Advertisement

Stock Watch: life insurance

Reading Time:5 minutes
Why you can trust SCMP
0
Upwardly mobile: markets think AIA is worth about 46 times the value of a year of new business. Photo: Bloomberg

Many of us have bought life insurance, but what about buying shares in life insurance companies?

The industry is a black hole to investors who struggle to see how such companies create value and make money.

Because the insurance industry feels current - and complex - accounting rules do not accurately portray long-term performance (policies can last 50 years), so companies publish customised performance indicators to help their evaluation.

Yet bewildered investors tend to shun or conservatively price life insurance stocks. Life insurers regularly protest that they pay too much for capital (that is, they believe themselves undervalued).

Despite this, growth prospects for the sector in Asia - where income is rising and insurance penetration low - appear bright. Richard Li Tzar-kai recently agreed to buy ING's life insurance operations in Hong Kong, Macau and Thailand for more than US$2.1 billion, or 24.3 times estimated 2012 earnings and 1.9 times book value.

Given the number and size of Hong Kong-listed international and mainland insurers, the sector is worth a closer look.

First let's look at how they work.

Advertisement
Select Voice
Choose your listening speed
Get through articles 2-3x faster
1.1x
220 WPM
Slow
Normal
Fast
1.1x