Aia Group Limited · HKEX:1299

Aia — FY2014 Earnings Presentation

70 slides from Aia's earnings presentation, Feb 26, 2015

  1. Slide 1: 2014 Results Presentation

    2014 RESULTS PRESENTATION 26 February 2015 AIA confidential and proprietary information. Not for distribution.

  2. 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 (the “Presentation”) held in connection with the announcement of the Company’s financial results. Document in this disclaimer shall be construed to include

  3. Slide 3: Mark Tucker, Group Chief Executive

    Mark Tucker GROUP CHIEF EXECUTIVE AIA confidential and proprietary information. Not for distribution.

  4. Slide 4: Excellent Financial Results

    Excellent Financial Results  Value of new business up 24% to $1,845m  Operating profit up 16% to $2,910m  EV Equity up 12% to $39.0b  Free surplus generation up 16% to $4.4b  Final dividend increase of 19% 4

  5. Slide 5: Agenda

    Agenda Presenter Position Topic Mark Tucker Group Chief Executive 2014 Group Review Garth Jones Group Chief Financial Officer 2014 Financial Results Gordon Watson Regional Chief Executive Hong Kong, Korea, Other Markets, Citibank Ng Keng Hooi Regional Chief Executive Singapore, Malaysia, Thailand, C

  6. Slide 6: Aligned Growth Platforms and Priorities

    Aligned Growth Platforms and Priorities Growth Growth Growth Drivers Platforms Priorities Large  Sustain competitive advantages in Premier Agency Premier Population  Recruit, develop and promote next generation of agents Agency Growth  Enhance productivity and service through iPoS technology  Ex

  7. Slide 7: Delivering Distribution Quality and Expansion

    Delivering Distribution Quality and Expansion Premier Agency VONB ($m) Premier Agency Delivery 1,414  VONB up 21% 1,166 +21%  Quality recruitment focus  Expanding AIA Premier Academy training  Active new agents up 14%  iPoS in 11 markets; ANP trebled in 12 months  No. 2 MDRT worldwide; up 24%

  8. Slide 8: Product and Customer Growth Drivers

    Product and Customer Growth Drivers 2014 Margin by Product(1) Diversified, Value-oriented Portfolio 13%  Diversified protection and long-term savings focused portfolio 8% 7% 6%  High levels of protection embedded within and 6% across product categories  Comprehensive product range aligned with cu

  9. Slide 9: New Business Growth with Increasing Returns

    New Business Growth with Increasing Returns VONB ($m) New Business Strain as % of VONB 1,845 144% (54)pps 2.8x 90% 667 2010 2014 2010 2014 OPAT ($m) Total Dividend Per Share (HK cents) 50 2,910 1.7x 1.5x 1,699 33 2010 2014 2011 2014 9

  10. Slide 10: Sustained Growth Momentum

    Sustained Growth Momentum VONB ($m) EV Equity ($m) 39,042 1,845 2.8x 1.6x 34,871 1,490 1,188 31,657 932 27,464 667 24,948 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 OPAT ($m) Free Surplus Generation ($m) 2,910 4,397 1.7x 2,506 2.1x 3,786 2,159 2,845 1,922 2,485 1,699 2,107 2010 2011 2012 2013

  11. Slide 11: Garth Jones, Group Chief Financial Officer

    Garth Jones GROUP CHIEF FINANCIAL OFFICER AIA confidential and proprietary information. Not for distribution.

  12. Slide 12: Excellent Financial Results – Across All Key Metrics

    Excellent Financial Results – Across All Key Metrics ($m) 2014 2013 GROWTH VONB 1,845 1,490 24% VONB Margin 49.1% 44.1% 5.0 pps Growth ANP 3,700 3,341 11% EV Equity 39,042 34,871 12% Operating Profit After Tax 2,910 2,506 16% Earnings TWPI 19,211 17,808 8% Operating Margin 18.2% 17.3% 0.9 pps Free S

