The principal activities of the Group are the provision of products and services to individuals and businesses for their insurance, protection, savings, investment and retirement needs.
Business Review - For the year ended November 30, 2012
AIA's proprietary tied agency channel is our core distribution platform developed over AIA's many decades of successful operations in Asia. The regular personal interaction that our agents have with our customers enables us to understand and meet their evolving regular savings and financial protection needs and is a fundamental competitive advantage for the Group.
Agency generated US$939 million of VONB representing 73 per cent of the Group's total in 2012. The growth in agency-generated VONB reflected our strategy of improving agent quality and activity levels. It also demonstrates our focus on writing business that meets both our customers' needs and our return targets, as demonstrated by the 4.6 pps improvement in agency VONB margin to 54.0 per cent compared with 49.4 per cent in 2011.
Our principal agency distribution strategy is to develop the Premier Agency force in Asia to achieve best-in-class activity levels, scale, productivity and profitability through market-leading recruitment and training. In 2012, AIA Premier Academy, our local market agency education and development facility, broadened its scope to support the recruitment of high calibre candidates. Through AIA's strategic partnership with LIMRA, a worldwide leader in training and recruitment selection for the insurance industry, we have introduced profiling tools across nine of our markets to identify and select leading candidates as well as further strengthening new agent induction programmes in each market. The overall result is a 7 per cent increase in the number of active agents compared with 2011.
At the same time as improving the quality of recruitment programmes, we have focused on driving increases in agent activity and productivity. AIA Premier Academy has implemented training roadmaps designed for each local market to provide tailored and motivational development opportunities for new, experienced and Premier Agents. Training programmes have been deployed not only to give our agents more advanced sales and advisory skills but also to enhance the capabilities of our agency leaders.
The development of Premier Agents requires best-in-class leadership. In 2012, we began to adopt a new structured approach to this process by establishing a Leader Assessment Centre, initially covering four markets, to identify potential new leaders. We also launched a LIMRA Regional Officers School to equip our agency officers with improved management skills to motivate the agency force to achieve higher productivity and recruitment levels. In addition, selected Premier Agency leaders attended the inaugural Premier Agency Leaders Summit in Bangkok in 2012 to undertake a tailored learning and agency development programme aimed at building their businesses.
AIA continued to roll out iPoS, its industry-leading interactive point-of-sale technology, described in greater detail in the Technology and Operations section. Through the use of iPad mobile devices, iPoS enables our agents to provide customers with an engaging and unique sales experience using a medium with which customers are increasingly familiar and comfortable.
Developing Million Dollar Round Table (MDRT) qualifiers continues to be our benchmark for the Premier Agency strategy as evidenced by AIA's continued Platinum sponsorship of the ¡§MDRT Experience¡¨ in Asia. We organised additional regional events to recognise sales excellence such as the inaugural President's Club Convention, hosted by AIA's Group senior executive team. This exclusive event is designed for the top Premier Agency Leaders and Premier Agents to recognise their contribution and motivate them to develop greater numbers of MDRTs. As a result of our initiatives, our MDRT qualifiers grew by 11 per cent compared with 2011.
AIA's partnership team ¡§AIA Partners¡¨ is responsible for creating and expanding value through bancassurance, direct marketing and other intermediated distribution channels. In 2012, AIA Partners continued to implement our strategy of improving the quality of service and products to meet the evolving needs of our customers and to improve the economic returns for both our partners and AIA.
We have continued to pursue new growth opportunities that meet our profitability targets, resulting in the expansion of certain existing partnerships and the signing of a number of new partnership agreements around the region.
Our comprehensive approach to building partnerships has yielded strong results, with AIA's partnership business accounting for US$348 million of VONB or 27 per cent of the Group's VONB for 2012. This represents growth of 59 per cent compared with 2011. The increase is a function of a strong improvement in our VONB margin of 10.0 pps to 36.4 per cent and ANP growth of 15 per cent to US$958 million.
AIA's bancassurance platform reported a very strong performance in 2012 with robust new business growth from both our local partners and regional relationships. In addition to building growth momentum with our existing bank partners, we entered into significant new long-term bancassurance agreements with Public Bank in Malaysia and National Development Bank in Sri Lanka. We maintained our financially disciplined approach to sales management in collaboration with our bancassurance partners, producing a VONB result of more than twice the amount reported in 2011.
Other Partnership Channels
Other partnership channels, including private banks, independent financial advisers (IFAs), brokers and specialist advisers, showed strong growth, particularly in the high-net-worth (HNW) customer segment. As a leading independent life risk specialist, AIA's Australian business also experienced significant year-on-year growth in the region's largest IFA market, through the launch of a new adviser value proposition and with the introduction of an award-winning product.
Overall growth in our direct marketing channel remained steady across the region as a result of continuing investment in our people, processes and technologies, particularly in Korea. The restructuring of our direct marketing operation in Korea has been progressing to plan with the intention of driving high-quality new business growth in the future. We have also seen strong new sales growth in our direct marketing business in Malaysia, Taiwan and Thailand.
