Aia Group Limited · HKEX:1299
Aia — H1 2018 Earnings Presentation
67 slides from Aia's earnings presentation, Aug 24, 2018
Slide 1: 2018 Interim Results Presentation
2018 INTERIM RESULTS PRESENTATION 24 August 2018 AIA AIA confidential confidential and and proprietary proprietary information. information. Not Not for distribution. for distribution.
Slide 2: Disclaimer
Disclaimer This document (“document”) has been prepared by AIA Group Limited (the “Company”) and its advisers solely for use at the presentation held in connection with the announcement of the Company’s financial results (the “Presentation”). References to “document” in this disclaimer shall be cons
Slide 3: Agenda
Agenda 01 KEY BUSINESS HIGHLIGHTS Ng Keng Hooi, Group Chief Executive 02 FINANCIAL RESULTS Garth Jones, Group Chief Financial Officer 03 STRATEGIC PRIORITIES Ng Keng Hooi, Group Chief Executive 04 Q&A Ng Keng Hooi, Group Chief Executive Garth Jones, Group Chief Financial Officer Bill Lisle, Regional
Slide 4: Ng Keng Hooi
Value of New Business $1,954m +17% Operating Profit After Tax $2,653m +14% Ng Keng Hooi Interim Dividend Per Share Group Chief Executive 29.20 HK cents +14%
Slide 5: 1H2018 Consistent Delivery Across All Key Metrics
1H2018 Consistent Delivery Across All Key Metrics Growth Earnings Capital & Dividends Value of New Business Operating Profit After Tax Underlying Free Surplus Gen $1,954m $2,653m $2,497m +17% +14% +11% (1) EV Equity Operating ROE(2) Interim Dividend Per Share $53.6b 14.2% 29.20 HK cents (3) +$1.2b +
Slide 6: Strong and Resilient Growth Portfolio
Strong and Resilient Growth Portfolio VONB ($m) 1H2018 CER AER 1H2018 VONB by Market Segment Hong Kong 796 +10% +10% Other Markets China 556 +37% +47% 10% Malaysia 6% Thailand 204 +5% +14% Singapore Hong Kong 8% 39% Singapore 178 +22% +29% Thailand Malaysia 124 +5% +17% 10% Other Markets 201 +7% +9%
Slide 7: Strong VONB Growth on Exceptional 1H2017
Strong VONB Growth on Exceptional 1H2017 VONB ($m) 1,954 Strong Underlying VONB Growth 1,670 ▪ Group VONB up 24% excluding Hong Kong retail IFA ▪ 27% VONB growth in Premier Agency Group Total +24% ▪ VONB from Hong Kong retail IFA channel lower ex-Hong Kong Retail IFA following exceptional performanc
Slide 8: Market Highlights
Market Highlights Hong Kong China Thailand VONB ($m) VONB ($m) VONB ($m) 796 723 556 +10% 407 +37% 195 204 +5% 1H2017 1H2018 1H2017 1H2018 1H2017 1H2018 ▪ Very strong double-digit agency ▪ VONB up 37%, mainly driven by ▪ Double-digit growth in FA new recruits; VONB growth active agent growth 24% mor
Slide 9: Market Highlights (cont.)
