AIA Group ADD (No Change)

HIGH CONVICTION

Company Note Insurance - Life │ Hong Kong │ July 10, 2020

Insert Insert Hong Kong AIA Group ADD (no change)

Consensus ratings*: Buy 25 Hold 3 Sell 1 The importance of being connected

Current price: HK$75.10 ■ We think one of AIA’s next share price triggers could be a near-term Target price: HK$84.00 announcement of an Insurance Connect as part of the GBA project. Previous target: HK$80.00 ■ We believe the first stage of this connect is likely to be sales and service Up/downside: 11.9% centres in the GBA, which could help persistency ratios and raise mindshare. CGS-CIMB / Consensus: -1.7% ■ The second stage, which we think will be much later, could see customers Reuters: 1299.HK being permitted to buy cross-border insurance within their own regions. Bloomberg: 1299 HK ■ Reiterate Add. Our TP is raised slightly to HK$84 as we roll forward our Market cap: US$117,160m valuation and factor in the changes to EPS, EV and VONB.

HK$908,004m Average daily turnover: US$272.5m HK$2,109m The fourth of the ‘Connect’ programmes Current shares o/s: 12,089m Following the implementation of Stock Connect and Bond Connect, and the recent Free float: 100.0% announcement of a Wealth Management Connect programme, we expect a near-term *Source: Bloomberg announcement of an Insurance Connect programme within the Greater Bay Area (GBA). We see this as benefitting HK insurers such as AIA. Key changes in this note FY20F EPS raised by 11.3%. Insurance Connect: Implementation in two stages FY21F EPS cut by 2.4% We expect the first stage to be the setting up of post-sales service centres, and in the FY22F EPS cut by 1.2%. second stage (to be implemented later in the future) customers would be permitted to buy

cross-border insurance policies within their own regions. A key benefit of the first stage is Price Close Relative to HSI (RHS) that there is less chance of lapses of insurance policies bought previously by mainland

87.0 104.0 Chinese visitors (MCV) in HK, as the ratio of policyholders paying by methods other than

77.0 100.0 bank transfer has picked up in recent years. Another key benefit is a potential increase in

67.0 96.0 mindshare and awareness of the HK insurance policies among GBA residents; this could

57.0 92.0 100 set the stage for a rebound in MCV insurance sales in HK in a post Covid-19 era.

50 Two other potential re-rating triggers Vol m Vol Jul-19 Oct-19 Jan-20 Apr-20 1. The announcement of regulatory approval for AIA to open in new provinces within

Source: Bloomberg mainland China (we think up to two new provinces a year). We continue to believe that AIA’s new CEO could help facilitate greater expansion into mainland China, historically its Price performance 1M 3M 12M fastest growth market for value of new business (VONB) and also its largest market by Absolute (%) 2.2 4.9 -9.9 Relative (%) -0.5 -1 -1.1 VONB, given his deep experience and understanding of this region. This should be easier as it is subsidiarising its China operations. 2. When a travel bubble is eventually Major shareholders % held announced between HK, Guangdong and Macau, it could be the start of a pickup of MCV Citigroup 9.0 buying insurance in HK. This segment accounted for half of AIA’s HK VONB in 1H19.

Changes made to EPS, EV and VONB; TP raised slightly to HK$84 Insert We adjust our FY20-22F EPS, embedded value (EV) and VONB to reflect recent strong equity markets. The Covid-19 outbreak has also lasted longer than initially expected. We roll forward our valuation by half a year to compute target prices based on 1H21F EV. Potential re-rating catalysts are a VONB growth turnaround and future China expansion. Risks: currency volatility and a prolonged Covid-19 outbreak that is worse than expected.

Financial Summary Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F Analyst(s) Gross Premium (US$m) 38,455 38,368 39,414 44,655 50,491 Investment And Other Income (US$m) Net Premium (US$m) 32,222 32,896 33,792 38,286 43,290 Net Profit (US$m) 3,163 6,648 4,116 7,045 8,066 Normalised EPS (US$) 0.26 0.55 0.34 0.58 0.67 Normalised EPS Growth (48%) 110% (38%) 71% 14% FD Normalised P/E (x) 36.99 17.61 28.47 16.65 14.56 P/NB (x) 15.37 13.28 16.49 11.27 7.82 Michael CHANG, CFA DPS (US$) 0.16 0.16 0.17 0.20 0.23 Dividend Yield 1.63% 1.67% 1.80% 2.06% 2.35% T (852) 2539 1323 P/EV (x) 2.15 1.89 1.91 1.71 1.54 E [email protected] P/BV (x) 3.00 2.04 1.96 1.82 1.67 Jasmine CHIN ROE 7.8% 13.8% 7.0% 11.3% 12.0% T (852) 2539 1127 % Change In Normalised EPS Estimates 11.3% (2.4%) (1.2%) E [email protected] Normalised EPS/consensus EPS (x) 0.81 0.96 1.00 SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

IMPORTANT DISCLOSURES, INCLUDING ANY REQUIRED RESEARCH CERTIFICATIONS, ARE PROVIDED AT THE END OF THIS REPORT. IF THIS REPORT IS DISTRIBUTED IN Powered by the THE UNITED STATES IT IS DISTRIBUTED BY CGS-CIMB SECURITIES (USA), INC. AND IS CONSIDERED THIRD-PARTY AFFILIATED RESEARCH. EFA Platform

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

The importance of being connected We expect an announcement of an Insurance Connect programme in the GBA soon We believe a near-term trigger for AIA’s share price could be an announcement by policymakers about the introduction of an Insurance Connect programme in the Greater Bay Area (GBA), the region encompassing Hong Kong, Guangdong and Macau. We expect the first stage to be the setting up of post-sales service centres, and that the second stage, to be implemented sometime in the future, would enable customers to buy cross-border insurance policies within their own regions. A key benefit of the first stage is that there would be less chance of lapses of insurance policies bought previously by mainland Chinese visitors (MCV), given that the ratio of policyholders paying by options other than bank transfer seemed to have picked up in recent years (we believe it was over 90% in mid-to-late 2016). Another key benefit is a potential increase in mindshare and awareness of HK insurance policies among GBA residents, which could set the stage for a rebound in MCV insurance sales in HK, in a post Covid-19 era This Insurance Connect would follow the previous implementation of Stock Connect and Bond Connect, and the recent announcement of a Wealth Management Connect programme. We do not believe the Wealth Management Connect programme would involve the full array of insurance products, at least not likely the participating insurance products that seem to be popular among MCV that buy insurance in HK. At most, we think there is a possibility that the only life insurance products that Wealth Management Connect could include are investment-linked products, which are a type of products that are not that popular in either mainland China or in Hong Kong. More details on the Insurance Connect in the GBA The Insurance Connect in the Greater Bay Area (GBA), which includes Guangdong, Macau and Hong Kong, has been under discussion since early- 2019. The Insurance Connect is expected by the authorities to be another critical part of the financial connection mechanism within the GBA under the national plan of the GBA development. We believe the most likely implementation of the Insurance Connect in the near term will be the setting up of an insurance post- sales service centre in the Qianhai district of Shenzhen, which will allow brokers to provide insurance services. We think policyholders will also be able to file claims as well as pay renewal premiums at this location. We use the Stock Connect, the Bond Connect and the most recent Wealth Management Connect as benchmarks to estimate that an official announcement of the Insurance Connect with detailed designing can be expected in late-2020F or early-2021F, following the official launch of the Wealth Management Connect. In addition, the CEO of Hong Kong Insurance Authority (HKIA), Clement Cheung during an interview with Hong Kong Economic Times on 29 Jun 2020 said that some positive news on the Insurance Connect can be expected soon. He also stated that a successful launch of the Wealth Management Connect will help to accelerate the launch of the Insurance Connect. Some investors have expressed concerned to us that AIA’s China business could be under threat, if it becomes easier to buy HK insurance products within mainland China via the Insurance Connect. We are not concerned as we see little threat of such a substitution effect for AIA China and AIA HK. This is because we believe that customers from mainland China have different needs, and reach out to AIA China and AIA HK for different reasons. This can be seen from the fact that the mainland China business of AIA sells a high proportion of critical illness products. On the other hand,

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

participating insurance products (which have a higher savings component and generate lower margins) tend to comprise a larger proportion of AIA HK’s business. The capital market connection mechanism between mainland China and Hong Kong started with the Shanghai-Hong Kong Stock Connect in 2014. Premier Li Keqiang first made an official comment on the Stock Connect in Apr 2014 (Fig 1), followed by a joint announcement by China Securities Regulatory Committee (CSRC) and the Securities and Futures Commission (SFC) of Hong Kong on the official agreement to build the Stock Connect. Within seven months, the Shanghai-Hong Kong Stock Connect was officially launched in Nov 2014.