AIA has been supporting clients ranging from small-and-medium sized enterprises (SME), local domestic and multinational companies and their group members for over six decades. We are a leading provider of group insurance in the Asia-Pacific region, with over 100,000 corporate clients and more than 13 million group insurance scheme members.
Rapid economic development in Asian labour markets continued to drive demand for group insurance solutions as employers seek to attract and retain the most talented employees resulting in double-digit sector growth rates across the Asia-Pacific region. Notwithstanding this recent growth, overall penetration levels and coverage at this stage of Asia's development remain significantly behind those in more developed markets such as the United States, demonstrating the considerable potential for expansion of this market.
In 2012, our focus was to reinforce AIA's market-leading positions in Australia and Singapore and to strengthen significantly our capabilities in other markets. We expanded our relationships with business partners by focusing on best-in-class service through our Regional Employee Benefits Partnership Platform and continuing to leverage AIA's strong agency distribution to increase our penetration in the SME segment.
New simplified packaged products designed specifically for the agency market were introduced to simplify the sales process alongside training and incentives targeted at leveraging agents' relationships with SME business owners. As a result, the number of agents selling group insurance cases increased by 38 per cent and the success of our initiatives resulted in VONB growth of 25 per cent compared with 2011.
AIA's marketing philosophy reflects that of the wider organisation, where our pan-Asian strength and technical knowledge is leveraged to empower our local businesses with the best practices and support they need in order to deliver outstanding products, advice and levels of service to our customers.
AIA is one of the strongest and most respected insurance brands in the industry. During the year, we have worked to ensure that the AIA brand continues to resonate in a relevant way with our customers in support of AIA's significant growth opportunities.
ENHANCING THE CUSTOMER EXPERIENCE
One of our marketing objectives is to maintain a high level of engagement with our customers. We have extended our Customer Experience Programme, launched in 2011, to 10 of our major markets. An important input to this programme has been the creation of detailed customer and distributor analytical tools, allowing us to gather information from our customers, agents and partners that we integrate into strategic initiatives such as the launch of iPoS.
Our increasingly sophisticated use of customer data helps us to improve the areas of service that matter most to our customers. Front-line staff development centres have been established to drive service excellence in our call centres and our branches. Our efforts were rewarded in China with The Best Call Centre Award for the third consecutive year and in Hong Kong with four awards from the Hong Kong Association for Customer Service Excellence. The CURe Project industry benchmarking report in Australia recognised AIA as the best service provider for group insurance underwriting and claims in the market.
In addition, training modules in customer relationship management for our agents have also been developed. Results show that this systematic focus on the customer experience is already producing results with up to four times as much additional new premium generated from highly engaged customers as from those who are less engaged.
We systematically monitor our progress to ensure that business improvement decisions are based on creating the highest customer value in the most efficient way for AIA, our agents and our partners.
OPTIMISING THE VALUE OF OUR CUSTOMER BASE
AIA's large customer base of over 25 million individual policies and over 13 million group insurance scheme members is a key competitive advantage and source of future value for the Group. A sizeable proportion of our new business premium in 2012 came from existing customers as our agents helped them address their ongoing savings and protection needs.
During 2012, we undertook a series of marketing programmes focused on helping our agents to identify opportunities within our existing customer base. Using customer analytics, our marketing teams generated customer leads based on savings and protection product gap opportunities.
By way of example, our Hong Kong team utilised an advanced customer segmentation analysis to launch targeted marketing campaigns to existing customers. The campaigns generated conversion rates two-thirds higher than other campaigns using a mass market, single communication approach.
There is much more that we can do to optimise the value of AIA's large customer base but the initial results in 2012 were positive with an additional 500,000 policies sold.
DELIVERING THE RIGHT PRODUCTS
In 2012, we continued to focus on raising awareness of the protection gap ¡V the difference between the amount of life and health insurance coverage our customers' need and the amount that they actually have ¡V in all of our markets across the region. This message has been supported by the development of innovative products to address these protection needs.
In addition to coverage for premature death, we have highlighted the importance of protection against the financial consequences of accidents, critical illnesses and disabilities. We have developed several new standalone accident and health plans to enhance our ability to meet our customers' protection needs while also improving our margins. These include a first-to-market cradle-to-grave critical illness plan in Thailand; an early payment version of our market-leading critical illness plan in Hong Kong; as well as a disability income plan in Singapore with a number of distinct features including an innovative rehabilitation benefit.
We do not focus solely on protection provision. We also see a major aspect of our business as providing our customers with products to meet their long-term wealth creation goals. We offer a suite of medium- to long-term regular premium products with a choice of traditional and participating investment options. These are designed to target the range of savings goals over our customers' lifetimes from the provision of education savings plans for young families to pre- and post-retirement accumulation products to provide security in older age. We continued to roll out and enhance our next generation unit-linked products which combine efficient regular savings with comprehensive coverage against death, critical illness and disability.
EMBRACING SOCIAL MEDIA
We believe that AIA is well-positioned to align customers' increasing use of social media with their important and continuing desire for face-to-face advice and support provided through our agency sales channel. As of the end of 2012, AIA had corporate social media sites in markets across the region resulting in more than 100,000 Facebook friends.
