If AIA Group were a school kid, it would be the good-looking, straight-A one with a nice personality – the one the others would like to hate but cannot find reasons to. The insurer’s 2012 profits have beaten expectations, embedded value is rising nicely and the stock has gained two-thirds – four times as much as its peers – since it listed two years ago. If it secretly worries about zits, the strain does not show.
AIA’s reward for a near 90 per cent jump in net profits was a 4 per cent pop in its shares. But no one knows better than a life assurer, whose net profits have benefited greatly from an equity market rally and favourable currency moves, that past performance is no guide to the future. Investors still face the same questions with this market darling as any of its rivals.
To start with the biggest one: how strong is economic growth? For an Asian insurer, that looks relatively good. But half of AIA’s pre-tax operating profits still came from the region’s slower-growing developed markets of Hong Kong, Singapore and South Korea. Since its 2010 float, group chief Mark Tucker has tightened AIA’s focus on profitable business to great effect and margins on the value of new business rose a further 6 percentage points last year. But most of the easier wins from operational efficiencies and the profitability drive have now been taken and reflected in its shares. The group must now prove that its recent growth market investments – its pricey purchase of ING’s Malaysian business late last year, for example – were worth it.