Figure 1: The timeline of implementation of the Stock Connect

Date Details Apr-14 The premier Li Keqiang mentioned on the Boao Forum for Asia that Shanghai and Hong Kong would build a stock market connection system. Apr-14 On the same day, China Securities Regulatory Committee (CSRC) and the Securities and Futures Commission (SFC) issued a joint announcement that Shanghai Stock Exchange (SSE) and Hong Kong Stock Exchange (HKEX) now allow investors to invest in qualified stocks via local security companies. Both regulators also stated that the preparation would take 6 months before the offcial launch of the Shanghai-Hong Kong Stock Connect. Aug-14 CSRC mentioned in a document on innovative reform of the capital market in Shenzhen that Shenzhen and Hong Kong could explore new cooperative forms based on the experiences of the Shanghai- Shenzhen Stock Connect. Nov-14 The Shanghai-Hong Kong Stock Connect was officially launched. Aug-16 The premier Li announced on the executive meeting of the State Council that the State Council has approved the implementation plan of the Shenzhen-Hong Kong Stock Connect. Dec-16 The Shenzhen-Hong Kong Stock Connect was officially launched. SOURCES: CGS-CIMB RESEARCH, PEOPLE’S BANK OF CHINA (PBOC), 21JINGJI NEWS, CHINA SECURITIES REGULATORY COMMITTEE (CSRC), SECURITIES AND FUTURES COMMISSION (SFC), STATE COUNCIL, HONG KONG MONETARY AUTHORITY (HKMA)

The second step is the Bond Connect. The Bond Connect concept was initially mentioned in Hong Kong Exchange’s (HKEX) 3-year strategy in early-2016 (Fig 2). But the first official comment on the Bond Connect on the national level was given by Premier Li in Mar 2017. Unlike the Stock Connect, the regulators did not give a clear timeline for the Bond Connect in the two official documents in Mar and May 2017. However, it took less than four months for related authorities to start the Northbound Bond Connect in Jul 2017 after Premier Li’s speech in Mar 2017. Therefore, we believe that the first message sent by the central government on such capital market connection projects should be seen as a key indicator of the future timeline of the implementation.

Figure 2: The timeline of implementation of the Bond Connect Date Details Jan-16 The concept of the Bond Connect was firstly mentioned in Hong Kong Exchange's 3-year plan over 2016-2018. Mar-17 The premier Li stated on a press conference that the Bond Connect would kick off in 2017. On the same day, PBOC announced on its official Weibo account that it was working with related departments in Hong Kong on the Bond Connect. May-17 PBOC and Hong Kong Monetary Authority announced that both departments agreed on opening the Bond Connect with the Northbound as the first step. Jun-17 PBOC published the temporary regulatory rules on the Bond Connect between mainland China and Hong Kong. Jun-17 HKEX and China Foreign Exchange Trade System (CFETS) established Bond Connect Company Ltd to support Bond Connect related trading services. Jul-17 The Northbound Bond Connect was officially launched. Mar-18 The previous governor of the People's Bank of China (PBOC), Zhou Xiaochuan, said in a press conference that there should not be any difficulty in launching the Southbound of the Bond Connect as long as there is enough demand for the Southbound. SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, 21JINGJI NEWS, PBOC, HKMA, CHINA FOREIGN EXCHANGE TRADE SYSTEM (CFETS), STATE COUNCIL

The Wealth Management Connect will be the third step. The concept of Wealth Management Connect was first officially mentioned in the outline of the GBA development released in Feb 2019 (Fig 5). The GBA development is expected by the authorities to accelerate the building of financial connections between mainland China, Hong Kong and Macau.

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

After being silent on this topic throughout 2019, a document on opinions of financially supporting the GBA development was issued in Apr 2020 by People's Bank of China (PBOC), China Banking and Insurance Regulatory Committee (CBIRC), CSRC and State Administration of Foreign Exchange (SAFE), which again mentioned the Wealth Management Connect. On 29 Jun, PBOC, Hong Kong Monetary Authority (HKMA) and Macau Monetary Authority (MMA) issued a joint announcement that the trial of Wealth Management Connect would take place in the GBA. Though the three regulators did not give a clear timeline on the official launch of the Wealth Management Connect in this joint announcement, we expect the official launch to be announced in late-2020F or early-2021F. The Wealth Management Connect will allow banks in the GBA to cross-sell other banks’ wealth management products (WMPs). As a result, banks in Guangdong can sell qualified wealth management products that are currently being sold by banks in Macau and Hong Kong under this scheme. This programme is likely to be a closed loop system, meaning that the money involved in this programme would not flow out of the region of the buyer of the wealth management product. It is possible for some insurance products that are sold within the bancassurance channel to be included in the qualified WMPs. However, given that a daily transaction quota is expected to be applied to the scheme according to the joint announcement, we see limited impact for Hong Kong insurers from the official implementation of the Wealth Management Connect. Historically, the mix of annualised new premiums (ANP) from the bancassurance channel has been low for AIA (Fig 3), with one possible reason for this being that AIA does not have a heavy short-term savings insurance focus as some of its peers. The more relevant channels for AIA HK’s MCV business are its agent channel and broker channel; both have been heavily impacted by the social unrest in 2H19 and the Covid-19 outbreak in 1Q20 (Fig 4).

Figure 3: AIA HK's mix of individual annualised new premiums Figure 4: AIA HK's growth yoy of ANP by distribution channel by (ANP) by distribution channel (YTD) quarter

Agent Bancassurance Broker Other Total 1Q15 30% 135% 30% n.a. 34% 2Q15 35% 23% 17% n.a. 31% 100% 3Q15 24% Title: 42% -18% n.a. 15% 13% 4Q15 73% 115% 47% n.a. 68% 90% 21% 18% 20% Source: 2% 27% 1Q16 41% 128% 415% n.a. 101% 36% 33% 80% 6% 40% 5% 8% 2Q16 41% Please fill64% in the values460% above to haven.a. them 108%entered in your report 70% 6% 3Q16 58% 103% 458% n.a. 126% 6% 60% 5% 4Q16 61% 26% 110% n.a. 70% 6% 1Q17 47% 17% 203% n.a. 104% 50% 2Q17 5% 60% -9% n.a. 2% 85% 40% 76% 74% 72% 3Q17 -14% 35% -34% n.a. -19% 66% 30% 60% 60% 53% 4Q17 -41% 4% -53% n.a. -43% 20% 1Q18 3% 11% -53% n.a. -28% 2Q18 17% 5% 1% n.a. 10% 10% 3Q18 25% -11% 38% n.a. 26% 0% 2013 2014 2015 2016 2017 2018 2019 1Q20 4Q18 43% 8% 84% n.a. 50% 1Q19 9% -3% 11% n.a. 9% Agents Bank Broker 2Q19 21% -8% 1% n.a. 12% 3Q19 -10% -3% -61% n.a. -28% 4Q19 -19% -12% -63% n.a. -31% 1Q20 -40% -31% -75% n.a. -53% SOURCE: CGS-CIMB RESEARCH, IA SOURCES: CGS-CIMB RESEARCH, INSURANCE AUTHORITY

Instead, we believe AIA will benefit more from another important scheme in the GBA, namely the Insurance Connect.

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 5: The development of the Wealth Management Connect Date Details Feb-19 The central government published a document on the outline of the greater bay area development, which encouraged a stronger connection among financial markets within the GBA, including allowing banking institutions in the GBA to cross-sell wealth management products. Apr-20 PBOC, CBIRC, CSRC and State Administration of Foreign Exchange (SAFE) issued a document on opinions of financially supporting the development of the GBA, which encouraged further exploration on building the cross-border wealth management connection mechanism. Jun-20 PBOC, HKMA and Macau Monetary Authority issued a joint announcement that the trial of the Wealth Management Connect would be launched in the greater bay area. PBOC would work with both monetary authorities on the detailed plan of the Wealth Management Connect as the next step. SOURCES: CGS-CIMB RESEARCH, STATE COUNCIL, PBOC, CHINA BANKING AND INSURANCE REGULATORY COMMITTEE (CBIRC), CSRC, STATE ADMINISTRATION OF FOREIGN EXCHANGE (SAFE), HKMA, MACAU MONETAY AUTHORITY (MMA)

The developments surrounding the Wealth Management Connect programme since Apr 2020 are key indicators as to when one should expect the Insurance Connect to be officially announced. The concept of Insurance Connect was also first officially mentioned in Feb 2019 (Fig 6). Similarly, the document jointly issued by PBOC, CBIRC, CSRC and SAFE in Apr 2020 also mentioned that more innovative cross-border insurance products can be expected and that a cross-border insurance service centre can be expected in mainland China. On 29 Jun 2020, the same day as the official announcement of the Wealth Management Connect by PBOC and HKMA, the CEO of Hong Kong Insurance Authority (HKIA) Clement Cheung in an interview with Hong Kong Economic Times said there will be some positive news on the Insurance Connect soon. Particularly, he indicated that a successful launch of the Wealth Management Connect can help accelerate the progress of the Insurance Connect. In addition, a cross-border insurance service centre has been under discussion and preparation since late-2019 when the Shenzhen branch of CBIRC issued an internal consultation paper to the industry associations regarding the designing of the insurance service centre in the Qianhai district of Shenzhen. The service centre is designed to offer services including insurance product consultation, insurance sales, filing claims, policy renewal services, and other after-sale services. We expect the service centre to offer after-sale services to existing policyholders living in GBA cities outside of Hong Kong and Macau as the first step. Enabling brokers to provide insurance product consultation and sales will the second step of this service centre, in our view.

