AIA’s China expansion to enhance earnings diversity in long run: analyst

But capital buffers may narrow due to dividend payout and share buyback schemes.

Insurer AIA’s ongoing expansion into China and other emerging markets will enhance earnings diversity, although more capital will be consumed with less returns in the short term.

The insurer is expected to maintain very strong capital and earnings in 2024, according to S&P Global Ratings in their latest ratings commentary.

“We expect AIA to maintain its leading market positions across its key operating markets that span across Hong Kong, China, Thailand, Singapore, and Malaysia. The insurer's long-established brand strength and high level of controlled distribution channels support its competitive strength,” the ratings agency wrote.

“That said, slowing economic growth in the region could moderate the pace of expansion,” it added.

Furthermore, AIA’s progressive dividend payouts and sizeable share buybacks may narrow its capital buffer.

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Financial profile should continue to benefit from the fact that a large proportion of AIA’s policyholder capital is in Hong Kong.

It's prudent investment management, and consistent embedded value generation, will also prop up its financial profile, S&P said. 

Expansion to China and other markets will improve earnings diversity, but it also increases the group's sensitivity to still-developing capital markets in some of these countries. This could consume capital. 

“That said, the insurer's prudent investment approach and strong understanding of the regional capital markets should help it to manage the risk,” S&P noted.

One weakness may be that AIA's operating performance remains heavily reliant on life insurance profits. This is in contrast to more diversified global multi line insurers such as Allianz SE, Zurich Insurance Group, and AXA Group, S&P said.