Market Highlights (cont.) Singapore Malaysia Other Markets VONB ($m) VONB ($m) VONB ($m) 178 201 188 146 +22% 124 +7% 118 +5% 1H2017 1H2018 1H2017 1H2018 1H2017 1H2018 ▪ Very strong agency VONB growth in ▪ Impacted by General Election in 2Q ▪ 18% VONB growth adjusting for very regular premium protec
Slide 10: Strong and Sustained Growth Momentum
Strong and Sustained Growth Momentum VONB ($m) 6.4x 3,206 1,954 2,750 1,605 1,601 2,198 1,490 1,845 1,239 1,260 1,490 1,188 1,053 959 932 845 792 667 676 645 533 512 364 399 303 1H10 2H10 1H11 2H11 1H12 2H12 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18 10
Slide 11: Garth Jones
Garth Jones Group Chief Financial Officer
Slide 12: Excellent Financial Results
Excellent Financial Results 22 ($m) 1H2018 1H2017 CER AER VONB 1,954 1,605 17% 22% EV Operating Profit 4,152 3,370 19% 23% Growth Operating ROEV(1) 17.0% 16.3% 0.7 pps 0.7 pps EV Equity(2) 53,628 52,429 4% 2% Operating Profit After Tax 2,653 2,233 14% 19% IFRS Operating ROE(1) 14.2% 13.9% - 0.3 pps
Slide 13: Growth, Earnings, Capital and Dividends
Growth Earnings Capital and Dividends 13
Slide 14: Strong and Broad-based Profitability
Strong and Broad-based Profitability VONB ($m) VONB Margin Movement 1,954 +0.4 pps +2.4 pps +2.2 pps +17% 1,670 59.5% 54.5% 1H2017 Product Geographical Others 1H2018 1H2017 1H2018 VONB Margin Mix Mix Including VONB Margin Assumption Changes ANP ($m) PVNBP Margin by Product 3,252 16% 1H2017 15% 1H2
Slide 15: EV Operating Profit up 19% – EV Equity of $53.6b
EV Operating Profit up 19% – EV Equity of $53.6b 1H2018 EV Equity Movement ($m) 1,954 340 (72) (1,446) (367) (1,140) 1,930 EV Operating Profit 56,581 52,429 $4.2b 53,628 (1) +19% Group Expected VONB Operating Finance Group Investment Exchange Dividend Group EV Equity Return on EV Variances Costs EV
Slide 16: Value Creation from Quality Operating Performances
Value Creation from Quality Operating Performances Mortality and Morbidity Claims Experience Variances ($m) Cumulative EV Operating Variances ($m) 1,765 141 1,425 120 110 97 1,129 83 87 79 69 735 487 379 255 144 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 2011 2012 2013 2014 2015 2016 2017(1) 1H18 Note:
Slide 17: Interest Rates and EV Sensitivity
Interest Rates and EV Sensitivity AIA Long-term Assumptions vs Market Rates Sensitivity of EV Weighted Average by Geography(1) As at 30 Jun 2018 52,012 4.5% (1.5)% (0.6)% 0.7% 1.5% 4.0% 10% fall in 50 basis 50 basis 10% rise equity points points in equity 3.5% prices decrease increase prices in inte
Slide 18: Growth, Earnings, Capital and Dividends
Growth Earnings Capital and Dividends 18
Slide 19: IFRS Operating Profit after Tax up 14%
IFRS Operating Profit after Tax up 14% TWPI ($m) OPAT ($m) 14,429 12,665 +14% 2,653 +14% 2,328 1H2017 1H2018 Expense Ratio 7.8% (0.7) pps 7.1% 1H2017 1H2018 1H2017 1H2018 Note: Comparatives are shown on a constant exchange rate basis 19
Slide 20: Diversified OPAT Growth Across the Region
Diversified OPAT Growth Across the Region IFRS OPAT ($m) 1H2018 CER AER 1H2018 IFRS OPAT by Market Segment Hong Kong 922 +12% +12% Other Markets Thailand 496 +7% +17% 15% Malaysia Hong Kong China 436 +37% +48% 6% 34% Singapore 273 +9% +14% Singapore 10% Malaysia 158 +19% +34% China 16% Thailand Othe
Slide 21: IFRS Shareholders’ Allocated Equity of $36.3b
IFRS Shareholders’ Allocated Equity of $36.3b IFRS Shareholders’ Allocated Equity Movement ($m) +$1.7b 2,653 (675) (316) (1,140) (607) 38,075 36,413 36,328 Allocated Equity Operating Profit Investment Return Other Dividend Paid Other Capital Allocated Equity End of 2017 After Tax Movements(1) Non-op
Slide 22: Strong ROEV and ROE Progression
Strong ROEV and ROE Progression Profitable Growth Driving EV and ROEV Earnings Growth Delivering Increased ROE EV Equity ($m) Shareholders’ Allocated Equity ($m) 53,628 2.4x 48,594 1.9x 36,328 32,700 40,478 41,657 36,915 27,602 28,203 33,277 23,441 24,951 27,612 29,091 19,322 20,021 22,178 1H10 1H11
Slide 23: Growth, Earnings, Capital and Dividends
Growth Earnings Capital and Dividends 23
Slide 24: Solvency Ratio of 458% for AIA Co.