Figure 6: The development of the Insurance Connect

Date Details Feb-19 The central government published a document on the outline of the GBA development, which encourages stronger connections among financial markets within the GBA, including the cross-border transactions of insurance products. Oct-19 The Shenzhen branch of CBIRC sent a consultation paper to the local insurance industry association and the local insurance intermediary industry association on setting up an innovative insurance service center in Qianhai, which allows brokers to provide insurance services, including product consultation, insurance sales, insurance claims and insurance renewal, on insurance without cash value, health insurance and tax-deductible insurance for Hong Kong and Macau citizens. Jan-20 The regulatory authorities of Guangdong, Shenzhen, Hong Kong and Macau discussed about the development of cross-border medical insurance products and research on the setting up of a HK & Macau insurance service centre. Apr-20 PBOC, CBIRC, CSRC and SAFE issued a document on opinions of financially supporting the development of the GBA, which encourages insurers to develop more cross-border insurance products and set up a customer service center in the Mainland. SOURCES: CGS-CIMB RESEARCH, STATE COUNCIL, PBOC, CHINA BANKING AND INSURANCE REGULATORY COMMITTEE (CBIRC), CSRC, STATE ADMINISTRATION OF FOREIGN EXCHANGE (SAFE), HKMA, MACAU MONETAY AUTHORITY (MMA)

We expect AIA to benefit most from the Insurance Connect as the service centres in mainland China are expected to bring in brokers according to the internal consultation paper issued by the Shenzhen branch of CBIRC, which are key intermediaries for AIA HK’s MCV business, to offer services including insurance product consultation and insurance sales. Using the Stock Connect and the Bond Connect as the benchmark, we believe that more details on the Insurance Connect could be announced as early as

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

late-2020F or early-2021F, following the official launch of the Wealth Management Connect, with the setting up of a cross-border insurance service centre in Shenzhen being the first step. We expect the first stage to be the setting up of a post-sales service centre, and in the second stage (sometime in the future) customers would be permitted to buy cross-border insurance policies within their own regions. A key benefit of the first stage is that there would be less chance of lapses of insurance policies bought previously by mainland Chinese visitors (MCV), given that the ratio of policyholders paying by options other than bank transfer seemed to have picked up in recent years. Another key benefit is a potential increase in mindshare and awareness of the HK insurance policies among GBA residents, which could set the stage for a rebound in MCV insurance sales in HK in a post Covid-19 era. It should be noted that AIA China has been operating in Guangdong (excluding Shenzhen) since 1995 and in Shenzhen since 1999, which likely indicates that AIA already has a reasonably strong reputation and solid customer base within the GBA. Looking further ahead, upon the implementation of the second stage, we see mainland customers becoming more willing to buy Hong Kong insurance products under the Insurance Connect programme, given the increased convenience coupled with savings from not having to travel to Hong Kong to buy insurance policies. Some investors have expressed concern to us that AIA’s China business could be under threat, if it becomes easier to buy HK insurance products within mainland China via the Insurance Connect. We are not concerned as we see little threat of such a substitution effect for AIA China and AIA HK. This is because we believe that customers from mainland China have different needs, and reach out to AIA China and AIA HK for different reasons. This can be seen by the fact that the mainland China business of AIA sells a high proportion of critical illness products (Fig 7). On the other hand, participating insurance products (which have a higher savings component and fetch lower margins) tend to account for a larger proportion of AIA HK’s business.

Figure 7: A comparison of the top five products sold, in terms of premiums, by AIA China over the 2013-2019 period

No. 2014 2015 2016 2017 2018 2019 1 Critical illness Critical illness Critical illness Critical illness Annuity Annuity (participating) (participating) 2 Critical illness Critical illness Critical illness Critical illness Critical illness Critical illness 3 Annuity Critical illness Annuity Annuity Critical illness Critical illness (participating) (participating) (participating) 4 Annuity (non- Annuity Critical illness Annuity Critical illness Critical illness participating) (participating) (participating) 5 Critical illness Critical illness Critical illness Critical illness Annuity Critical illness (participating) SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

This can also be seen by the 51% contribution by individual health insurance to AIA China’s gross written premiums in 2019 (Fig 8).

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 8: AIA China's premium mix Figure 9: Change yoy in AIA China’s premiums (%)

2012 2013 2014 2015 2016 2017 2018 2019 2013 2014 2015 2016 2017 2018 2019 Individual life insur. 47% 44% 40% 36% 31% 27% 23% 18% Individual life insurance 1% 3% 7% 11% 9% 8% 4% Individual health insur. 26% 30% 34% 39% 45% 46% 50% 51% Individual health insurance 22% 29% 37% 47% 31% 38% 32% Individual accident insur. 4% 4% 4% 4% 3% 3% 3% 6% Individual accident insurance 7% 4% 13% 16% 11% 23% 156% Individual annuities 19% 19% 18% 17% 17% 22% 21% 23% Individual annuities 7% 9% 11% 28% 64% 24% 42% Total individual insur. 97% 97% 97% 96% 97% 97% 97% 98% Total individual insurance 8% 12% 19% 29% 29% 26% 31%

Of which: Of which: Participating insur. 36% 34% 32% 30% 30% 31% 31% 31% Participating insurance 2% 6% 13% 24% 37% 24% 29% Universal life insur. 0% 0% 0% 0% 0% 0% 0% 0% Universal life insurance 6% 4% 4% 2% 3% 3% 4% Investment linked insur. 0% 0% 0% 0% 0% 0% 0% 0% Investment linked insurance 84% 41% 15% 16% 18% 14% 4%

Group life insur. 0% 0% 0% 0% 0% 0% 0% 0% Group life insurance 2% 13% 17% -4% 13% 15% 25% Group health insur. 2% 2% 2% 2% 2% 2% 2% 2% Group health insurance 3% 20% 23% 28% 33% 9% 11% Group accident insur. 1% 1% 1% 1% 1% 1% 1% 1% Group accident insurance 10% 13% 29% -3% 15% 19% 3% Total group insur. 3% 3% 3% 4% 3% 3% 3% 2% Total group insurance 5% 17% 24% 16% 27% 11% 10%

Total gross written premiums 100% 100% 100% 100% 100% 100% 100% 100% Total gross written premiums 8% 12% 19% 28% 29% 26% 31% SOURCES: CGS-CIMB, COMPANY REPORTS SOURCES: CGS-CIMB, COMPANY REPORTS

AIA HK, on the other hand, offers more savings products to mainland customers, in our view. As we discussed in our past report (see And so it begins, dated 19 Jun 2020), wealth diversification could be a strong motive for mainland customers of AIA HK. This is proven by the strong correlation between the industry’s ANP growth and the US$/Rmb exchange rate during Dec 2012-Jun 2019, as shown in Fig 10. The larger average case size for policies sold to AIA HK’s offshore customers (Fig 11), compared with those sold to onshore customers, also indicates that mainland customers are more likely to buy savings products from AIA HK.

Figure 10: A comparison of ANP to mainland Chinese Figure 11: A comparison of the average policy size for AIA's individuals with the US$/ Rmb exchange rate onshore vs. offshore customers, by payment type

Average case size for AIA's policies (offshore customers) by payment-type 1-Jun-20, 7.13 16,000 Correlation coefficient 7.20 (HK$) SingleTitle: premium Regular first year premium between these two data 2014 13,706,408 56,199 14,000 Source: series from Dec 2012 to 7.00 2015 9,640,963 66,681 12,000 Jun 2019 is 91% 2016 Please5,007,680 fill in the values above to have them87,713 entered in your report 6.80 10,000 2017 5,028,771 70,971 2018 3,428,919 66,349 8,000 6.60 2019 2,692,667 73,799 6,000 6.40 1Q20 3,550,644 94,207 4,000 Average case size for AIA's policies (onshore customers) by payment-type 6.20 2,000 (HK$) Single premium Regular first year premium 2014 865,538 17,819 0 6.00 2015 983,314 19,085

2016 1,116,516 22,211

Jun-13 Jun-14 Jun-18 Jun-19 Jun-15 Jun-16 Jun-17

Mar-14 Mar-15 Mar-16 Mar-17 Mar-20 Mar-13 Mar-18 Mar-19

Sep-13 Dec-15 Sep-16 Dec-16 Sep-17 Dec-17 Sep-18 Dec-18 Sep-19 Dec-12 Dec-13 Sep-14 Dec-14 Sep-15 Dec-19 2017 663,495 23,160

Annualised new premiums (ANP) to mainland Chinese individuals (RHS) 2018 619,107 25,876

US$/ Rmb exchange rate (LHS) 2019 730,679 26,374

1Q20 655,487 31,419

SOURCES: CGS-CIMB RESEARCH, BLOOMBERG, INSURANCE AUTHORITY (IA) SOURCES: CGS-CIMB RESEARCH, IA

More than 95% of AIA HK’s first-year regular premiums have been US$ denominated since 2016 (Fig 12). In Hong Kong, AIA HK has been the market leader in terms of US$ denominated premiums (Fig 13).