  13. Slide 13: Key Metrics on Constant Exchange Rates

    Key Metrics on Constant Exchange Rates ($m) 2014 2013 AER Growth CER Growth VONB 1,845 1,490 24% 27% ANP 3,700 3,341 11% 14% Operating Profit After Tax 2,910 2,506 16% 18% EV Equity 39,042 34,871 12% 14% Average Currency Depreciation Against USD in 2014 15% 12% 9% 6% 3% 0% Indonesia Australia Thaila

  14. Slide 14: Growth, Earnings, Capital and Dividends

    Growth Earnings Capital and Dividends 14

  15. Slide 15: Sustained VONB Growth

    Sustained VONB Growth ANP ($m) VONB Margin 3,700 49.1% VONB ($m) +11% +5.0pps 3,341 44.1% 1,845 +24% 1,490 2013 2014 2013 2014 Increasing IRRs Consistently above 20% +23% 2013 2014 2010 2014 15

  16. Slide 16: High Quality New Business

    High Quality New Business AIA Hong Kong AIA Thailand New Regular Premium New Regular Premium ANP Split by Payment Term by Payment Term 97% 99% 96% 52% 48% 3% 4% 1% <5 Years ≥5 Years <5 Years ≥5 Years Single Premium Regular Premium AIA HK Market(1) AIA Thailand Note: (1) Source: HKOCI; 3Q2014 annuali

  17. Slide 17: Product Mix Driving Margin

    Product Mix Driving Margin 5.0 pps Increase in VONB Margin +1.2 pps +0.8 pps +3.0 pps 49.1% 44.1% 2013 Product Channel and Economic 2014 VONB Margin Mix Geographical Mix Assumption VONB Margin and Others Changes 17

  18. Slide 18: Diversified Growth Portfolio

    Diversified Growth Portfolio VONB ($m) 2014 VONB by Market Segment +32% 619 Hong Kong 468 Other Markets 361 11% +13% Thailand Korea 319 4% 299 Malaysia Hong Kong +11% Singapore 31% 269 8% 258 +55% China 166 China 161 13% +34% Malaysia 120 82 (10)% Korea Thailand 91 Singapore 18% 15% Other 212 (4)% M

  19. Slide 19: EV Equity of $39.0b – Strong Operating Performance

    EV Equity of $39.0b – Strong Operating Performance 2014 EV Equity Movement ($m) EV Operating Profit up 14% to $4.5b 842 (517) (53) (689) 1,845 108 2,635 39,406 39,042 34,871 Group Expected VONB Operating Finance Group Investment Exchange Dividend Group EV Equity Return on EV Variances and Costs EV E

  20. Slide 20: Interest Rates and Sensitivity

    Interest Rates and Sensitivity AIA Long-term Assumptions EV Sensitivity to vs Market Rates Interest Rates ($m) Weighted Average by Geography (1) 37,153 5.0% (0.4)% 0.2% 4.5% 50 basis 50 basis 4.0% points points decrease in increase in 3.5% interest rates interest rates 3.0% 2.5% 2.0% 2010 Nov-10 201

  21. Slide 21: Currency Sensitivity

    Currency Sensitivity EV ($m) VONB ($m) 37,153 1,845 (2.7)% 2.7% (3.6)% 3.6% 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 996 66 2014 (66) 2014 EV VONB (9

  22. Slide 22: Delivering Through Market Cycles

    Delivering Through Market Cycles VONB ($m) 1,845 2.8x 1,490 1,188 932 667 2010 2011 2012 2013 2014 Interest Rate and Equity Market Volatility % USD 4 650 3.5 600 3 550 2.5 500 2 450 1.5 UST Yield 10Y (Left Axis) MSCI Asia ex-Japan (Right Axis) 1 400 Nov-10 Oct-10 Nov-11 Oct-11 Nov-12 Oct-12 Nov-13 O

  23. Slide 23: Growth, Earnings, Capital and Dividends

    Growth Earnings Capital and Dividends 23

  24. Slide 24: IFRS Operating Profit up 16%

    IFRS Operating Profit up 16% Operating Margin Operating Profit After Tax ($m) 18.2% 17.3% +0.9pps 2,910 +16% 2,506 2013 2014 Expense Ratio 8.6% (0.1)pps 8.5% 2013 2014 2013 2014 24

