Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Adding Hubei to the Fold: Until recently AIA Group (1299.HK) [AIA] operated only five mainland Chinese provincial licenses in 30 cities with Beijing being the largest premium contributor for AIA China. With the border between mainland China and Hong Kong completely shutdown from 2020, mainland China became AIA’s largest market, contributing 35% to AIA’s VONB. Hong Kong falling on its face isn’t exactly how anyone envisioned mainland China becoming AIA’s largest business driver. AIA’s latest life insurance license approval from the CBIRC was received for Hubei province, reinforcing mainland China’s strategic importance; and*Suffocating Hong Kong Business: AIA’s core Hong Kong business has been an unmitigated disaster for during COVID-19, as it struggles with mainland Chinese visitors. Further, there is limited clarity on AIA’s legacy agents. It also has to deal with the fledgling Bank of East Asia (23.HK) business that it recently acquired.

*Adding Hubei to the Fold: Until recently AIA Group (1299.HK) [AIA] operated only five mainland Chinese provincial licenses in 30 cities with Beijing being the largest premium contributor for AIA China. With the border between mainland China and Hong Kong completely shutdown from 2020, mainland China became AIA’s largest market, contributing 35% to AIA’s VONB. Hong Kong falling on its face isn’t exactly how anyone envisioned mainland China becoming AIA’s largest business driver. AIA’s latest life insurance license approval from the CBIRC was received for Hubei province, reinforcing mainland China’s strategic importance; and*Suffocating Hong Kong Business: AIA’s core Hong Kong business has been an unmitigated disaster for during COVID-19, as it struggles with mainland Chinese visitors. Further, there is limited clarity on AIA’s legacy agents. It also has to deal with the fledgling Bank of East Asia (23.HK) business that it recently acquired.

AIA Group – Hong Kong In Rearview Mirror

*Asian Business Doing Well:Total APE in 1Q21 for Asia and Africa amounted to USD 1.2 bn, increasing USD 177 mn (17.4%) YOY. New business value for Asia and Africa improved USD 102 mn (20.3%) YOY. VONB margins for Asia and Africa improve 3% YOY to 52% at 1Q21. Mainland China delivered solid growth during the quarter, driven by an improved sales campaign and low comparative results in 1Q20; and  *No Action On Jackson: The key disappointment comes from the delay of its Jackson National Life (JNL), US subsidiary, demerger which has now been pushed out until sometime in 2H21 (from 1H21) – even then we don’t have confidence this deal will get done. Management did mention that regulatory approval from Michigan and New York has been obtained, however, a review of the updated Form 10 is ongoing.

*Asian Business Doing Well:Total APE in 1Q21 for Asia and Africa amounted to USD 1.2 bn, increasing USD 177 mn (17.4%) YOY. New business value for Asia and Africa improved USD 102 mn (20.3%) YOY. VONB margins for Asia and Africa improve 3% YOY to 52% at 1Q21. Mainland China delivered solid growth during the quarter, driven by an improved sales campaign and low comparative results in 1Q20; and  *No Action On Jackson: The key disappointment comes from the delay of its Jackson National Life (JNL), US subsidiary, demerger which has now been pushed out until sometime in 2H21 (from 1H21) – even then we don’t have confidence this deal will get done. Management did mention that regulatory approval from Michigan and New York has been obtained, however, a review of the updated Form 10 is ongoing. 

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] released its limited set of 1Q21 results. AIA’s overall Value of New Business (VONB) improved 404 or 62.3% on a linked quarter basis due to a combination of higher new sales volume (ANP up 422 or 32.9%) and an VONB margin expansion of 11.7% to 61.6% - closing in on pre-Covid levels and driven by mainland China, Thailand, and Malaysia; and* China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong.

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] released its limited set of 1Q21 results. AIA’s overall Value of New Business (VONB) improved 404 or 62.3% on a linked quarter basis due to a combination of higher new sales volume (ANP up 422 or 32.9%) and an VONB margin expansion of 11.7% to 61.6% - closing in on pre-Covid levels and driven by mainland China, Thailand, and Malaysia; and* China And Hong Kong Risks Still Need To Be Addressed: Concerned about weakening organic growth, AIA has gone on a deal-making spree: Bank of East Asia’s (23.HK) [BEA] wholly-owned life insurance unit, BEA Life; an exclusive 15-year bancassurance relationship with BEA; acquisition of Blue Cross (Asia-Pacific) Insurance’s underwritten closed life insurance; a strategic digital partnership with ZhongAn Online P&amp;C Insurance’ (6060.HK) [ZhongAn]; and received CBIRC approval to restructure its Shanghai-based life insurance branch into a wholly-owned subsidiary. In addition to the massive managerial distractions with so many deals at one time, there are challenges of bogusly rated AAA mainland Chinese bonds; no end in sight with its flailing Hong Kong flagship; and getting the BEA Life team on the same with AIA Hong Kong. 