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 12: Proportion of AIA HK's first year regular premium that Figure 13: Market share of US$ denominated premiums are US$ denominated

100% 100% Title: Title: 97% 96% 96% 96% 90% 19% Source: Source: 95% 23% 27% 95% 80% 3% 3% Please fill in the values above to have them entered in your report 5% Please fill in9% the values above to have them entered in your report 89% 70% 90% 5% 11% 60% 18% 6% 5% 86% 8% 85% 50% 16% 82% 40% 24% 21% 80% 30% 20% 13% 20% 75% 28% 22% 10% 16% 70% 0% 2013 2014 2015 2016 2017 2018 2019 1Q20 2018 2019 1Q20

AIA HK Pru HK HSBC HK Manulife China Life HK BOC Life Others Proportion of AIA HK's first year regular premium that are US$ denominated

SOURCES: CGS-CIMB RESEARCH, INSURANCE AUTHORITY SOURCES: CGS-CIMB RESEARCH, IA

As such, we believe the introduction of AIA HK to mainland customers via the Insurance Connect will not pose any major risk to AIA China as AIA China can focus on critical illness insurance products while AIA HK can focus on US$- denominated savings products. The Insurance Connect will not only create new business drivers through the sale of Hong Kong insurance products to mainland customers in the GBA, but also form one more defensive line for AIA during difficult times. What kind of impact can we expect from the Insurance Connect if the current difficulty in attracting mainland customers to Hong Kong persists? We have discussed in our past report (see MCV: The source matters, dated 10 Sep 2019) that broker-sourced MCV sales comprised 6% of AIA Group’s 1H19 VONB, based on our estimates (Fig 14). The total contribution to AIA Group’s VONB in 1H19 from AIA HK was 40%. However, due to the social unrest in 2H19, AIA HK only account for 37% of the group’s VONB in 2019 (Fig 15), which indicates that AIA HK’s VONB contribution in 2H19 was only 33%.

Figure 14: Estimated mix of AIA Group's VONB in 1H19 Figure 15: VONB composition, by geography (FY19) Other 12% Title: Title: Source: Source:

6% 14% Please fill in the values above to haveHK them entered in your report Please fill in the values above to have them entered in your report 37% 20% 60%

China 26%

Broker-sourced MCV customers in HK Agent-sourced MCV customers in HK Thailand Malaysia SG Non-MCV customers in HK Rest of AIA Group 11% 6% 8%

SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS, IA SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

If the Insurance Connect could help improve VONB contribution from AIA HK’s broker channel by 1%pt under such a difficult scenario as in 2H19, we estimate that the group VONB would have increased by 2.0% for 2H19 and by 0.9% for FY19 (Fig 16).

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 16: Our estimate on the impact on AIA Group's 2H19 and FY19 VONB with an 1%pt increase in AIA HK's broker channel contribution to the group VONB Assumed VONB Estimated VONB yoy growth Estimated VONB vs. FY19 results contributions 2H19 2H19 FY19 2H19 FY19 AIA Hong Kong 34.2% -22.1% -3.1% 5.6% 2.3% AIA Thailand 13.5% 14.8% 10.5% 0% 0% AIA Singapore 8.6% 0.0% -1.4% 0% 0% AIA Malaysia 6.1% 4.1% 4.5% 0% 0% AIA China 22.6% 13.7% 20.9% 0% 0% AIA Korea n.a. n.a. n.a. n.a. n.a. Other Markets 15.1% 32.9% 23.0% 0% 0% Subtotal 100.0% -1.3% 7.3% 1.9% 0.9% Group -4.2% 6.0% 2.0% 0.9% SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Changes to our earnings, VONB and EVPS estimates We make some small changes to our FY20F-FY22F earnings estimates, raising our FY20F net profit forecast by 11.3%, while cutting our FY21F and FY22F net profit forecasts by 1.2-2.4% (Fig 17). The key driver of the increase in FY20F net profit is better non-operating related investment income, which would more than offset the lower premium forecasts. The key driver of our slight cut in FY21F-22F net profit is higher expenses. We also cut our FY20F-FY22F VONB per share estimates by 8.6-11.6%. This is largely driven by our lower VONB growth assumptions for FY20F and FY21F. In addition, we adjust our FY20-22F embedded value per share (EVPS) estimates by -0.2 to +0.8%, primarily due to higher investment return variances combined with lower VONB estimates.

Figure 17: Change in earnings forecasts FY20F FY21F FY22F (US$ m) Old New % chg Old New % chg Old New % chg Net premiums, fee income & other oper. revenue 32,493 33,792 4.0% 33,287 38,286 15.0% 35,319 43,290 22.6% Investment income 11,284 11,284 0.0% 11,287 11,309 0.2% 12,440 12,458 0.1% Total Revenue 43,777 45,076 3.0% 44,574 49,596 11.3% 47,759 55,748 16.7% Total expenses 36,112 37,753 4.5% 35,997 41,224 14.5% 38,055 46,164 21.3% OPAT attrib. to shareholders of AIA Group 6,450 6,162 -4.5% 7,218 7,045 -2.4% 8,168 8,066 -1.2% Non operating items -2,753 -2,046 -25.7% 0 0 n.a. 0 0 n.a. NPAT attrib to shareholders of AIA Group 3,697 4,116 11.3% 7,218 7,045 -2.4% 8,168 8,066 -1.2%

EPS (US$) 0.31 0.34 11.3% 0.60 0.58 -2.4% 0.68 0.67 -1.2% DPS (US$) 0.18 0.17 -4.5% 0.20 0.20 -2.4% 0.23 0.23 -1.2% BVPS (US$) 4.90 4.93 0.8% 5.30 5.33 0.6% 5.77 5.79 0.4% VONB per share (US$) 0.31 0.28 -8.6% 0.40 0.36 -11.6% 0.49 0.44 -11.6% EVPS (US$) 5.04 5.08 0.8% 5.62 5.66 0.7% 6.29 6.28 -0.2% ROE (%) 6.3% 7.0% 0.7% pts 11.7% 11.3% -0.4% pts 12.2% 12.0% -0.2% pts ROEV (%) 6.2% 7.0% 0.8% pts 15.3% 15.0% -0.3% pts 15.9% 14.8% -1.1% pts SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Valuation and recommendation With the changes to our VONB and EV estimates, coupled with the rolling forward of our valuation date by half a year to 1H21F EVPS now, our GGM- based target price rises to HK$84 from HK$80 previously. We value AIA Group using GGM to derive a target P/EV multiple of 2.0x (unchanged), assuming COE of 8.9% (unchanged), terminal growth rate of 3.1% (unchanged), as well as a sustainable ROEV of 14.7% (previously 14.9%). We then apply this to our 1H21F (previously FY20F) EVPS estimate of US$5.37 (previously US$5.04), after converting at an assumed exchange rate of US$/HK$ of 7.84 (unchanged), to arrive at our target price of HK$84 (previously HK$80) (Fig. 18).

Figure 18: AIA Group valuation

Old New % chg Cost of equity 8.9% 8.9% 0.0% pts Terminal growth rate 3.1% 3.1% 0.0% pts Sustainable ROEV assumption (computed by taking the simple average of operating ROEV and ROEV (excluding forex movements), averaged over FY17 - FY23F) 14.9% 14.7% -0.2% pts Target P/EV 2.0x 2.0x -2.0% 1H21F EVPS (US$) 5.04 5.37 6.6% i.e. 1H21F EVPS (HK$) 39.49 42.08 6.6% US$/HK$ exchange rate 7.84 7.84 0.0% Hence target price (HK$) 80.00 84.00 5.0% FY20F VONB per share (US$) 0.31 0.28 -8.6% i.e FY20F VONB per share (HK$) 2.40 2.19 -8.6% Implied target new business multiple 16.9x 19.1x 13.2%

Current share price (HK$) 75.10 Upside/ downside 12% SOURCES: CGS-CIMB ESTIMATES DATA AS OF 10 JUL 2020

We show in Fig. 19 below our embedded value forecasts up to FY22F.

Figure 19: AIA's embedded value across time (US$ m) FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20F FY21F FY22F Opening EV 30,565 33,018 37,153 38,198 42,114 50,779 54,517 59,323 61,500 68,542 Value of new business 1,490 1,845 2,198 2,750 3,512 3,955 4,154 3,382 4,334 5,287 Expected return on EV 2,389 2,635 2,698 2,854 3,317 3,893 4,105 4,339 4,215 4,759 Operating experience variance 114 188 274 365 385 612 600 540 378 265 Operating assumption changes 10 -80 -26 29 -81 -9 34 26 19 14 Finance costs on medium term -26 -53 -76 -111 -136 -173 -208 -208 -208 -208 notes EV operating profit 3,977 4,535 5,068 5,887 6,997 8,278 8,685 8,078 8,738 10,117 Investment return variance 345 720 -1,804 -37 1,517 -2,218 517 -2,378 492 12 Effect of change in economic assumptions 429 122 145 -236 -190 47 -254 -1,526 0 0 Other non operating variances -154 23 369 -22 -330 270 -78 0 0 0 Total EV profit 4,597 5,400 3,778 5,592 7,994 6,377 8,870 4,175 9,230 10,130 Dividends -595 -689 -814 -1,124 -1,376 -1,589 -1,961 -1,998 -2,188 -2,505 Other capital movements 11 -14 -12 -5 134 98 136 0 0 0 Effect of changes in exchange -760 -562 -1,907 -547 1,265 -1,037 670 0 0 0 rates Closing EV 33,818 37,153 38,198 42,114 50,131 54,517 61,985 61,500 68,542 76,167

Number of shares 12,044 12,045 12,048 12,056 12,074 12,077 12,089 12,101 12,113 12,125 EV per share 2.81 3.08 3.17 3.49 4.15 4.51 5.13 5.08 5.66 6.28 SOURCES: CGS-CIMB ESTIMATES, COMPANY REPORTS

AIA Group currently trades at 1.81x 12-month forward P/EV, which is slightly above its post-2010 IPO historical mean of 1.81x (Fig. 20). It also trades at 13.6x share price-implied new business multiple basis (12-month forward rolling), which is just above 1 s.d. of its post-2010 IPO historical mean of 10.2x (Fig. 21).