Solvency Ratio of 458% for AIA Co. Solvency Ratio on the HKIO Basis for AIA Co. Resilient Solvency Position 446% 458% ▪ Strong growth in retained earnings ▪ Negative mark-to-market movements on assets and reserves ▪ Impact from CBA acquisition targeted in 2H2018 subject to completion(1) ▪ S&P rating
Slide 25: Self-financed Growth at Attractive Returns
Self-financed Growth at Attractive Returns Free Surplus(1) of $13.7b ($m) +$1.6b 2,638 (141) (807) (100) (27) (1,208) 1,886 (1,140) $2,497m 16,035 14,472 13,687 12,586 Free Surplus Release of Free Surplus Underlying Change in New Business Unallocated Finance Cost and Free Surplus Investment Dividend
Slide 26: Pro-forma Free Surplus
Pro-forma Free Surplus Pro-forma Free Surplus(1) Post CBA Transaction ($b) 1.6 (1.2) (1.1) 1.9 (1.5) 13.7 12.6 12.2 Free Surplus Release of Operating Investment Dividend Free Surplus CBA Transaction (3) Pro-forma End of 2017 Free Surplus Free Surplus Return Variances Paid End of 1H2018 (2) Free Surp
Slide 27: Disciplined Financial Management
Disciplined Financial Management Growth Earnings Capital & Dividends Underlying Free Surplus VONB ($m) IFRS OPAT ($m) Generation ($m) 6.4x 2.7x 2.3x 2,653 2,497 1,954 2,233 2,290 1,605 1,094 969 303 1H2010 1H2017 1H2018 1H2010 1H2017 1H2018 1H2010 1H2017 1H2018 27
Slide 28: Uses of Underlying Free Surplus Generation
Uses of Underlying Free Surplus Generation Maintain Strong Balance Sheet Reinvest Capital in Pay Prudent, Sustainable through Capital Market Stress Profitable New Business Growth and Progressive Dividend Free Surplus ($m) New Business Investment ($m) Interim Dividend Declared ($m) % of Interim DPS 1
Slide 29: Interim Dividend Increase of 14%
Interim Dividend Increase of 14% Interim Dividend Per Share (HK cents) 2.7x 29.20 25.62 21.90 18.72 16.00 13.93 12.33 11.00 1H2011 1H2012 1H2013 1H2014 1H2015 1H2016 1H2017 1H2018 29
Slide 30: Financial Discipline and Consistent Execution
Financial Discipline and Consistent Execution ▪ Material growth in profitable new business Growth ▪ Strong and resilient pan-regional growth portfolio ▪ VONB growth delivered increased ROEV at scale ▪ Strong growth in IFRS operating profit Earnings ▪ Diversified and balanced sources of earnings ▪ In
Slide 31: Ng Keng Hooi
Ng Keng Hooi Group Chief Executive
Slide 32: AIA’s Competitive Advantages and Strategic Priorities
AIA’s Competitive Advantages and Strategic Priorities Structural Drivers of Growth Rapid Increasing Low insurance Ageing population Understanding urbanisation prevalence of penetration and and growing need consumer and significant lifestyle-related limited social for retirement preferences and wealt
Slide 33: 1H2018 Strategic Highlights
1H2018 Strategic Highlights Bancassurance Opening up of Partnership with AIA Korea Subsidiarisation Chinese Insurance Market Bangkok Bank ▪ AIA China already 100% owned ▪ Completed on 1 January 2018 ▪ Launched in March 2018 ▪ Differentiated strategy and ▪ Released $1.9b free surplus at ▪ 15-year str
Slide 34: Delivering Through Market Cycles
Delivering Through Market Cycles 2010 2011 2012 2013 2014 2015 2016 2017 2018 ▪ Anaemic GFC ▪ US sovereign ▪ Expansionary ▪ Strengthening ▪ Lower for longer ▪ US interest rate ▪ China ▪ Positive China ▪ Trade tensions recovery downgrade policy; US QE3 US recovery interest rates increase slowdown fea
Slide 35: Consistent Execution Driving Strong Returns
Consistent Execution Driving Strong Returns VONB ($m) OPAT ($m) 2,653 1,954 2.7x 2,233 6.4x 1,605 1,956 1,798 1,615 1,260 1,428 959 1,119 1,220 792 969 645 512 303 399 1H10 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 1H10 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 EV Equity ($m) Interim Dividend Per Share
Slide 36: AIA Group – Creating Sustainable Shareholder Value
AIA Group – Creating Sustainable Shareholder Value ▪ Unprecedented long-term growth opportunities ▪ Significant and sustainable competitive advantages ▪ Clear and aligned growth strategy ▪ Experienced and proven management team ▪ Disciplined and consistent execution 36
Slide 37: Q&A Session
Q&A Session
Slide 38: Definitions and Notes
Definitions and Notes ▪ Due to the change of the Company’s financial year-end date from 30 November to 31 December and for the purpose of enhancing the comparability of financial information, the financial information in this presentation covers a six-month period from 1 January 2018 to 30 June 2018
Slide 39: Appendix
APPENDIX AIA confidential and proprietary information. Not for distribution.