  25. Slide 25: Stable Investment Yield

    Stable Investment Yield Investment Income ($m) Total Invested Assets of $121b % of Total in 2014 5,352 Dividend 4,958 Cash & Cash Properties 551 and Equivalents 1% Rental 513 1% Income Equity 11% Interest 4,801 Income 4,445 Fixed Income (1) 87% 2013 2014 Investment Yield 4.8% 4.7% Investment Return

  26. Slide 26: Net Profit up 22%

    Net Profit up 22% Net Profit ($m)  Net profit includes mark-to-market 2014 2013 of equities Operating Profit After Tax 2,910 2,506 +16%  Operating profit excludes any actual or assumed gains Net gains from equities 508 424  Average non-operating gains of $473m for past five full financial Other n

  27. Slide 27: Diversified Earnings

    Diversified Earnings OPAT ($m) 2014 OPAT by Market Segment 905 +17% Hong Kong 773 Other 544 Markets +3% Thailand 11% 528 Korea 6% Hong Kong 429 31% +8% Singapore 396 Malaysia 9% 283 +38% China 205 China 280 10% +12% Malaysia 250 165 Thailand +10% Korea Singapore 18% 150 15% Other 314 +31% Markets 23

  28. Slide 28: Profitable Earnings Growth – Delivered with Scale

    Profitable Earnings Growth – Delivered with Scale Operating Profit After Tax ($m) OPAT 2010 2014 >$800m Hong Kong 2,910 $600–800m Hong Kong 1.7x Thailand $400–600m Singapore 1,699 Malaysia Thailand $200–400m China Singapore Other Markets Malaysia China <$200m Korea Korea 2010 2014 Other Markets 28

  29. Slide 29: Asian Scale and Quality Driving Earnings

    Asian Scale and Quality Driving Earnings Gross Inflows ($m)(1) Operating Margin 18.2% 2.1x +2pps 20,273 17,755 17.3% 17.3% 15,213 12,846 16.5% 9,719 16.2% 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 OPAT ($m) 2,910 1.7x 2,506 2,159 1,922 1,699 2010 2011 2012 2013 2014 Note: (1) Excludes invest

  30. Slide 30: Growth, Earnings, Capital and Dividends

    Growth Earnings Capital and Dividends 30

  31. Slide 31: Self-financed Growth at High Returns

    Self-financed Growth at High Returns Free Surplus on the HKICO Solvency Basis ($m) Net Movement of $1.9b 4,397 (1,655) (186) (689) (800) 7,794 6,727 5,927 Free Surplus Citibank FS at Beginning FS Generated New Business Unallocated Dividend Free Surplus End of 2013 Upfront of Period Investment Group

  32. Slide 32: Increasing Returns and Capital Efficiency

    Increasing Returns and Capital Efficiency VONB Growth New Business Strain as % of VONB 1,845 144% (54)pps 2.8x 90% 667 2010 2014 2010 2014 Increasing IRRs Consistently above 20% Decreasing Payback Periods (Years) 26% 5.0 +23% 21% (1.0) 4.0 2010 2014 2010 2014 32

  33. Slide 33: Regulatory Solvency Ratio of 427%

    Regulatory Solvency Ratio of 427% Solvency Ratio on HKICO Basis for AIA Co. Ongoing Capital Strength 433% 427%  Resilient solvency position  Prudent HKICO reserves and capital  Strong retained earnings  After Citibank upfront payment Required  AIA Co. S&P Rating of AA- and Level of 150% Moody’s

  34. Slide 34: Prudent, Sustainable and Progressive Dividend

    Prudent, Sustainable and Progressive Dividend Total Dividend Per Share (HK cents) 1.5x +18% +15% +12% 50.00 42.55 37.00 33.00 2011 2012 2013 2014 34

  35. Slide 35: 2014 Financial Results Summary

    2014 Financial Results Summary  Considerable growth in profitable new business Growth  Significant capital investment at high returns  Improvement in new business capital efficiency  Strong increase in IFRS operating profit Earnings  Consistent growth across the region  Diversified and scale s

  36. Slide 36: Gordon Watson, Regional Chief Executive

    Gordon Watson REGIONAL CHIEF EXECUTIVE AIA confidential and proprietary information. Not for distribution.