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 20: AIA Group's 12-month rolling forward P/EV Figure 21: AIA Group's share-price-implied trading new business multiple (12-month rolling forward)

2.30x Jul-19, 2.21x 20.0x Apr-15,Title: 17.9x Title: Apr-15, 2.08x Source: Source: 2.10x + 2 std. dev. = 2.08x + 2 std. dev. = 16.6x May-18, 2.00x 16.0x May-18, 13.9x 1.90x + 1 std. dev. = 1.84x Please fill in the values above+ to 1 std.havedev. them = 13.4x entered in your report Please fill in the values above to have them entered in your report Jul-20, 1.81x 12.0x Oct-16, 10.0x Jul-20, 13.6x 1.70x Aver. = 1.60x Aver. = 10.2x 1.50x 8.0x - 1 std. dev. = 7.0x Oct-18, 1.48x - 1 std. dev. = 1.35x Oct-18, 7.0x 1.30x Feb-16, 1.31x 4.0x -2 std. dev. = 3.8x Dec-16, 1.32x - 2 std. dev. = 1.11x Feb-16, 4.6x Dec-16, 4.5x 1.10x

Oct-11, 0.99x 0.0x 0.90x

Oct-11, -0.2x

Oct-11 Oct-12 Oct-13 Oct-14 Oct-18 Oct-19 Oct-10 Oct-15 Oct-16 Oct-17

Oct-10 Oct-11 Oct-14 Oct-15 Oct-13 Oct-16 Oct-17 Oct-18 Oct-19 Oct-12 -4.0x

AIA's 12-month rolling forward P/EV AIA's share-price-implied trading new business multiple (12-month rolling forward)

SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS, BLOOMBERG SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS, BLOOMBERG DATA AS OF 10 JUL 2020 DATA AS OF 10 JUL 2020

What if we took a shorter period to compute these historical valuation means? Looking at only the past five years, AIA Group’s 1.81x 12-month rolling forward P/EV multiple trades just above its 5-year historical average mean of 1.74x (Fig. 22). Its 13.6x share price-implied new business multiple basis (12-month rolling forward) is also just above its 5-year average historical mean of 11.1x (Fig. 23).

Figure 22: AIA's 12-month rolling forward P/EV Figure 23: AIA's share-price-implied trading new business multiple (12-month rolling forward)

2.20x 20x Title: Title: + 2 std. dev. = 2.13x Source: + 2 std. dev. = 17.8x Source: 18x

2.00x + 1 std. dev. = 1.93x 16x Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report + 1 std. dev. = 14.4x Jul-20, 1.81x 14x Jul-20, 13.6x 1.80x Oct-19, 13.8x Aver. = 1.74x 12x Aver. = 11.1x

10x 1.60x - 1 std. dev. = 1.54x 8x - 1 std. dev. = 7.7x

6x 1.40x Oct-18, 1.48x Oct-18, 7.0x - 2 std. dev. = 1.35x -2 std. dev. = 4.4x 4x

1.20x 2x Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20

AIA's 12-month rolling forward P/EV AIA's share-price-implied trading new business multiple (12-month rolling forward)

SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS, BLOOMBERG SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS, BLOOMBERG DATA AS OF 10 JUL 2020 DATA AS OF 10 JUL 2020

AIA Group currently trades at a forward P/EV premium over other HK insurers under our coverage (average of 0.76x for FY20F). We believe that this is justified given its lower risk profile, superior management quality and track record for delivering consistent shareholder returns. As such, we reiterate our Add call. Potential re-rating catalysts are an end to the HK protests as well as the announcement of further regulatory approvals to expand into new regions in China (see “New frontiers” dated 2 Feb 2019). An earlier-than-expected peak of Covid-19 infections is another re-rating catalyst. One of the reasons we are bullish on AIA Group’s share price outlook over the medium-to-long term is its track record in delivering great shareholder returns. We believe a key reason for this track record of outperformance is its alignment of incentives, whereby 60% of its management’s short-term incentive scheme is

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

weighted towards VONB and embedded value (EV) metrics, which are key focus areas for investors (Fig. 25).

Figure 24: Share price/index performances of AIA & Prudential Figure 25: Weighted scorecard approach of AIA's short-term (Pru) in HK vs. major benchmark indices incentive scheme Absolute performance AIA's relative performance (% pts) vs. vs. MSCI Asia ex vs. MSCI vs. MSCI (%) 2011 2012 2013 2014 2015 2016 2017 2018 2019 AIA Pru HSI Jap. EM World Value of new business 59 60 60 60 60 60 60 60 60 Dec-11 11% -8% 31% 30% 32% 21% Excess EV growth* 23 15 15 10 10 10 10 10 0 Dec-12 25% 53% 2% 6% 9% 11% Underlying free surplus 0 0 0 0 0 0 0 0 15 Dec-13 29% 55% 26% 28% 33% 8% generation (UFSG) ** Dec-14 11% 4% 10% 11% 15% 9% Operating profit after tax 18 25 25 30 30 30 30 30 25 Dec-15 8% -1% 15% 19% 24% 12% * Sum of the operating experience variances and operating assumption changes in the EV Dec-16 -6% -15% -7% -9% -13% -12% operating profit Dec-17 52% 28% 16% 19% 18% 31% ** UFSG is the free surplus generated by the business excluding the free surplus invested in new Dec-18 -2% -30% 11% 14% 15% 9% business investment return variances and other items. Dec-19 26% 25% 17% 11% 11% 2% Jul-20 ytd -6% -17% 1% -6% -3% -1% SOURCES: CGS-CIMB RESEARCH, DATASTREAM, MSCI SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS DATA AS OF 9 JUL 2020 THE SHADED CELLS ARE THE ONLY YEAR THAT AIA’S SHARE PRICE UNDERPERFORMED MAJOR SHAREMARKET BENCHMARK INDICES

We believe that one of investors’ key concerns is AIA Group’s relatively high trading multiples, given that its 12-month forward P/EV of 1.81x is slightly above its post-2010 IPO historical average of 1.60x. In addition, our target price is pegged to a 2.0x P/EV multiple, which is still well above the historical average (previous high was 2.1x in Jul 2019). We stress that insofar as P/EV multiples are linked to ROEV, and given that we expect operating ROEV to remain at a relatively high level, we believe AIA Group’s P/EV will continue to re-rate (Fig. 27).

Figure 26: Calendar-year-end forward P/EV multiple (x) Figure 27: AIA Group's ROEV and operating ROEV across time

2.50 25% Title: Title: Source: Source: Dec-19, 2.05 2.00 Dec-17, 1.88 20% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report Dec-14, 1.72 15.9% Dec-15, 1.67 16.6% 16.3% Jul-20, 1.81 15.4% 14.2% 14.8% 1.50 Dec-18, 1.61 15% 13.7% 13.6% 13.6% 12.5% 12.8% 13.0% 11.5% Dec-16, 1.33 1.00 Dec-11, 1.18 10%

0.50 5%

0.00 0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020F 2021F 2022F

Dec-10 Dec-11 Dec-12 Dec-15 Dec-16 Dec-17 Dec-18 Dec-13 Dec-14 Dec-19 Calendar-year-end forward P/EV multiple (x) Operating ROEV ROEV

SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS, BLOOMBERG SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS

Key downside risks to our call are a significant weakening of Asian currencies (especially the renminbi, baht, Singapore dollar, ringgit, rupiah and Philippine peso) against the US dollar as a substantial portion of AIA Group’s VONB is denominated in these currencies, as well as a continuation of the HK protest. Another key downside risk is a worse-than-expected severity and duration of the Covid-19 outbreak. We estimate that currency headwinds to VONB growth would be the strongest in 2Q20F, with these headwinds likely reducing in intensity in 3Q20F and 4Q20F, assuming that exchange rates remain stable at current levels.

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 28: Weighted average impact yoy on AIA Group's VONB Figure 29: Weighted average impact yoy on AIA Group's VONB growth from currency movements, by quarter growth from currency movements, by year

6% 8.0% Title: Title: Source: 5.9% Source: 4% 6.0% 4.4% Please fill in the values above to have them entered in your report Please fill in the values above to have them entered in your report 2% 4.0%

0% 2.0% 1.1%

-1.7%

1Q13 2Q13 1Q14 2Q14 1Q15 2Q15 1Q16 2Q16 1Q17 2Q17 1Q18 2Q18 3Q18 1Q19 2Q19 3Q19 4Q13 3Q14 4Q14 3Q15 4Q15 3Q16 4Q16 3Q17 4Q17 4Q18 4Q19

3Q13 0.2%

1Q20F 2Q20F 3Q20F -2% 4Q20F 0.0% FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18* FY19 FY20F -1.0% -0.5% -0.8% -0.8% -4% -2.0% -1.2% -2.2% -2.3% -6% -4.0% -4.4% -8% -6.0%

Weighted average impact yoy on AIA Group's VONB growth from currency movements (based Weighted average impact yoy on AIA Group's VONB growth from currency movements on period average rates)

SOURCES: CGS-CIMB RESEARCH ESTIMATES, BLOOMBERG SOURCES: CGS-CIMB RESEARCH, BLOOMBERG * 1Q18 - 4Q18's change is based on the new financial year end of Dec. instead of the old financial * FY18's change is based on the new financial year end of Dec. instead of the old financial year of year of Nov. Nov.

