AIA is looking to strong sales in 2023 to put one of its worst years behind it, as Asia’s largest insurer wagered that the rush of mainland Chinese customers across Hong Kong’s reopened borders would help arrest a slump in earnings.

Net profit plunged 96 per cent in 2022 to US$282 million, or US$2.36 per share, missing the US$2.79 billion expected in a Bloomberg poll, due mainly to US$5.39 billion in unrealised valuation losses of its stocks and bonds portfolio.

AIA’s value of new business (VONB), an important measure of sales and future growth in insurance, fell 5 per cent in 2022 to US$3.09 billion, as Hong Kong’s closed borders prevented customers from signing for their coverage in person, a requirement under the city’s rules. Still, VONB picked up by 6 per cent in the second half, as Hong Kong gradually relaxed its border and inbound travelling restrictions.

Sales jumped in the first two months this year, as 1 million mainland Chinese travellers crossed into Hong Kong. High on their shopping lists were foreign-made vaccines, luxury goods, medical services, as well as Hong Kong’s insurance and wealth management products, according to a McKinsey & Co survey.

AIA’s senior management team meets the press during its results briefing on March 10, 2023. From left: Chief Investment Officer Mark Konyn, Chief Financial Officer Garth Jones, CEO Lee Yuan Siong and Chief Distribution Officer Jacky Chan.

“Following the reopening of mainland China, we have seen our new business momentum recover swiftly and return to positive value of new business growth in the first two months of 2023”, said Lee Yuan Siong, AIA’s group chief executive and president, in the company’s result statement.

AIA’s shares dropped 2.3 per cent in a declining Hong Kong market to HK$83.5 after the results were announced.

The insurer will pay a second dividend of 113.4 Hong Kong cents per share, bringing last year’s total payout to 153.68 cents per share, up 5.3 per cent from 2021.

The full reopening of China’s southern border with Hong Kong on January 8 was a relief for AIA, which counted on the two markets for 50 per cent of new sales in 2022. Sales in Hong Kong to mainland China travellers made up 10 per cent of AIA’s new business in the city last year.

The Hong Kong-based insurer, which traces its roots to 1919 in Shanghai, is hiring and investing for better days ahead, adding 31 per cent agents in Tianjin, Shijiazhuang, Sichuan and Hubei.

It will open a new branch in Henan province in 2023, after adding Hubei to its mainland China sales network last year. The insurer has also teamed up with the Postal Savings Bank of China to sell its insurance policies across the state bank’s 40,000 branches across the country.

“China’s reopening at the end of 2022 provided a platform for greater economic stability and can help GDP growth return to its potential in 2023”, Lee said. “In Hong Kong, the opening of the border with Mainland China and the rest of the world will reaffirm its status as a vibrant international financial centre and its unique role in connecting East and West.”

The optimism is shared by the analysts of UBS, JPMorgan and Goldman Sachs, all of whom have recommended their clients to “buy” AIA.

“AIA’s long-term growth is driven by strong agency distribution quality, concentrated exposure to the affluent consumer segment and continued footprint expansion in mainland China, and recovery in sales to mainland Chinese visitors in Hong Kong,” Goldman Sachs said in a note after the result announcement.

AIA’s business grew by between 3 per cent and up to 19 per cent during the second half of 2022 across five major markets: Hong Kong, mainland China, Thailand, Singapore and Malaysia.

Its second-half investment loss also narrowed to US$599 million from the US$4.79 billion impairment during the first six months of 2022 when global stocks and bonds were roiled by rising interest rates and Russia’s invasion of Ukraine.

“Investors are cautiously optimistic in the near term, with mixed hopes of Hong Kong’s V-shape recovery and concerns over its investment headwinds,” said Yu Tianjiao, analyst of Bernstein.