Slide 40: Geographical Market Performance
Geographical Market Performance Hong Kong ($m) 1H18 1H17 CER AER Singapore ($m) 1H18 1H17 CER AER VONB 796 723 +10% +10% VONB 178 138 +22% +29% VONB Margin 62.2% 49.2% +13.0pps +13.0pps VONB Margin 61.4% 71.1% (9.7)pps (9.7)pps ANP 1,252 1,434 (13)% (13)% ANP 290 194 +42% +49% TWPI 5,075 4,275 +19%
Slide 41: Unique and Advantaged Growth Platform
Unique and Advantaged Growth Platform Distribution Mix Product Mix Geographical Mix % of VONB % of VONB % of VONB 5% Others 6% Malaysia 10% Unit-linked 8% Singapore 29% Partnerships 10% Other Markets 10% Thailand 39% Participating 27% China 71% Agency Traditional 46% Protection 39% Hong Kong
Slide 42: Balanced Product Mix and Diversified Earnings
Balanced Product Mix and Diversified Earnings Sources of IFRS Operating Profit(1) IFRS OPAT by Market Segment Return on Other Markets Net Worth 15% 13% Malaysia Hong Kong 6% 34% Participating and Spread 22% Singapore Insurance and 10% Fee-based 65% China 16% Thailand 19% Notes: For the Group in 1H20
Slide 43: Differentiation in China
Differentiation in China Premier Agency VONB ($m) OPAT ($m) 556 ▪ Highly differentiated Premier Agency Strategy 436 407 +37% ▪ VONB growth mainly driven by active agent growth 319 +37% ▪ Registered MDRT members up 31% ▪ #1 NPS among major players in China(2) Strategic Developments 1H2017 1H2018 1H20
Slide 44: Digital Strategy: Making a Material Difference to What We Do
Digital Strategy: Making a Material Difference to What We Do 3 2 Transform the Business Model 1 Develop Value-added Services for Distribution and Customers Digitalise Back Office Processes Health and Wellness Customer-centric Journey Artificial Intelligence and Machine Learning 30 million >75% Socia
Slide 45: Asia’s Unprecedented Middle Class Growth Opportunity
Asia’s Unprecedented Middle Class Growth Opportunity Rapid Urbanisation Unprecedented Levels of New Economic Activity Urban population (billions) Cumulative growth in GDP (US$ trillions) $100 1.9 2.1 $80 $92 5x 1.7 the total size of $80 the US economy $60 today $60 Asia 0.6 0.7 0.7 ex-Japan 0.3 0.3
Slide 46: An Urgent and Growing Need for Life and Health Insurance
An Urgent and Growing Need for Life and Health Insurance Increasing Prevalence of Lifestyle-Related Diseases Limited Provision of Social Welfare Deaths by non-communicable diseases (millions) Total social expenditure (US$ trillions) 19.2 49% of all NCD deaths globally Asia G7 8.2 ex-Japan $1.3t 1/6
Slide 47: Resilient Working Capital Position
Resilient Working Capital Position Working Capital Movement ($m) 970 (5) (1,140) Resilient Position 493 (573) 1,188 ▪ Net funds remitted of $1.2b ▪ China remitted $440m; up from $206m in 1H2017 ▪ Closing working capital included 10,647 9,714 $970m short-term loan ▪ Stable working capital before incr
Slide 48: Capital Fungibility
Capital Fungibility Net Funds Remitted to Group ($m) Group Working Capital ($m) 10,647 1,169 1,188 9,138 1,018 8,268 964 972 993 7,077 844 782 5,908 5,383 4,290 3,088 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 48
Slide 49: 1H2018 ANW Movement
