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SEA is making a comeback in terms of growth.While China is expected to drive VONB growth in 1Q21F, improved margins are expected to shift growth drivers to South East Asia (SEA) in 2Q21F.We’ve noticed a significant movement toward higher-margin protection and rider items, particularly in Thailand and Malaysia, with margins driving VONB growth.In Thailand, new data shows that protection business new premium growth accelerated to 16 percent yoy in 1Q21, up from 1 percent yoy in FY20. We believe that favorable product mix shifts will surprise profits to the upside. VONB margins are well positioned to surprise on the upside.
In 2020, Thailand’s insurance authority (AIA’s third-largest market) began publishing more precise statistics on protection business trends. AIA’s annualised new premiums (ANP) have accelerated from 1% yoy in 2020 to 16 percent yoy in 1Q21, indicating a significant shift toward higher-margin protection business (Fig 7).With its 2H20 Thailand value of new business (VONB) margin at its best since 2H16, this demonstrates a clear increase in demand for protection and health insurance in the wake of the Covid-19 pandemic. In 2Q21F, we expect AIA’s strong VONB growth in Thailand to continue to increase. Malaysia was a key driver of growth in both the first and second quarters of this year.
In Malaysia, AIA’s fifth-largest market, there is also a significant movement toward protection insurance. This trend was already visible in 2H20, when Malaysia’s VONB margin climbed to its highest level since 2H18. Malaysia is well positioned to help AIA boost VONB growth in 1Q21F and 2Q21F, as it has adapted successfully to digital sales and has made a noticeable shift toward higher-margin business.
Singapore: ANP growth is picking up, but margins are tight.While we expect ANP volumes in Singapore (AIA’s fourth-largest market) to rebound yoy in 2Q21F, resulting in VONB growth, adverse actuarial investment assumption changes, as well as border controls affecting the country’s broker business, may cause AIA’s VONB to rebound less in Singapore than in Thailand and Malaysia. Despite this, we continue to see benefits from improved product mix and lower acquisition expense overruns. Given reduced FY21F-23F VONB forecasts due to our altered expectation that the Covid-19 epidemic will continue to negatively impact insurance sales through the end of 2021F, our GGM-based TP is decreased to HK$120 from HK$126. On the 14th of May, AIA releases its 1Q21 results.
On an actual exchange rate (AER) basis, we predict VONB growth of 17%, driven by China, Malaysia, and Thailand. Increased US bond yields continue to benefit AIA. Announcements about an Insurance Connect, a Greater Bay Area travel bubble, and further mainland China expansion might all be potential re-rating catalysts.
Currency volatility and a long-term Covid-19 epidemic are two potential downside concerns.
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