Silver Point

Thomas J. Monaco

Independent Insight Provider

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

*Better, But Off A Low Base: AIA Group (1299.HK) [AIA] released its 1H21 results. Operating profit amounted to USD 3.2 bn, increasing 5% YOY, while VONB improved 22% YOY to USD 1.8 bn due to a combination of higher new sales volume (ANP up across all markets ex-Hong Kong which declined 11% YOY) and VONB margin expansion from (up 4.6% to 59.0%). Net profit improved to USD 3.2 bn, increasing 47% YOY due to the large negative investment variance in 1H20; 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 1H21 results. Operating profit amounted to USD 3.2 bn, increasing 5% YOY, while VONB improved 22% YOY to USD 1.8 bn due to a combination of higher new sales volume (ANP up across all markets ex-Hong Kong which declined 11% YOY) and VONB margin expansion from (up 4.6% to 59.0%). Net profit improved to USD 3.2 bn, increasing 47% YOY due to the large negative investment variance in 1H20; 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. 

ZhongAn Online P&C Insurance C / Equity Bottom-Up

*CBIRC Now Taking On Online Insurers: The China Banking and Insurance Regulatory Commission’s (CBIRC) roll out of the internet insurance revision plan “Notice on Carrying out Special Rectification of Internet Insurance Disorders” aims to scrutinize mainland China’s insurance technology platforms, ordering firms and agencies to end improper marketing and pricing practices, and improve privacy protections; and*Very Negative Implications For Insurers And Broader Market: This move by the CBIRC would intimate the near wipeout of the current generation of online insurers. This regulatory onslaught is stifling innovation and likely push business returns to well below the cost of equity. This heavy-handed approach is causing the outflow of foreign capital from mainland China to be sustainably heavy for an extended period of time.

*CBIRC Now Taking On Online Insurers: The China Banking and Insurance Regulatory Commission’s (CBIRC) roll out of the internet insurance revision plan “Notice on Carrying out Special Rectification of Internet Insurance Disorders” aims to scrutinize mainland China’s insurance technology platforms, ordering firms and agencies to end improper marketing and pricing practices, and improve privacy protections; and*Very Negative Implications For Insurers And Broader Market: This move by the CBIRC would intimate the near wipeout of the current generation of online insurers. This regulatory onslaught is stifling innovation and likely push business returns to well below the cost of equity. This heavy-handed approach is causing the outflow of foreign capital from mainland China to be sustainably heavy for an extended period of time.

ZhongAn Online P&C Insurance – Tapped By The Ugly Stick

*De-Merger Dates Set: Prudential Plc (PRU.LN) [Prudential] disclosed the timeframe of its Jackson Financial (Jackson) de-merger. Jackson (JXN.US) will become a separately listed company on the New York Stock Exchange. After the de-merger, Prudential will hold approximately 19.7% of Jackson’s common shares and will monetize a portion of this within a year of the de-merger; and*Franchise Of The Future:  We see Prudential's exiting of its US business is a positive, as it will reduce the group's exposure to US macro and transition the group into a pure Asian play. We believe that Prudential's Asian franchise is impressive with a strong growth outlook.

*De-Merger Dates Set: Prudential Plc (PRU.LN) [Prudential] disclosed the timeframe of its Jackson Financial (Jackson) de-merger. Jackson (JXN.US) will become a separately listed company on the New York Stock Exchange. After the de-merger, Prudential will hold approximately 19.7% of Jackson’s common shares and will monetize a portion of this within a year of the de-merger; and*Franchise Of The Future:  We see Prudential's exiting of its US business is a positive, as it will reduce the group's exposure to US macro and transition the group into a pure Asian play. We believe that Prudential's Asian franchise is impressive with a strong growth outlook.

*Capital Hole Develops In USA:The 1Q21 regulatory financial statement for Prudential plc’s (PRU.LN) [Prudential] Jackson National (Jackson) subsidiary shows that statutory equity has declined a surprising USD 1.9 bn (39.6%) to USD 2.9 bn on a linked quarter basis at 1Q21; and *Franchise Of The Future: Nevertheless, we see Prudential's exiting of its US business is a positive (albeit likely more costly now) as it will reduce the group's exposure to US macro and transition the group into a pure Asian play. We believe that PRU’s Asian franchise is impressive with a strong growth outlook.

*Capital Hole Develops In USA:The 1Q21 regulatory financial statement for Prudential plc’s (PRU.LN) [Prudential] Jackson National (Jackson) subsidiary shows that statutory equity has declined a surprising USD 1.9 bn (39.6%) to USD 2.9 bn on a linked quarter basis at 1Q21; and *Franchise Of The Future: Nevertheless, we see Prudential's exiting of its US business is a positive (albeit likely more costly now) as it will reduce the group's exposure to US macro and transition the group into a pure Asian play. We believe that PRU’s Asian franchise is impressive with a strong growth outlook.

*Adding More Complexity In Mainland China: AIA’s hyper-aggressive push into mainland China via acquisition as company fundamentals remain poor. This push unfortunately continues. On June 29, 2020, AIA Group (1299.HK) [AIA] announced that it has agreed to invest USD 1.86 bn (CNY 12 bn) in cash for a 24.99% stake in China Post Life (CPL), a subsidiary of China Post Group via its Hong Kong subsidiary, AIA Company Ltd; *Head Scratching Move: The CPL deal makes little sense financially, gives AIA no managerial or Board control, is limited to an equity investment without other business cooperation;  and directly competes with AIA China – despite management spin on the matter;  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 More Complexity In Mainland China: AIA’s hyper-aggressive push into mainland China via acquisition as company fundamentals remain poor. This push unfortunately continues. On June 29, 2020, AIA Group (1299.HK) [AIA] announced that it has agreed to invest USD 1.86 bn (CNY 12 bn) in cash for a 24.99% stake in China Post Life (CPL), a subsidiary of China Post Group via its Hong Kong subsidiary, AIA Company Ltd; *Head Scratching Move: The CPL deal makes little sense financially, gives AIA no managerial or Board control, is limited to an equity investment without other business cooperation;  and directly competes with AIA China – despite management spin on the matter;  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 – Now Competing With Itself In China

Canada

Manulife Financial Corporation provides financial protection products and investment management services to individuals, families, businesses, and groups. The Company conducts operations in Canada, the United States, and Asia, as well as reinsurance operations on a global basis.  Manulife offers products such as annuities, pension products, life insurance, health insurance, and mutual funds.

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Manulife Financial (MFC CN)

AIA Group – Its Own Worst Enemy

AIA GROUP: AIA's 1H21 operating profit improved 5% YOY off of a low base, while VONB improved 22%. With all of its aggressive moves in mainland...

Thomas J. Monaco

ZhongAn Online P&C Insurance – Tapped By The Ugly Stick

ZHONGAN ONLINE INSURANCE: The CBIRC has rolled out the “Notice on Carrying out Special Rectification of Internet Insurance Disorders”, ordering...

Thomas J. Monaco

Prudential Plc – Action Jackson

PRUDENTIAL PLC: Pru disclosed the timeframe of its Jackson de-merger. Jackson will list on the NYSE, and Pru will retain 19.7% of Jackson. This...

Thomas J. Monaco

Prudential Plc - Jackson Cracks

PRUDENTIAL: The 1Q21 regulatory financial statement for the Jackson National subsidiary exhibits that statutory equity declined a surprising USD...

Thomas J. Monaco

AIA – Now Competing With Itself In China

AIA GROUP: AIA’s aggressive push into China continues with its 25% stake in China Post Life. The deal makes little sense financially, gives AIA no...

Thomas J. Monaco

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