1H2018 ANW Movement ANW Movement ($m) 3,160 (315) (1,140) 2,164 (357) 285 (72) (1,724) 22,994 22,975 20,974 ANW Expected Contribution Operating Finance ANW Investment Other Non- Exchange Dividend Paid ANW End of 2017 Return to Variances Costs Before Return operating Rates and End of 1H2018 ANW from
Slide 50: 1H2018 VIF Movement
1H2018 VIF Movement VIF Movement ($m) 55 278 (2,784) 2,311 (234) (394) 31,937 29,805 29,037 VIF Expected Contribution to Operating VIF Investment Return Other Exchange VIF End of 2017 Return VIF from VONB Variances Before Variances Non-operating Rates and End of 1H2018 Non-operating Variances Other
Slide 51: 1H2018 IFRS Shareholders’ Equity and ANW
1H2018 IFRS Shareholders’ Equity and ANW Reconciliation of IFRS Shareholders’ Equity to ANW ($m) (9,529) 1,902 (1,833) 494 57 (6,622) 38,506 29,597 22,975 Equity End of Difference Mark-to-market Deferred Tax Elimination of Non-controlling ANW Adjustment to ANW 1H2018 Between IFRS and Adjustment for
Slide 52: Value Creation from Quality Operating Performances
Value Creation from Quality Operating Performances Stable Persistency Rate Expense Ratio 9.1% 96% 8.7% 8.8% 95.4% 8.4% 8.2% 8.0% 7.8% 95% 7.1% 94% 93% 92% 91% 90% 1H11 1H12 1H13 1H14 1H15 1H16 1H17 1H18 52
Slide 53: Robust Capital Structure
Robust Capital Structure Solvency Ratio AIA Capital Structure on the HKIO Basis for AIA Co. 1H2018 Leverage Ratio(1) 12.2% 433% 446% 458% 427% 428% 404% 337% 353% 311% Borrowings $5,421m 2010 2011 2012 2013 2014 2015 2016 2017 1H2018 Solvency Ratio on the HKIO Basis for AIA International 469% Total
Slide 54: Prudent Investment Portfolio Summary
Prudent Investment Portfolio Summary IFRS Operating Profit Investment Return ($m) Total Investments of $164b(2) Total Bond Portfolio of $128b(2) Average Rating A 3,581 3,981 Expected Cash & Cash Structured Return for Real Estate Equivalents Securities Equities and 819 972 1% 4% 1% Real Estate Intere
Slide 55: Total Invested Assets
Total Invested Assets Other Participating Policyholder Funds and Total Total Invested Assets by Type $m Shareholder Fixed Income 23,414 111,980 135,394 Total $164.0b Fixed income 83% Equities 6,766 12,418 19,184 Equities 12% Cash and cash equivalents 188 2,269 2,457 Cash and cash equivalents 1% Deri
Slide 56: Prudent and High-quality Fixed Income Portfolio
Prudent and High-quality Fixed Income Portfolio Total Fixed Income by Type Total Fixed Income by Maturity Total $135.4b Total $135.4b Government & Government 43% >10 Years & No 61% Agency Bonds Fixed Maturity Corporate Bonds 51% 5 - 10 Years 22% Structured Securities 1% 1 - 5 Years 14% Loans and dep
Slide 57: Prudent and High-quality Fixed Income Portfolio
Prudent and High-quality Fixed Income Portfolio Total Bonds by Accounting Classification Total Bonds by Rating(1) Total $127.9b Total $127.9b Average Rating A Other Policyholder & 83% AAA 5% Shareholder (AFS) AA 14% Participating Funds 17% (FVTPL) A 49% Other Policyholder & 0% Shareholder (FVTPL) BB
Slide 58: Government Bond Portfolio