We estimate that for every 10% depreciation/appreciation in Asian currencies against the US dollar, our AIA Group target price will fall/rise by 5.9% (Fig. 30). In addition, any US dollar weakness is important as it could raise the policy risk to AIA Group’s share price. An overly-strong US dollar against the renminbi could cause Mainland Chinese customers to become wary of renminbi depreciation. This could lead to greater capital outflows, which we think could in turn prompt China’s policymakers to announce adverse regulations affecting AIA Group, in particular the MCV who buy insurance in HK. Further downside risk may come from the company’s results in FY20-22F failing to meet investors’ expectations. A decline in global interest rates is also a downside risk. We estimate that a 50bp drop in interest rates will lead to a 3% decline in our target price for AIA Group (Fig. 31).

Figure 30: Impact on target price from a 10% movement in non- Figure 31: Sensitivity of AIA's target price to changes in interest US$ & non-HK$ currencies rates Impact to target price if exchange rates change Base case FY20F EV per share (HK$) 39.56 Impact to target price if % of EV that is non-HK 55% interest rates rise on Asian currencies (excluding HKD) depreciates 10%, -5.5% FY19's VONB EV changes by FY19 VONB (US$ m) 4,154 Asian currencies (excluding HKD) appreciates 10%, 5.5% 50bp increase in interest rates 3.6% EV changes by 50bp decrease in interest rates -5.0%

Base case FY20F VONB per share (HK$) 2.40 FY19 EV (US$ m) 61,985 % of EV that is non-HK 63% 50bp increase in interest rates 1.2% Asian currencies (excluding HKD) depreciates 10%, -6.3% VONB changes by 50bp decrease in interest rates -1.3% Asian currencies (excluding HKD) appreciates 10%, 6.3% VONB changes by Current trading new business multiple (10 Jul 2020) 12.0x Hence percentage impact to AIA's valuation from: Hence impact on valuation is 50bp increase in interest rates 2.2% If Asian currencies (excluding HKD) depreciates -5.9% 50bp decrease in interest rates -2.8% 10%, impact is If Asian currencies (excluding HKD) appreciates 5.9% 10%, impact is SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 32: Geographical VONB composition (FY19) Figure 33: Geographical EV composition (FY19)

Other Other 12% 16% Title: Title: Source: Source:

HK Please fill in the values above to HKhave them entered in your report Please fill in the values above to have them entered in your report 37% 36%

China China 26% 17%

Malaysia 5% Thailand Thailand Malaysia SG 11% SG 15% 6% 8% 11% SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 34: Key financial data (Yr-end 30 Nov for FY15-FY17/ Yr-end 31 Dec for FY18-19A and FY20F-FY21F ) 2015A 2016A 2017A 2018A 2019A 2020F 2021F 2022F Summary EPS (US$) 0.23 0.35 0.51 0.26 0.55 0.34 0.58 0.67 Operating EPS (US$) 0.36 0.40 0.47 0.57 0.57 0.61 0.69 0.79 P/E ratio (x) (oper. EPS) 16.6 24.5 20.9 17.0 17.2 16.1 14.1 12.3 EPS grow th (%) -19.9% 50.6% 46.6% -48.4% 109.8% -38.1% 71.0% 14.4% DPS (US$) 0.09 0.11 0.13 0.16 0.16 0.17 0.20 0.23 Dividend yield (%) 1.5% 1.8% 1.8% 1.9% 1.5% 1.7% 1.9% 2.2% Issued shares (m) 12,048 12,056 12,074 12,077 12,089 12,101 12,113 12,125 BVPS (US$) 2.58 2.90 3.48 3.23 4.76 4.93 5.33 5.79 P/BV (x) 2.31 3.36 2.80 3.02 2.05 1.98 1.83 1.68 EV per share (US$) 3.17 3.49 4.15 4.51 5.13 5.08 5.66 6.28 Grow th of EV per share 3% 10% 19% 9% 14% -1% 11% 11% ROEV 5.0% 13.2% 22.0% 10.5% 17.5% 7.0% 15.0% 14.8% Price/EV (x) 1.88 2.79 2.35 2.16 1.90 1.92 1.72 1.55 VoNB per share (US$) 0.18 0.23 0.29 0.34 0.34 0.28 0.36 0.44 Grow th of VONB per share 19% 25% 28% 16% 2% -19% 28% 22% NB multiple 15.4 27.5 19.3 15.6 13.5 16.7 11.4 8.0 Profit & Loss (US$mn) Net premium 18,812 20,641 25,708 32,222 32,896 33,792 38,286 43,290 Investment income 6,143 6,424 7,096 8,728 8,899 11,284 11,309 12,458 Total Revenue 24,955 27,065 32,804 40,950 41,795 45,076 49,596 55,748 Insurance-related expenses 18,700 20,198 24,830 31,180 31,921 34,496 37,677 42,217 Other operating-related expenses 1,935 2,086 2,369 2,877 3,050 3,257 3,547 3,947 Underwriting income 4,320 4,781 5,605 6,893 6,824 7,324 8,372 9,584 Share of P/L from associates 0 (5) 0 0 (8) (8) (8) (8) Operating profit/(loss) 4,320 4,776 5,605 6,893 6,816 7,316 8,364 9,576 Operating profit after tax (OPAT) 3,585 4,013 4,682 5,731 5,786 6,210 7,100 8,129 OPAT attrib to shareholders of AIA Group 3,556 3,981 4,647 5,684 5,741 6,162 7,045 8,066 Non operating items (791) 183 1,473 (2,521) 907 (2,046) 0 0 Net profit after tax 2,765 4,164 6,120 3,163 6,648 4,116 7,045 8,066

Balance sheet (US$m) 2015A 2016A 2017A 2018A 2019A 2020F 2021F 2022F Assets Investment assets (excluding unit linked) 126,435 137,479 160,327 171,337 212,742 227,369 246,385 267,867 Investment assets (including unit linked) 19,794 20,657 24,231 23,938 31,456 35,534 40,141 45,345 Other assets 23,529 26,938 31,133 34,531 39,934 45,587 51,548 57,774 Total assets 169,758 185,074 215,691 229,806 284,132 308,491 338,074 370,986

Liabilities Insurance contract liabilities 115,969 128,186 148,897 164,764 189,597 206,379 224,821 244,956 Investment contract liabilities 7,116 7,028 8,082 7,885 12,273 14,328 16,727 19,527 Borrow ings 3,195 3,460 3,958 4,954 5,757 6,679 7,749 8,990 Other liabilities 12,056 11,090 12,382 12,797 18,549 20,957 23,679 26,753 Total liabilities 138,336 149,764 173,319 190,400 226,176 248,343 272,975 300,227 Net assets 31,422 35,310 42,372 39,406 57,956 60,147 65,099 70,759

Equity attributable to shareholders 31,119 34,984 41,994 39,006 57,508 59,682 64,595 70,212 Ratio and grow th analysis ROA 1.6% 2.3% 3.1% 1.4% 2.6% 1.4% 2.2% 2.3% ROE 8.7% 12.6% 15.9% 7.8% 13.8% 7.0% 11.3% 12.0% Payout ratio 38.9% 31.8% 25.1% 60.0% 29.4% 51.2% 34.2% 34.3% Grow th in net earned premium 9.2% 9.7% 24.5% 25.3% 2.1% 2.7% 13.3% 13.1% Grow th in operating profit after tax & minorities 22.2% 12.0% 16.7% 22.3% 1.0% 7.3% 14.3% 14.5% Asset portfolio mix 100% 100% 100% 100% 95% 95% 95% 95% - Fixed interest assets 85% 84% 84% 83% 82% 82% 82% 82% - Equity securities & interest in investment funds 10% 11% 11% 11% 12% 12% 12% 12% - Others 5% 5% 5% 5% 0% 0% 0% 0% Average investment income yield 4.9% 5.1% 5.2% 5.4% 5.2% 5.3% 5.0% 5.1% Insurance-related expense ratio 74.9% 74.6% 75.7% 76.1% 76.4% 76.5% 76.0% 75.7% Operating expense ratio 7.8% 7.7% 7.2% 7.0% 7.3% 7.2% 7.2% 7.1% Grow th of operating profit after tax and minorities 22.2% 12.0% 16.7% 22.3% 1.0% 7.3% 14.3% 14.5% Grow th of net profit after tax and minorities -19.9% 50.6% 47.0% -48.3% 110.2% -38.1% 71.1% 14.5% SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 35: Sector comparison