  37. Slide 37: Hong Kong: Delivering Excellent Growth

    Hong Kong: Delivering Excellent Growth VONB ($m)  Premier Agency 619  Delivered excellent VONB growth +32%  Active new agents up 15% 468  Increased active agent productivity  MDRT qualifiers up 18%  Profitable Partnerships  Strong growth in bancassurance and IFA  Enhanced segmentation and pr

  38. Slide 38: Korea: Outperforming the Market

    Korea: Outperforming the Market VONB ($m)  Direct Marketing  Industry-wide temporary suspension 91 (10)% 82  Timely management response  Costs incurred included in VONB  Adapting to ongoing regulatory changes  Premier Agency  Captured profitable market share  Bancassurance 2013 2014  Opport

  39. Slide 39: Other Markets: Improving Fundamentals

    Other Markets: Improving Fundamentals VONB ($m)  #1 ranked in IFA individual risk market Australia 220 (4)% 212  New platform partnerships  well received  Double-digit underlying VONB growth in 2H Indonesia  #3 ranked in full year and #2 in 4Q 2014  Strong performance in group insurance 2013 2

  40. Slide 40: Citibank Partnership: Delivering on Key Priorities

    Citibank Partnership: Delivering on Key Priorities Key Priorities Achievement P Obtain regulatory approval and implement partnership across all markets All 11 Markets launched P Train bank staff and embed dedicated insurance specialists in Citibank’s broad distribution platform >2,000 Sales Staff en

  41. Slide 41: Ng Keng Hooi, Regional Chief Executive

    Ng Keng Hooi REGIONAL CHIEF EXECUTIVE AIA confidential and proprietary information. Not for distribution.

  42. Slide 42: Singapore: Continued Solid Performance

    Singapore: Continued Solid Performance VONB ($m)  Premier Agency 299  Market-leading agency position 269 +11%  Active agents up 16%  Strong iPoS take up  Profitable Partnerships  Solid VONB growth  Products and Customers  Very strong unit-linked VONB growth 2013 2014  More balanced product

  43. Slide 43: Malaysia: Strengthening our Growth Platform

    Malaysia: Strengthening our Growth Platform VONB ($m)  Premier Agency 161  Delivered excellent VONB growth +34%  Recruitment programme targeting young agents 120  Strong iPoS take up  Unified agency compensation structure  Active new agents up 29%  Profitable Partnerships  Excellent performa

  44. Slide 44: Thailand: Resilient Growth

    Thailand: Resilient Growth VONB ($m)  Premier Agency 361  Agency VONB up over 20% on CER 319 +13%  Unit-linked licensed agents up 60%  MDRT qualifiers up 45%  Profitable Partnerships  Solid progress in direct marketing  Products and Customers  Higher rider attachment ratio 2013 2014  Strong

  45. Slide 45: China: Sustained Outperformance

    China: Sustained Outperformance VONB ($m)  Premier Agency 258  Focus on superior recruitment, best-in- class training and leadership development +55%  MDRT qualifiers up 58% 166  Active new agents up 42%  Active agent productivity up 9%  Increased average agent income  Products and Customers

  46. Slide 46: China: Differentiated Strategy

    China: Differentiated Strategy Premier Agency Strategy High Quality Product Portfolio 2014 VONB per Agent Regular Premium as % of New Premium(2) 89% 3.0x 29% Industry (1) AIA China Industry AIA China AIA China 2014 Monthly Average Agent Income Source of Statutory Earnings Free Surplus Return 12% 2.8

  47. Slide 47: China: Differentiated Outperformance

    China: Differentiated Outperformance VONB ($m) OPAT ($m) 283 258 3.8x 4.0x 205 166 151 124 119 102 68 70 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 47

  48. Slide 48: Mark Tucker, Group Chief Executive

    Mark Tucker GROUP CHIEF EXECUTIVE AIA confidential and proprietary information. Not for distribution.

