HONG KONG (Reuters Breakingviews) - Investors have mixed signals from AIA. First-quarter figures on Friday from the $107 billion insurer hint at the challenges of maintaining rapid growth at scale – yet also point to a future where it depends less extensively on China.
There were a handful of important data points. Firstly, AIA Chief Executive Ng Keng Hooi hailed a record quarter by “value of new business”, noting that this key measure topped $1 billion for the first time.
Yet an annual VONB increase of 20 percent, before currency moves, undershoots the blistering 55 percent in the first quarter of 2017, although AIA has since moved its fiscal year-end, meaning the two periods differ by a month. It also lags the 28 percent rate of the last two full years.
It is unwise to read too much into a single short quarterly update. But AIA could be starting to run up against what is sometimes known in finance as the law of large numbers, or the simple idea that rapid growth gets harder to maintain as a company grows larger.
On the other hand, there was good news from Thailand and Singapore, where AIA respectively hailed “positive” and “very strong” growth in new business. The measure had declined in both territories, AIA’s biggest non-Chinese markets, in fiscal 2017.
That is encouraging, because at present the company is largely a bet on China: Hong Kong and the mainland made up 64 percent of VONB last year, and 51 percent of operating profit after tax. This focus has served AIA extremely well in recent years. Moves by Beijing to further open up the insurance market to foreigners could favour AIA too, by making it easier to expand out from its bases in the cities of Shanghai, Beijing and Shenzhen, and the provinces of Guangdong and Jiangsu.
But if China’s economy slows, or regulations change again, AIA would suffer disproportionately. Being more diversified would insulate against that outcome, and mean the company was seen more as a proxy for increasing financial sophistication across the wider region. It might delay the reckoning with the law of large numbers, too.
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