Hong Kong Turmoil Slams AIA as Mainland Visitors Decline

(Bloomberg) -- More than four months of turmoil in Hong Kong and the chilling effect on Chinese tourism to the city have taken their toll on insurer AIA Group Ltd., with policy sales slumping.

• The value of new business of its largest unit, a measure of future profitability of new policies, fell by double-digits in the third quarter, AIA said in a statement to the local stock exchange Monday.
• Separately, HSBC Holdings Plc said Monday the change in Hong Kong’s economic outlook led to a $90 million charge, even though its overall performance in the city remains “resilient.”

Key Insights:

• While AIA didn’t give an exact figure for the slide in Hong Kong, it said the group’s overall value of new business was little change in the quarter at $980 million. Excluding Hong Kong, new business value rose 14%.
• Still, shares rose on relief that growth in other markets offset the declines in Hong Kong, and new business margin expanded.
• New business to Hong Kong residents actually rose. But that was wiped out by the decline in sales to mainland visitors, which “broadly tracked” the drop in overall visitor arrivals to the city in July and August, the company said.
• Mainland Chinese visitors buy policies in Hong Kong as a way to move capital offshore in times of economic uncertainty and expected currency weakness. The yuan depreciated by nearly 4% in the quarter.
• AIA struck a cautious note about its outlook: “Some of our markets are experiencing headwinds from the lower interest rate environment, falling consumer confidence and rising political and trade tensions,” it said. “In particular, the reduced numbers of mainland Chinese visitors to Hong Kong continue to affect sales.”
• The figures were released more than two weeks early after AIA became aware that information was circulating purporting to relate to the financial performance of one unit. That information was “incomplete” and inaccurate, it said.

Market Reaction:

• AIA shares rose as much as 4.2% in Hong Kong trading Monday, taking this year’s gain to 20%.
• The third-quarter new business value was better than expected, said Bloomberg Intelligence analyst Steven Lam, with the strong sales to Hong Kong residents encouraging.
• The announcement offered some clarity on the impact of Hong Kong protests on the company, the biggest question on the minds of investors, CGS-CIMB Securities analyst Michael Chang said.
• Growth in markets including mainland China, Malaysia, Thailand and Singapore helped cushion the fallout from the Hong Kong protests, Lam said.

Get More:

• For more details from AIA’s announcement, click here
• Hong Kong Unrest Rocks Insurance Industry as Chinese Buyers Balk
• Hong Kong Insurance Sales to Mainland Visitors Plunge, HKET Says
• Hong Kong Protests Flare for 21st Weekend Amid Global Unrest

--With assistance from Dominic Lau.

To contact the reporters on this story: Peter Vercoe in Sydney at pvercoe@bloomberg.net;Bei Hu in Hong Kong at bhu5@bloomberg.net

To contact the editors responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net, Edward Johnson

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