One example of how we are using online channels as a means of engaging with customers is an e-store we have launched in China. In addition to offering customers the choice and convenience of buying some products over the Internet, the ¡§e-store¡¨ provides customers with the opportunity to be contacted by a sales agent.
Our aim is to integrate opportunities for customer engagement through social and digital media within our total channel offering, providing our customers with the widest possible opportunity to engage with AIA.
Technology and Operations
In 2012, we continued to deliver improved operating efficiencies, customer experiences and economies of scale. Key initiatives in technology and operations during the year included:
¡E Enhancing the productivity and effectiveness of business processes in many of our markets;
¡E Improving the efficiency and service quality of our shared service operations in China and Malaysia;
¡E Empowering our agency force with advanced electronic point-of-sale tools including electronic submission of policy application and e-signature capabilities to enhance customer experience and simplify the sales process; and
¡E Implementing an enterprise-wide social network for employees to encourage collaboration and rapid dissemination of best practices throughout the organisation.
Even after taking into account our ongoing investment in technology in 2012, these initiatives contributed to the maintenance of our overall expense ratio at 8.7 per cent, amongst the lowest expense ratios in the region in 2012.
AIA has improved efficiency through implementing innovative systems, modernising facilities and processes, and introducing more customer-centric services. We have seen significant improvements in productivity and service speed, quality and scope across the region as a result of these efforts during 2012.
For example, a business process re-engineering initiative helped reduce turnaround times of new policies issued in Indonesia by 15 per cent; a similar initiative in China boosted productivity by 13 per cent in underwriting, 25 per cent in claims and 45 per cent in policyowner services.
To build on the new underwriting framework implemented in 2011, we commenced a group-wide programme in 2012 to revise our underwriting guidelines to support our protection strategy and help our customers receive the level of protection they need. Initial work completed in Singapore, Hong Kong and Thailand has resulted in over 60 initiatives being implemented to improve our underwriting competitiveness while maintaining our risk tolerances. This ongoing programme has been actively supported by our reinsurance partners.
SHARED SERVICE CENTRES
Our investments in low-cost shared service centres continued to pay off through improvements in operating efficiency. Our Technology Shared Service Centres in China boosted cost effectiveness by introducing a new Software Factory methodology. Configured to support the ¡§agile¡¨ method of software development, the Software Factory environment has reduced application development time while improving software quality.
Our Operations Shared Service Centre in Malaysia continued to provide improved support to our business units. Approximately 7.4 million transactions were processed at this centre in 2012, an increase of 18 per cent over the previous year. This was achieved with an overall improvement in productivity while maintaining agreed service levels.
Recognising the critical role that mobile devices can play in supporting business initiatives and meeting customer needs, the Group has made significant headway during 2012 in equipping agents with industry-leading mobile sales tools that enhance customer experience while maintaining privacy and security.
Our teams in Taiwan and Singapore led the way in pioneering iPoS, AIA's market-leading point-of-sale technology. Using iPad mobile devices as the host device, iPoS improves the sales experience and allows our agents to provide customers with a comprehensive financial advisory process that covers the total sales cycle from the completion of the customer's financial-needs analysis to proposal generation and secure electronic submission of life insurance applications, reducing the administrative workload. With iPoS, customers can undertake the insurance consultation and purchase process anytime and anywhere, and as a result of increased efficiency are now able to obtain insurance coverage as fast as within a single day.
The iPoS technology has now been deployed to and well received by our agency forces in Singapore, Indonesia, Malaysia and Taiwan and planning has commenced for the roll-out of iPoS in other markets in 2013. Since deployment in Singapore late in the third quarter of 2012, more than 44 per cent of our active agents have adopted this technology. In Hong Kong, AIA was the first MPF (Mandatory Provident Fund) provider to deploy an e-Submit application for iPad mobile devices, which allows agents to close MPF Personal Account business at point of sale. Thanks to expedited electronic submissions, turnaround times and administrative workloads have been substantially reduced.
In 2012, AIA introduced ¡§Wave¡¨ as an internal enterprise social network. Using the Jive Software platform, Wave helps AIA staff connect with colleagues across the region and enables them to collaborate and innovate faster. This new engagement platform provides staff with the ability to share documents, knowledge and ideas; post blogs; participate in discussions; design and progress projects; identify and approach subject-matter experts; keep up with the latest company news; and build communities with colleagues.
Business Outlook - For the year ended November 30, 2012
A clear theme underlies all of the developments I have described: active executive management working to a focused development programme and applying common regional strategies which are customised by expert and empowered local management teams to local market conditions.
The progress of the global economy over 2012 remained subdued and future growth prospects uncertain but there is a clear differentiation in economic prospects emerging between Asia and the West with the countries in which AIA operates well positioned for continued growth.
AIA combines the presence, scale and dependability from a long history of active engagement across the region with the innovation, growth and energy of a recently established Asian group. We believe that this combination of experience, financial strength, vision and ambition will serve both our customers and shareholders well in the years to come, as we continue to grow and deliver value commensurate with the significant market opportunities.
Source: AIA (01299) Annual Results Announcement
||Mark Edward Tucker
||Issued Capital (shares)
||Market Capitalisation (HKD)