Government Bond Portfolio Government and Agency Bonds Government and Agency Bonds by Rating(1) by Geography Total $57.7b Total $57.7b China 25% AAA 11% Thailand 23% AA 23% 15% Korea A 54% Singapore 11% Malaysia 6% BBB 11% Philippines 4% BB & Below 1% Others 16% Notes: As of 30 June 2018 (1) For gove
Slide 59: Corporate Bond Portfolio
Corporate Bond Portfolio Rating Total ($m) Corporate Bonds by Rating AAA 550 Total $69.3b Average Rating A- AA 4,486 AAA 1% A 31,182 AA 6% A 45% BBB 30,270 BBB 44% BB and below(1) 2,786 (1) BB and below 4% Total 69,274 Notes: As of 30 June 2018 (1) Including not rated bonds 59
Slide 60: Structured Security Portfolio
Structured Security Portfolio Rating Total ($m) Structured Securities by Rating AAA 8 Total $0.9b Average Rating BBB+ AA 49 AAA 1% A 353 AA 5% A 38% BBB 464 BBB 50% BB and below(1) 57 (1) BB and below 6% Total 931 Notes: As of 30 June 2018 (1) Including not rated bonds 60
Slide 61: AIA China – Prudent Investment Portfolio
AIA China – Prudent Investment Portfolio AIA China Asset Mix Prudent ALM Approach Cash & Cash Equivalents 1% ▪ Asset allocation driven by liability cash flow Equities matching in local currency 8% ▪ Over 80% of earnings from insurance and fees ▪ Over 90% of assets in fixed income ▪ 87% of bond portf
Slide 62: Impairment Experience During Global Financial Crisis
Impairment Experience During Global Financial Crisis AIA Impairments on Invested Assets ($m) 2008 Impairment Charges as % of Invested Assets 5.6% 142 67 1.8% 1.5% 1.5% 0.3% - 1 - 2007 2008 2009 2010 2011 Co. A Co. B Co. C Co. D 62
Slide 63: Risk Discount Rate and Risk Premium
Risk Discount Rate and Risk Premium As at 30 November 2010 As at 30 June 2018 Long-term Long-term Risk Discount Risk Risk Discount Risk 10-year 10-year % Rates Premium Rates Premium Govt Bonds Govt Bonds Australia 8.75 5.65 3.10 7.35 3.00 4.35 China 10.00 3.74 6.26 9.75 3.70 6.05 Hong Kong 8.00 3.53
Slide 64: Sensitivity Analysis – Allocated Equity
Sensitivity Analysis – Allocated Equity Interest Rates ($m) Equities ($m) 0.5% 36,328 (0.5)% (3.7)% 36,328 3.7% 50 basis points 50 basis 10% fall in 10% rise in decrease in points equity prices equity prices interest rates increase in interest rates 1,329 187 1H2018 (174) 1H2018 Allocated Equity
Slide 65: Sensitivity Analysis – EV
Sensitivity Analysis – EV Sensitivity of EV as at 30 June 2018 Equity prices +10% 1.5% Equity prices -10% (1.5)% Interest rates +50 bps 0.7% Interest rates -50 bps (0.6)% Presentation currency 5% appreciation (3.2)% Presentation currency 5% depreciation 3.2% Lapse/discontinuance rates +10% (1.6)% La
Slide 66: Sensitivity Analysis – VONB
Sensitivity Analysis – VONB Sensitivity of VONB for the six months ended 30 June 2018 Interest rates +50 bps 4.7% Interest rates -50 bps (5.7)% Presentation currency 5% appreciation (3.1)% Presentation currency 5% depreciation 3.1% Lapse/discontinuance +10% (5.1)% Lapse/discontinuance -10% 5.7% Mort
Slide 67: Currency Sensitivity
Currency Sensitivity EV ($m) VONB ($m) 52,012 1,954 (3.2)% 3.2% (3.1)% 3.1% 5% fall in 5% rise in 5% fall in 5% rise in local market local market local market local market currencies vs currencies vs currencies vs currencies vs US dollar US dollar US dollar US dollar 1,669 61 1H2018 (61) 1H2018