AIA Group’s margin growth marred by health claims

A negative variance of -$221m on health claims, Jefferies noted.

AIA Group margins have shown improvement over two consecutive quarters, indicating a positive trend. Factors contributing to this include increased productivity from established agents in core geographies, repricing of products in China, and growth in new provinces. Despite a temporary halt to bancassurance related to regulatory reforms, margins in China have begun to rise again, said Jefferies in a report. 

The FY 2023 margin of 52.6% is higher than the previous quarterly high, suggesting exceptional performance.

Despite positive operating variances, there was a negative variance of -$221m on health claims. 

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This increase can be attributed to delayed treatment during the pandemic, greater awareness of public health leading to more diagnostic hospital visits, and a higher frequency of respiratory illnesses in 2023. AIA is managing this through price rises on annual policies.

The report updates the model for FY 2023 results, resulting in trivial changes to IFRS 17 forecasts. 

Whilst this places the report below consensus, the Jefferies analysts note that the consensus may be skewed due to the relatively low number of analysts and the bullish sentiment towards AIA. 

Additionally, as both the market and analysts value Asian insurers using Embedded Value, IFRS 17 forecasts may be less meaningful.