  49. Slide 49: Long-term Structural Growth Drivers

    Long-term Structural Growth Drivers Large  4.1 billion people by 2020; increase of 700 million people since 2000 Population  4x the population of the G7 in 2020 Growth Rapid  1.7 billion urban dwellers by 2020, an additional 720 million in 20 years Urbanisation  2x the urban population of the G7

  50. Slide 50: Right Growth Strategy Executed Well

    Right Growth Strategy Executed Well 2010 Since IPO A New Beginning Strong Performance, Consistent Execution  Corporate strengthening  Premier Agency strategy delivery Strategic and reorientation  Profitable partnership expansion Progress  Building blocks of  Integrating savings and protection s

  51. Slide 51: Excellent Financial Results

    Excellent Financial Results  Value of new business up 24% to $1,845m  Operating profit up 16% to $2,910m  EV Equity up 12% to $39.0b  Free surplus generation up 16% to $4.4b  Final dividend increase of 19% 51

  52. Slide 52: Slide 52

  53. Slide 53: Definitions and Notes

    Definitions and Notes  2013 financial information as well as EV and EV Equity have been adjusted to reflect the adoption of new and revised accounting standards by AIA in 2014. For a description of the new and revised accounting standards and a reconciliation of the adjustments made to the 2013 fin

  54. Slide 54: Appendix

    APPENDIX AIA confidential and proprietary information. Not for distribution.

  55. Slide 55: Asia's Significant Growth Opportunity

    Asia’s Significant Growth Opportunity Population by Region Rapid Urbanisation (Billions) Urban population (Millions) 4.3 4.1 558 3.7 548 3.4 537 315 523 299 515 282 265 248 1,539 1,714 0.9 0.9 0.9 0.9 1,353 995 1,169 0.3 0.3 0.4 0.4 2001 2010 2020E 2030E 2000 2005 2010 2015E 2020E Asia ex-Japan Nort

  56. Slide 56: Asia's Macroeconomic Stability

    Asia’s Macroeconomic Stability Asia’s Stable Growth Outlook Asia ex-Japan Macroeconomic Resilience Real GDP Growth Rates GDP at Current Prices (Rebased to 100) 180 6% 5% 160 4% 140 3% 120 2% 100 1% 0% 80 2012 2013 2014E 2015E 2016E Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Asia ex-Japan G7 Economies

  57. Slide 57: Sustained Growth in New Business Profitability

    Sustained Growth in New Business Profitability VONB ($m) 1,845 1,490 1,053 1,188 845 932 792 676 645 667 533 512 364 399 303 1H2010 2H2010 1H2011 2H2011 1H2012 2H2012 1H2013 2H2013 1H2014 2H2014 2014 vs 2013 +24% 57

  58. Slide 58: 2014 Working Capital Movement

    2014 Working Capital Movement Working Capital Movement ($m) Net Movement of $1.9b 985 (91) (689) (65) 1,718 (800) 6,614 5,556 4,756 Working Capital Citibank Opening Net Funds Increase in Purchase of Cost of Change in Fair Working Capital End of 2013 Upfront Fee Working Capital Remitted Borrowings Sh

  59. Slide 59: Capital Fungibility

    Capital Fungibility Net Funds Remitted to Group ($m) Group Working Capital ($m) 6,614 2,185 5,556 5,185 618 1,733 1,718 1,583 3,912 1,567 2011 2012 2013 2014 2011 2012 2013 2014 59

  60. Slide 60: Fixed Income Portfolio

    Fixed Income Portfolio Debt Securities by Accounting Classification Debt Securities by Type Other Policyholder & Shareholder FVPTL Unit-linked & Structured 1% Consolidated Securities Investment Funds 1% FVTPL 4% Par Funds FVTPL 19% Government Bonds Corporate 45% Bonds 54% Other Policyholder & Shareh