Ticker Rec Market Cap Price Target +/- P/EV (x) VONB multiple (x) P/BV (x) Group ROEV (%) (US$bn) (Lcy) Price (Lcy) (%) FY19 FY20F FY21F FY19 FY20F FY21F FY19 FY20F FY21F FY19 FY20F FY21F China Life 2628 HK Add 140.38 19.50 19.80 2% 0.51x 0.45x 0.40x -9.3x -9.8x -11.9x 1.2x 1.1x 1.1x 19.1 14.2 14.8 Ping An 2318 HK Add 211.88 87.90 114.50 30% 1.16x 1.01x 0.88x 2.6x 0.2x -2.3x 2.1x 1.8x 1.6x 23.9 18.9 18.2 CPIC 2601 HK Add 39.88 24.80 39.20 58% 0.49x 0.44x 0.39x -8.1x -11.4x -13.1x 1.1x 1.0x 1.0x 20.5 12.2 13.3 PICC P&C 2328 HK Add 19.95 6.95 9.10 31% n.a. n.a. n.a. n.a. n.a. n.a. 0.8x 0.8x 0.7x n.a. n.a. n.a. AIA 1299 HK Add 117.15 75.10 84.00 12% 1.88x 1.89x 1.70x 13.1x 16.3x 11.1x 2.0x 2.0x 1.8x 17.5 7.0 15.0 NCI 1336 HK Add 20.99 32.55 37.60 16% 0.43x 0.40x 0.36x -11.9x -12.9x -13.0x 1.0x 0.9x 0.9x 19.8 10.1 12.5 HK-listed weighted average 1.07x 0.99x 0.88x 0.4x -0.3x -3.1x 1.7x 1.5x 1.4x 20.8 14.2 16.0 HK-listed weighted average ex AIA 0.84x 0.73x 0.64x -3.2x -5.0x -7.2x 1.6x 1.5x 1.3x 21.7 16.2 16.3 SOURCES: CGS-CIMB RESEARCH ESTIMATES, BLOOMBERG, COMPANY REPORTS DATA AS OF 10 JUL 2020 (*CPIC: China Pacific Insurance Company; NCI: New China Life Insurance; PICC P&C: PICC (The People’s Insurance Company of China) Property & Casualty)

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 36: Global insurance peer comparison (part 1)

Company Name Bloomberg ticker Rating Market cap Closing Price Target price P/BV P/E ROE (US$ m) (local currency) (local currency) CY20F CY21F CY20F CY21F CY20F CY21F China China Life 2628 HK Add 140,381.73 19.50 19.80 1.16x 1.06x 10.8x 9.4x 11.1% 11.6% Ping An 2318 HK Add 211,877.38 87.90 114.50 1.86x 1.60x 10.4x 8.6x 18.2% 19.3% CPIC 2601 HK Add 39,876.32 24.80 39.20 1.05x 0.96x 8.1x 7.2x 13.5% 13.9% PICC P&C 2328 HK Add 19,945.19 6.95 9.10 0.75x 0.68x 6.2x 5.5x 12.8% 13.1% NCI 1336 HK Add 20,989.49 32.55 37.60 0.99x 0.88x 7.5x 6.6x 14.2% 14.5% PICC Group 1336 HK Not Rated 41,870.44 2.78 n.a. 0.58x 0.53x 5.9x 5.3x 10.0% 10.3% China Taiping 966 HK Not Rated 7,159.66 15.44 n.a. 0.66x 0.60x 6.6x 5.7x 10.4% 10.9% Average 1.01x 0.90x 7.9x 6.9x 12.9% 13.4%

Hong Kong AIA Group 1299 HK Add 117,152.74 75.10 84.00 1.85x 1.70x 22.8x 15.9x 9.2% 11.6%

Taiwan Cathay Financial 2882 TT Not Rated 17,937.76 40.25 n.a. 0.78x 0.74x 9.2x 8.9x 8.5% 8.3% Fubon Financial 2881 TT Not Rated 14,683.75 42.40 n.a. 0.84x 0.78x 8.2x 8.1x 9.8% 9.6% China Life (TW) 2823 TT Not Rated 3,353.35 22.20 n.a. 0.74x 0.67x 7.8x 7.6x 9.4% 9.0% Shin Kong Financial 2888 TT Not Rated 3,798.17 8.62 n.a. 0.62x 0.59x 8.0x 8.5x 7.9% 7.4% Average 0.74x 0.69x 8.3x 8.3x 8.9% 8.6%

South Korea Samsung Life 032830 KS Not Rated 7,480.78 44,900.00 n.a. 0.24x 0.23x 8.9x 8.4x 2.6% 2.8% Hanwha Life 088350 KS Not Rated 1,012.94 1,400.00 n.a. 0.09x 0.09x 4.8x 4.4x 2.0% 2.2% Tongyang Life 082640 KS Not Rated 392.51 2,920.00 n.a. 0.18x 0.18x 4.5x 4.6x 4.1% 3.9% Samsung F&M 000810 KS Not Rated 7,024.87 178,000.00 n.a. 0.54x 0.52x 10.4x 9.2x 5.2% 5.7% Dongbu Ins 005830 KS Not Rated 2,683.58 45,500.00 n.a. 0.48x 0.45x 6.7x 6.1x 7.6% 7.8% Hyundai M&F 001450 KS Not Rated 1,642.16 22,050.00 n.a. 0.41x 0.39x 6.1x 5.6x 7.0% 7.3% Average 0.32x 0.31x 6.9x 6.4x 4.8% 5.0%

Australia AMP Ltd AMP AU Hold 4,099.70 1.72 1.42 1.18x 1.17x 13.9x 14.2x 8.3% 9.5% IAG IAG AU Hold 8,905.90 5.54 5.85 1.93x 1.87x 15.9x 15.3x 12.7% 12.5% QBE QBE AU Add 9,463.60 9.26 11.86 1.10x 1.05x 840.5x 12.9x -1.4% 7.8% Medibank Private MPL AU Hold 5,612.96 2.93 2.97 4.26x 4.16x 20.3x 20.6x 20.8% 20.5% Average 2.12x 2.06x 222.7x 15.8x 10.1% 12.6%

Japan Japan Post 6178 JP Not Rated 31,637.79 750.80 n.a. 0.23x 0.22x 7.9x 8.4x 3.0% 2.6% Tokio Marine 8766 JP Not Rated 30,652.93 4,663.00 n.a. 0.94x 0.91x 12.1x 9.9x 7.0% 8.5% MS&AD Ins. 8725 JP Not Rated 15,886.49 2,859.50 n.a. 0.66x 0.64x 10.7x 8.1x 5.6% 6.8% Dai-ichi Life 8750 JP Not Rated 14,347.87 1,278.50 n.a. 0.39x 0.37x 6.9x 5.7x 5.4% 6.2% Average 0.55x 0.53x 9.4x 8.0x 5.3% 6.0%

South East Asia Tune Protect TIH MK Reduce 58.15 0.33 0.22 0.42x 0.41x 7.8x 6.0x 6.3% 7.6% STMK STMB MK Add 877.86 4.53 5.38 2.83x 2.59x 11.8x 11.2x 26.0% 23.5% Bangkok Life BLA TB Not Rated 857.09 15.70 n.a. 0.59x 0.54x 7.0x 5.8x 8.3% 9.3% Great Eastern GE SP Not Rated 6,779.66 19.95 n.a. n.a. n.a. 16.2x 10.7x n.a. n.a. Average 1.28x 1.18x 10.7x 8.4x 13.5% 13.5%

Other Asiapac ICICI Pru IPRU IN Add 7,965.01 417.45 485.00 7.48x 6.71x 44.3x 41.6x 17.1% 16.1% HDFC Standard Life HDFCLife IN Add 15,897.46 592.50 650.00 15.51x 13.42x 82.0x 68.5x 17.1% 17.9% SBI Life SBILife IN Add 11,430.96 860.20 960.00 8.44x 7.25x 51.8x 43.5x 13.5% 14.3% Tower NZ TWR NZ Not Rated 165.03 0.60 n.a. 0.71x 0.68x 12.1x 9.9x 5.7% 5.7% Max Financial MAXF IN Not Rated 2,012.28 561.75 n.a. 7.45x 6.54x 36.1x 32.6x 17.8% 19.3% Bao Viet Holdings BVH VN Not Rated 1,533.83 47,900.00 n.a. 1.79x 1.72x 33.7x 25.4x 6.2% n.a. Panin Financial PNLF IJ Not Rated 398.62 180.00 n.a. n.a. n.a. n.a. n.a. n.a. n.a. Average 6.90x 6.05x 43.3x 36.9x 12.9% 14.7% SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS, BLOOMBERG DATA AS OF 10 JUL 2020

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Figure 37: Global insurance peer comparison (part 2) Company Name Bloomberg ticker Rating Market cap Closing Price Target price P/BV P/E ROE (US$ m) (local currency) (local currency) CY20F CY21F CY20F CY21F CY20F CY21F North America AIG AIG US Not Rated 24,116.14 28.00 n.a. 0.41x 0.39x 10.3x 6.2x 3.2% 6.5% Metlife MET US Not Rated 32,119.57 35.39 n.a. 0.47x 0.44x 6.5x 5.9x 10.5% 10.5% Prudential Financial PRU US Not Rated 22,921.85 58.03 n.a. 0.40x 0.37x 6.5x 5.1x 9.1% 11.0% Allstate Corp ALL US Not Rated 26,957.44 85.82 n.a. 1.14x 1.04x 7.9x 7.7x 15.5% 14.0% Manulife MFC CN Not Rated 25,580.83 17.93 n.a. 0.66x 0.62x 7.4x 6.1x 9.3% 10.5% Great-West Life GWO CN Not Rated 15,886.71 23.28 n.a. 1.01x 0.96x 9.4x 8.2x 10.8% 12.6% Sunlife Financial SLF CN Not Rated 21,054.37 48.96 n.a. 1.25x 1.17x 10.2x 9.3x 12.4% 13.2% Average 0.76x 0.71x 8.3x 6.9x 10.1% 11.2%

