UBS has released a research report adjusting its target price for AIA (01299) from HK$104 to HK$102, reflecting the impact of macroeconomic conditions on embedded value since the second half of the year, such as the 7.8% decline in the CSI 300 Index. The firm maintains its "Buy" rating on the stock.
Summarizing key points from AIA's first-half earnings briefing, investors showed significant interest in Mainland Chinese visitor business, as market attention on regulatory matters, including Circular 837 and tax policies, has persisted since late May 2026. AIA stated that the regulatory framework has always been in place, while demand from Mainland Chinese visitors remains robust, with June recording the strongest new business value growth for this segment in the first half. The company emphasized the structural drivers of Mainland Chinese visitor demand, including diversified global investment opportunities, high-quality advisory services, and flexible product design. AIA acknowledged intensifying competition in the Hong Kong market but remains focused on high-quality growth that translates into profitability and cash generation.
Financial discipline is reflected in the Hong Kong new business value margin, which expanded by 6.2 percentage points year-on-year to 72% in the first half. In contrast, some peers have adopted aggressive pricing strategies, favoring products with short-term or less-than-five-year premium payment terms, which compresses margins. Starting September 1, the Hong Kong Federation of Insurers will launch a unified critical illness definition plan, with AIA noting that participation is voluntary and that most of its products already broadly align with the plan.
Regarding China operations, AIA China remains confident in its 2026 growth outlook despite the implementation of Circular 65 effective July 1, which strengthens consistency requirements for bancassurance channel filing and execution. The industry is in a transitional phase, including product re-filing, though the bancassurance channel accounted for less than 15% of AIA China's new business value in 2025. AIA expects Circular 65 to accelerate the industry's shift from a commission-driven model toward broader capability-based competition.
In terms of operating profit, after-tax operating profit rose 15% year-on-year in the first half on an actual exchange rate basis. Contractual service margin release increased 11% year-on-year, benefiting from the accumulation of profitable business layers underwritten in prior years. Operating variances improved by 22% year-on-year, reflecting disciplined expense and claims management. Embedded value-based free surplus generation rose 10% year-on-year, supported by an 18% year-on-year increase in expected distributable earnings from in-force business, primarily driven by the Hong Kong market.