  61. Slide 61: High-Quality and Long-Duration Asset Base

    High-Quality and Long-Duration Asset Base Fixed Income Portfolio Duration Fixed Income Portfolio by Rating BB and Below & AAA Others 6% 10+ Years & No Fixed 7% maturity 48% AA 52% 17% BBB 28% 5 – 10 Years 26% 25% A 42% 1 – 5 Years 19% 18% ≤1 Year 6% 5% 2013 2014 61

  62. Slide 62: 2014 ANW Movement

    2014 ANW Movement ANW Movement ($m) 3,531 (995) 530 (112) (689) 616 (139) (53) (800) 15,006 15,351 13,462 12,662 ANW Citibank ANW Expected Contribution Operating Finance ANW Investment Other Exchange Cost of ANW End of 2013 Upfront (Post Return to ANW Variances Costs Before Return Non- Rates and Div

  63. Slide 63: 2014 VIF Movement

    2014 VIF Movement VIF Movement ($m) 226 (507) 2,840 247 (464) (896) 22,547 21,802 20,356 19,460 VIF Expected Contribution to Operating VIF Investment Other Non- Exchange VIF End of 2013 Return VIF from VONB Variances and Before Return Variances operating Rates and End of 2014 Assumption Non-operatin

  64. Slide 64: 2014 Shareholders' Equity Movement

    2014 Shareholders’ Equity Movement Shareholders’ Equity Movement ($m) Net Profit $3.5b 3,807 (444) (689) 508 32 2,910 30,806 28,132 24,682 Equity Operating Net Movement Other Non- Equity Net Movement FX and Cost of Equity End of 2013 Profit After from Equity operating before Other from Bonds Other I

  65. Slide 65: IFRS Shareholders' Equity and ANW

    IFRS Shareholders’ Equity and ANW Reconciliation of IFRS Shareholders’ Equity to ANW ($m) (6,699 ) 2,509 (2,152) 1,175 (132) (10,156) 30,806 25,507 15,351 Equity Difference Mark-to-market Elimination of Deferred tax Non-controlling Group ANW Adjustment to Group ANW End of 2014 between IFRS adjustmen

  66. Slide 66: Robust Capital Structure

    Robust Capital Structure Solvency Ratio AIA Capital Structure ($b) on HKICO Basis for AIA Co. 2014 Leverage Ratio(1) 8.7% 433% 427% Borrowings 2.9 353% 311% Total Equity 31.0 2011 2012 2013 2014 Note: (1) Leverage ratio defined as Borrowings / (Borrowings + Total Equity) 66

  67. Slide 67: Operational Efficiency

    Operational Efficiency Operating Variances & Persistency Rate Assumption Changes ($m) 144 95% 94.4% 124 94% 111 108 93% 92% 91% 90% 2011 2012 2013 2014 67

  68. Slide 68: Risk Discount Rate and Risk Premium

    Risk Discount Rate and Risk Premium 2010 2014 Risk Discount 10-year Risk Risk Discount 10-year Risk % Rates Govt Bonds Premium Rates Govt Bonds Premium Australia 8.75 5.65 3.10 7.75 3.37 4.38 China 10.00 3.74 6.26 9.75 3.74 6.01 Hong Kong 8.00 3.53 4.47 7.00 2.50 4.50 Indonesia 15.00 7.90 7.10 13.00

  69. Slide 69: Sensitivity Analysis – EV

    Sensitivity Analysis – EV Sensitivity of EV as at 30 November 2014 Equity prices + 10% 2.0% Equity prices - 10% -2.1% Interest rates + 50 bps 0.2% Interest rates - 50 bps -0.4% Presentation currency 5% appreciation -2.7% Presentation currency 5% depreciation 2.7% Lapse/discontinuance rates + 10% -1.

  70. Slide 70: Sensitivity Analysis – VONB

    Sensitivity Analysis – VONB Sensitivity of VONB as at 30 November 2014 Interest rates + 50 bps 4.2% Interest rates - 50 bps -5.3% Presentation currency 5% appreciation -3.6% Presentation currency 5% depreciation 3.6% Lapse rates + 10% -6.8% Lapse rates - 10% 7.5% Mortality/morbidity rates + 10% -16.

AIA Group — FY2014 Earnings Presentation on 6ix