AIA’s Mark Tucker: How we achieved record results
Asian insurer AIA reports record first half results today. In an exclusive interview with Euromoney, CEO Mark Tucker explains what has been driving the company’s remarkable post-IPO growth, and how it came to beat analysts' expectations
Fresh from an ebullient performance at AIA’s first half 2011 results press conference, AIA CEO Mark Tucker steps out to greet Euromoney with a firm handshake in a boardroom in the company’s tower in central Hong Kong. He has reason to be in a good mood: as the market opened this morning, the company reported record results, beating all analysts’ predictions in announcing net profits under IFRS standards up 24% to $1.314 billion.
“I’m aiming to build a business that’s sustainable and profitable: it’s a blue-chip growth stock, and there’s not many of those in the world,” Tucker tells Euromoney. “To get growth and be a blue chip is an incredible combination.”
Value of New Business (VONB), the key metric by which Tucker has said he wants the company’s post-IPO performance to be judged, rose a consensus-beating $399 million (the most bullish guess was $375 million, from Morgan Stanley). That represents a 32% year on year rise.
Since the well-documented struggles the company faced prior to its initial public offering in October last year, including a halted first attempt at an IPO, declining performance figures, and the aborted attempted takeover by the UK’s Prudential, AIA has thrived.
Tucker, 53, was group chief executive at Prudential until 2009 and built up that group’s Asian operations from 1994 to 2003. Since his appointment in July 2010 he has worked to bring AIA back to strength across the 15 markets in which it operates in Asia, with the advantage that the company owns 100% of its business in 14 of those markets (rather than the usual joint venture structure).
The focus, say colleagues at the company, has been on the basics: revitalizing the company’s somewhat demoralized but potent sales force of agents; finessing the company’s product offerings to focus on higher margin business; expanding its presence in growth markets like China.
That’s not to say AIA is without challenges. It faces growing competition from increasingly confident Asian competitors, some of whom are taking market share from it in certain countries. It lags its peers in the important bancassurance sales channel. And in key markets, like China and India, it faces an ever-changing and challenging regulatory environment.
Q: The results announced today beat all the analysts’ expectations. To what extent is that important to you, or is it a byproduct of your strategy?
A: If you focus too much on outcome, you can prejudice the process. You’ve got to focus on doing the right things with the right people to get results. I’ve said that from the pre-IPO roadshow onwards. I’m aiming to build a business that’s sustainable and profitable: it’s a blue-chip growth stock, and there’s not many of those in the world. To get growth and be a blue chip is an incredible combination.
Q: You’ve always held Value of New Business to be a key performance metric for AIA. Why is that?
A: It’s fundamental. AIA has had a phenomenal past, with a legacy book second to none. As Garth [Jones, CFO] said today, it will generate over $10 billion of cash over the next five years. What we’ve got to do is build a great future which is about building profitable new business and that’s what VONB measures. You can sell a lot of new business without being profitable.
Q: VONB growth rate was almost 33%, but as one analyst pointed out some 7% of that could be accounted for by exchange rate gains from depreciation of the dollar. You mentioned that you’re not much exposed to US treasuries, but are you concerned at all about sharp moves in the dollar?
A: The large majority of what we do is in that 33% VONB figure, which is right. There is an element of forex gains. The thing about life insurance companies is we’ve been through exchange rates going up, rates going down – we’ve been through every economic cycle you can imagine. In Asia you’ve been through significant crises in the last 15 to 20 years. As an insurance company you have the ability to adapt in a very material way. The last crisis for example was caused by many things, but fundamentally in the early days it was about liquidity and insurance companies are structurally long liquidity so it wasn’t a big issue for us.
Q: Barclays Capital published a note immediately after today’s result entitled AIA: gorging on low hanging fruit. To what extent is that a fair characterization of the reasons behind these numbers?
A: We inherited an organization a year ago that had just come out of the Greenberg accounting scandals, the global financial crisis, the Prudential bid and had been remarkably resilient through all of that. We then took it through IPO and built it from there. I think the focus for us is on building a long term, sustainable profitable business and creating value for shareholders. If you read every headline or analyst note and took it personally, that’s a dangerous route to go down.
Q: But there is an element, isn’t there, of some of this growth being driven by the fact you’re coming from a low base in some markets, in terms of agents’ efficiency, product mix and so on?
A: I think that’s perfectly fair. Ultimately in a sense it doesn’t matter so long as we deliver performance and profitable, sustainable growth from the base.
Q: You’ve spoken a lot about improving agency efficiency as a priority. How do you achieve it in practice?
A: It’s a massive exercise. Many of the team and I are from an agency background. In my former life at another company we started with some 200 agents in Asia, and when I left we had thousands. So the senior team has significant breadth and depth of experience. You’ve got to look at different countries as being at different stages of development, you might have the capital markets being more advanced than insurance, for example.
Q: But when you get down to the practicalities, what’s involved in improving agency efficiency?
A: Training and recruitment are the two keys, to get the right people on board, ensure you have the right psychometrics and entry qualifications. And then once they’re there make sure training is adequate, professional, rigorous.
Tucker: What we’ll do with AIA’s cash reserves AIA CEO Mark Tucker talks about spending AIA’s $5 billion cash pile, the potential for acquisitions and the key business drivers in the toughest Asian markets. Tucker: AIA’s plans to break through in China AIA CEO Mark Tucker outlines plans for AIA to catch up in bancassurance and expounds his views on the key China market and the competition in Asia