China Pacific Insurance / Equity Bottom-Up

*Weak 2H20 Results: China Pacific Insurance (2601.HK) (CPIC) reported full year 2020 results of CNY 31.1 bn, increasing CNY 3.2 bn (11.5%) YOY. On a HOH basis, however, CPIC’s results continue to exhibit challenges as 2H20 results declined CNY 3.7 bn (21.3%) – amounting to just CNY 13.7 bn. Profitability was hurt by both the Life and P&amp;C units; and*Get A Life: During 2H20, first year premium (FYP) agent per month declined by 48.6% HOH to CNY 1,648 due largely to CPIC relying on online channels to conduct new sales during the COVID-19 outbreak along with expanded the short-term policy sales. In addition, CPIC Life appears to have culled its salesforce over the period to 17,000 (2.2%) which now will impact future VONB. Life VONB declined 41.1%, largely as expected, due to COVID-19 volume drop and a VONB margin decline of 10%.

*Weak 2H20 Results: China Pacific Insurance (2601.HK) (CPIC) reported full year 2020 results of CNY 31.1 bn, increasing CNY 3.2 bn (11.5%) YOY. On a HOH basis, however, CPIC’s results continue to exhibit challenges as 2H20 results declined CNY 3.7 bn (21.3%) – amounting to just CNY 13.7 bn. Profitability was hurt by both the Life and P&amp;C units; and*Get A Life: During 2H20, first year premium (FYP) agent per month declined by 48.6% HOH to CNY 1,648 due largely to CPIC relying on online channels to conduct new sales during the COVID-19 outbreak along with expanded the short-term policy sales. In addition, CPIC Life appears to have culled its salesforce over the period to 17,000 (2.2%) which now will impact future VONB. Life VONB declined 41.1%, largely as expected, due to COVID-19 volume drop and a VONB margin decline of 10%.  

China Pacific Insurance – No Sign Of Life

*Reserve Top Ups Weigh On Numbers This Time: China Life Insurance (2628.HK) [China Life] reported 2020 bottom-line of CNY 50.3 bn – declining CNY 8.0 bn (13.7%) YOY. Excluding the impact of the 2019 tax refund of CNY 5.2 bn, China Life’s bottom-line performance would have declined only CNY 2.8 bn or 5.3% YOY – but still down; and*Value Challenges Ahead: With value challenges ahead in China Life’s illiquid securities portfolio (Challenged Tier 2/3 bank negotiable CDs and alternatives) and the CBIRC’s enabling of insurers to increase their concentration in equities, we not only question solvency margins but the viability of China Life’s full-year dividend per share – not to mention the impact of lower net yields.

*Reserve Top Ups Weigh On Numbers This Time: China Life Insurance (2628.HK) [China Life] reported 2020 bottom-line of CNY 50.3 bn – declining CNY 8.0 bn (13.7%) YOY. Excluding the impact of the 2019 tax refund of CNY 5.2 bn, China Life’s bottom-line performance would have declined only CNY 2.8 bn or 5.3% YOY – but still down; and*Value Challenges Ahead: With value challenges ahead in China Life’s illiquid securities portfolio (Challenged Tier 2/3 bank negotiable CDs and alternatives) and the CBIRC’s enabling of insurers to increase their concentration in equities, we not only question solvency margins but the viability of China Life’s full-year dividend per share – not to mention the impact of lower net yields.

Hong Kong

Prudential is a British multinational insurance and asset management company focused on providing life and health insurance and long-term savings products. It primarily serves customers in Asia and Africa, with its asset management business, Eastspring Investments, operating across Asia. The company was founded in London in May 1848 and is headquartered in London, England and Hong Kong.

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Prudential (PRU LN)

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Thomas J. Monaco

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CHINA PACIFIC INSURANCE: CPIC HOH results continue to exhibit challenges, declining 21.3%. Profitability was hurt by both the Life and P&C units.

Thomas J. Monaco

China Life Insurance – Not So Good

CHINA LIFE: China Life reported a 13.7% YOY decline in 2020 bottom-line. With value challenges ahead in China Life’s illiquid securities portfolio,...

Thomas J. Monaco

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