AIA

The life assurance industry lives on our dreams of financial protection and a comfortable future. So it is fitting that AIG spinoff AIA looks so well cushioned. Operating profit after tax at Asia’s third-biggest life assurer by market value rose 13 per cent last year, the value of new business jumped 40 per cent and margins were up 5 percentage points. Forget about the strong underlying performance, however. What really stands out is AIA’s growing capital strength.

The company’s solvency ratio – the amount of capital it has versus what regulators demand – is 311 per cent, down only slightly from 2010. That is almost double the ratio of Ping An and China Life, the region’s biggest life assurers, and more than enough to allow AIA to hold reserves against any financial market turbulence.

Mark Tucker, chief executive, has spent almost half of his $4.6bn of cash surplus on organic expansion in the past two years. With more than $5bn of free surplus available, he has scope for acquisitions. AIA is wedded to organic growth for now, but with ING’s Asia business a tempting target, that could change (although ING may not be a natural fit because it is focused more on mature Asian markets). In the absence of some move, however, AIA investors may grow impatient.

For 2011 AIA paid out a fifth of the free surplus generated during the year in dividends. That looks light given AIA’s capital strength and the fact that it is already spending heavily on organic growth. But Mr Tucker wants AIA to be a growth play, not an income stock, so is reluctant to move pay-outs higher. Acquisitions, therefore, are the only way to square this circle. As distressed European sellers put an increasing number of prize Asian assets on the market, pressure will no doubt mount for Mr Tucker to put some of his embarrassment of riches to work.

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