Insights

Will AIA Become the Next Ping An With Its New CEO?

Here’s how the new CEO of AIA Group Ltd (SEHK: 1299) is helping the insurer grow in China. – Growth stock China

As the CEO of AIA Group Ltd (SEHK: 1299) announced his retirement plan last year, AIA decided to hire the former senior executive of Ping An Insurance Group Co of China Ltd (SEHK: 2318), Lee Yuan Siong, to lead the Hong Kong-based life insurer.

The appointment was effective starting from June this year with Lee being the new CEO and President of the company.

In this article, I’ll look at whether such an important senior personnel change will lead AIA to become the next Ping An.

A little bit about Lee

Lee was born in Singapore and is an insurance veteran with more than 20 years of experience.

Before joining Ping An, Lee worked for Monetary Authority of Singapore, Prudential plc and its joint venture in China, CITIC-Prudential Life.

Lee joined Ping An in 2004 and was the executive director and co-CEO of Ping An, before leaving for AIA last year.

With AIA poaching Lee from Ping An, the market generally expected AIA to sharpen its focus on China as the Chinese life insurance market further opens up for foreign competition.

AIA’s China achievements since his reign

Two major events could affirm the market’s prediction about AIA’s sharpened focus on the Chinese market this year.

First, in June, AIA received approval from the regulator in China to convert its branch in Shanghai into a wholly-owned subsidiary.

Although this might not have significant business implications (as AIA always has this special status in China), it still represented a very symbolic moment.

Secondly, according to AIA’s first-half results, China became the largest contributor to the company’s first-half value of new business (VNB) this year.

This, however, was also due to China relaxing its social distancing restrictions earlier than the other markets (like Hong Kong).

As such, AIA’s Chinese market had a milder drop in first-half VNB as compared to the other markets.

That said, the importance of the Chinese market to AIA has never been greater. And with such major developments this year, it’s quite natural for the investors to ponder if AIA is trying to turn into another Ping An.

AIA’s competitive advantage

While China is undoubtedly one of the most important markets for AIA, its competitive advantage over Ping An is definitely not in China.

Ping An Life has around 20% of market share in China while AIA has less than 1%.

AIA’s competitive advantage, as compared to Ping An, lies in its stronghold in Hong Kong as it allows mainland Chinese policyholders to enjoy the well-established medical system in Hong Kong and for them to gain exposure to US dollar-denominated assets.

The other competitive advantage AIA has is its local presence in major Southeast Asian markets, such as Thailand, Singapore and Malaysia.

This is something no other Chinese insurers have. With Lee’s background in Singapore and Southeast Asia, AIA’s competitiveness in this regard is even further strengthened.

Foolish conclusion

In my opinion, AIA should never strive to be the next Ping An. The uniqueness of AIA lies in its positioning as an Asia-focused life insurer.

By investing in AIA, one can get exposure to the two-fastest growing life insurance markets in the world – China and Southeast Asia.

And this is something Ping An can never offer. At least, not for now.

More reading

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Alec Tseung doesn’t own shares of any companies mentioned.

The Motley Fool Hong Kong Limited(www.fool.hk) 2020

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