industrywide crackdown on investment-linked insurance plans hurt its profits last year. With a renewed focus on protection plans and agent-driven sales, the company is now pushing a "revitalization" strategy to boost business value.

After increasing its sales force head count to 1.9 million in the first half, a 7.2% increase from the end of 2018, China Life said it plans to hire more agents, and strengthen its investment management team.

Both companies acknowledged the Sino-American trade war and a broader slowdown in China as adverse factors, but expressed optimism over growth opportunities.

"Would China become our largest market? Absolutely," Ng Keng Hooi, group chief executive and president at AIA, told reporters in Hong Kong. "I want to see it happen as soon as possible."

AIA's value of new business, a key growth metric that indicates expected profits from new premiums, jumped 34% to $702 million in China on a constant exchange rate basis during the first half of the year. Overall VONB grew 20% to $2.28 billion, aided by an improvement across major geographic segments, except for Singapore. In Hong Kong, currently the insurer's biggest market, VONB grew at 19% to $945 million.

AIA's net profit for the first six months ended June jumped 73.4% to $3.86 billion from a seven-month period ended in June 2018. Annualized new premiums across the business grew 9% to $3.44 billion.

AIA said in a statement that a rapidly growing middle-class population, rising wealth and increasing longevity will continue to widen the protection and retirement gaps, driving demand for life and health insurance products in the region.

Separately, Ng said on Friday that while the company was concerned by the mass protests in Hong Kong, it was not considering an alternative domicile.

"Hong Kong is our home," he said.

AIA, which began its journey in Asia a hundred years ago through a foray into China, has a presence in the mainland through wholly owned subsidiaries. It operates in the country through units that were set up before China imposed caps. Under those rules, foreign insurers can at present only offer services through joint ventures, and ownership is capped at 50%.

China Life, meanwhile, plans to strengthen its investment management and sales teams while trimming back-office jobs, President Su Hengxuan told reporters at a separate news conference. He didn't share any figures.

The company said that under a so-called Dingxin project, it aims to enhance investment returns by establishing a market-oriented investment management system, optimizing a mechanism of incentives and restraints, and increasing the "vitality" of its staff. China Life had investment assets of 3.30 trillion yuan ($65 billion) as of June 30, an increase of 6.4% from the end of 2018.

"Investment management will be more market oriented in terms of recruitment, appraisal and investment decisions," Su said.

Su was addressing the media after the insurer had on Thursday reported a more than doubling of its first-half net profit to 37.60 billion yuan, with its net written premiums rising 4.8% on year to 375.34 billion yuan. Its investment income climbed to 66.35 billion yuan from 60.62 billion yuan a year earlier.

"We still have a long way to go in large- and medium-sized cities," Su said. "We believe the competitive landscape in these cities will change in the coming few years with our efforts."

With the rapid aging of the population and the gradual increase in China's urbanization rate, there will be "enormous room" for the development of the life insurance industry, the company said in a statement on Thursday.

China Life's value of new business increased 22.7% to 34.57 billion yuan ($4.87 billion) in the first half.

Shares of AIA climbed 2% to HK$77.75, the biggest contributor by points to the Hang Seng Index's 0.5% increase on Friday. China Life's shares, also a member of the 50-constituent gauge, jumped 3.4% to HK$18.72.

-- Benny Kung & Lopamudra Bhattacharya

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