UK Prudential PRU LN Not Rated 40,538.86 1,231.00 n.a. 2.02x 2.02x 11.7x 8.6x 13.0% 15.2% Aviva AV/ LN Not Rated 13,862.28 279.60 n.a. 0.62x 0.61x 5.8x 5.1x 10.4% 11.9% Legal & General LGEN LN Not Rated 16,388.59 217.60 n.a. 1.27x 1.19x 7.2x 7.1x 17.2% 16.8% Standard Life SLA LN Not Rated 7,532.90 263.60 n.a. 0.00x 0.00x 19.1x 0.0x 0.0% 0.0% Admiral Group ADM LN Not Rated 8,469.96 2,282.00 n.a. 6.99x 6.60x 15.7x 16.1x 43.3% 41.8% Average 2.18x 2.08x 11.9x 7.4x 16.8% 17.1%

Rest of Europe Axa CS FP Not Rated 49,343.71 18.06 n.a. 0.65x 0.62x 8.9x 6.6x 6.8% 8.9% CNP Assurances CNP FP Not Rated 8,177.04 10.54 n.a. 0.38x 0.37x 5.7x 5.3x 7.1% 7.3% Allianz ALV GR Not Rated 85,354.52 181.08 n.a. 1.07x 1.01x 11.5x 9.3x 8.7% 10.8% Generali G IM Not Rated 23,871.37 13.41 n.a. 0.79x 0.77x 10.5x 8.3x 7.3% 8.7% Poste Italiane PST IM Not Rated 11,263.10 7.63 n.a. 1.02x 0.97x 9.6x 8.2x 10.4% 11.5% NN Group NN NA Not Rated 11,456.78 31.66 n.a. 0.33x 0.31x 8.8x 7.8x 3.5% 4.1% Aegon NV AGN NA Not Rated 6,502.76 2.72 n.a. 0.24x 0.24x 4.0x 4.8x 5.2% 4.8% Average 0.64x 0.61x 8.4x 7.2x 7.0% 8.0% SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS, BLOOMBERG DATA AS OF 10 JUL 2020 (*CPIC: China Pacific Insurance Company; NCI: New China Life; PICC Group: The People's Company (Group) of China; PICC P&C: PICC Property & Casualty; Samsung F&M: Samsung Fire & Marine; Hyundai M&F: Hyundai Marine & Fire; AMP: Australian Mutual Provident; IAG: Insurance Australia Group; QBE: Queensland Insurance, Bankers & Traders Insurance, and Equitable Life, and General Insurance; MS&AD: Mitsui Sumitomo and Aioi Nissay Dowa; ICICI Pru: Industrial Credit and Investment Corporation of India Prudential; HDFC: Housing Development Finance Corporation; AIG: American International Group; CNP Assurances: Caisse Nationale de Prevoyance Assurance; NN Group: Nationale-Nederlanden Group; STMK: Syarikat Takaful Malaysia Keluarga Bhd)

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

BY THE NUMBERS

P/NB vs NB Growth 12-mth Fwd FD Normalised P/E vs FD 20.0 40.0% 2.30 Normalised EPS Growth 25.0% 18.0 28.3% 2.20 20.6% 2.10 16.3% 16.0 16.7% 2.00 11.9% 14.0 5.0% 1.90 7.5% 12.0 -6.7% 1.80 3.1% 1.70 -1.3% 10.0 -18.3% 1.60 -5.6% 8.0 -30.0% 1.50 -10.0% Jan-16A Jan-17A Jan-18A Jan-19A Jan-20F Jan-21F Jan-16A Jan-17A Jan-18A Jan-19A Jan-20F Jan-21F

Rolling P/NB (x) (lhs) Rolling P/EV (x) (lhs) Life Embedded Value Growth (rhs) Value Of New Life Business Growth (after-tax) (rhs)

Profit & Loss

(US$m) Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F Revenue 32,222 32,896 33,792 38,286 43,290 Total Claims and Changes in Reserves (31,180) (31,921) (34,496) (37,677) (42,217) Acq. Costs/Other Underwriting Exp. Total Underwriting Result (1,835) (2,075) (3,960) (2,937) (2,874) Investment Income on Tech Reserve 8,728 8,899 11,284 11,309 12,458 Insurance Profit / (Loss) 6,893 6,824 7,324 8,372 9,584 Total Other Technical Income 0 (8) (8) (8) (8) Total Other Revenues 0 0 0 0 0 Total Operating Costs 0 0 0 0 0 Other Technical Income / (Loss) Depreciation And Amortisation 0 0 0 0 0 Operating Profit 6,893 6,816 7,316 8,364 9,576 Pretax Income/(Loss) from Assoc. 0 0 0 0 0 Post-Tax Oper. Earnings - Life/Other Biz Head Office Costs Non-Operating Income/(Expense) 0 0 0 0 0 Net Interest Income 0 0 0 0 0 Investment Income on Shareholders Fund Other Income (2,521) 907 (2,046) 0 0 Exceptional Items Pre-tax Profit 4,372 7,723 5,270 8,364 9,576 Taxation (1,162) (1,030) (1,106) (1,264) (1,447) Consolidation Adjustments & Others Exceptional Income - post-tax Profit After Tax 3,210 6,693 4,165 7,100 8,129 Minority Interests (47) (45) (48) (55) (63) Preferred Dividends Special Dividends FX Gain/(Loss) - post tax Other Adjustments - post-tax Preference Dividends (Australia) Net Profit 3,163 6,648 4,116 7,045 8,066

Operating Ratios

Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F Premium Retention Ratio (life & Health) 83.8% 85.7% 85.7% 85.7% 85.7% Benefits Ratio (life & Health) (97%) (97%) (102%) (98%) (98%) Acquisition Expense Ratio (life & Health) 0% 0% 0% 0% 0% Admin Expense Ratio (life & Health) 0% 0% 0% 0% 0% Total Expense Ratio (life & Health) 8.93% 9.27% 9.64% 9.26% 9.12% Policyholder Dividends Ratio (life & Health) 0% 0% 0% 0% 0% Combined Underwriting Ratio (life & Health) (87.8%) (87.8%) (92.4%) (89.1%) (88.4%) Underwriting Profit Margin (life & Health) (5.7%) (6.3%) (11.7%) (7.7%) (6.6%)

Operating Profit Margin (life & Health) 21.4% 20.7% 21.6% 21.8% 22.1% SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

BY THE NUMBERS… cont’d

Balance Sheet

(US$m) Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F Fixed Assets Intangible Assets 0 0 0 0 0 Other Long Term Assets 229,806 284,132 308,491 338,074 370,986 Total Non-current Assets 229,806 284,132 308,491 338,074 370,986 Total Cash And Equivalents 0 0 0 0 0 Trade Debtors Other Current Assets 0 0 0 0 0 Total Current Assets 0 0 0 0 0 Creditors - Direct & Reinsurance Business Provision For Claims Outstanding 164,764 189,597 206,379 224,821 244,956 Other Current Liabilities 0 0 0 0 0 Total Current Liabilities 164,764 189,597 206,379 224,821 244,956 Total Long-term Debt 4,954 5,757 6,679 7,749 8,990 Hybrid Debt - Debt Component Other Liabilities 20,682 30,822 35,285 40,405 46,281 Total Non-current Liabilities 25,636 36,579 41,964 48,154 55,270 Total Technical & Other Provisions 0 0 0 0 0 Total Liabilities 190,400 226,176 248,343 272,975 300,227 Shareholders' Equity 39,006 57,508 59,682 64,595 70,212 Minority Interests 400 448 465 503 547 Total Equity 39,406 57,956 60,147 65,099 70,759 Life Embedded Value 54,517 61,985 61,500 68,542 76,167

Key Ratios

Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F Net Premium Growth 25.3% 2.1% 2.7% 13.3% 13.1% Operating Profit Growth (Life & Health) 23.0% (1.1%) 7.3% 14.3% 14.5% Value Of New Life Business Growth (after-tax) 15.8% 2.1% (18.6%) 28.1% 22.0% Life Embedded Value Growth 8.7% 13.7% (0.8%) 11.5% 11.1% Pre-tax Margin 13.6% 23.5% 15.6% 21.8% 22.1% Net Profit Margin 9.8% 20.2% 12.2% 18.4% 18.6% Effective Tax Rate 26.6% 13.3% 21.0% 15.1% 15.1% Net Dividend Payout Ratio NA NA NA NA NA Return On Average Assets 1.44% 2.60% 1.41% 2.20% 2.29% Net Gearing 11.3% 9.1% 10.1% 10.7% 11.4% Financial Leverage 5.50 5.33 5.06 5.20 5.26 Equity / Assets 17.0% 20.2% 19.3% 19.1% 18.9%

Key Drivers

Dec-18A Dec-19A Dec-20F Dec-21F Dec-22F Industry gross premium grth (%) N/A N/A N/A N/A N/A Gross Premium Growth (%) 25.3 2.1 2.7 13.3 13.1 Gross Premium Mkt share (%) N/A N/A N/A N/A N/A Claims Ratio (%) 76.1 76.4 76.5 76.0 75.7 Net Commission Ratio (%) 7.0 7.3 7.2 7.2 7.1 Net Premium Market Share (%) N/A N/A N/A N/A N/A

Management Expense Ratio (%) N/A N/A N/A N/A N/A SOURCES: CGS-CIMB RESEARCH, COMPANY REPORTS

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

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Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

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Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

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Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

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Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

The disclosure of the survey result of the Thai Institute of Directors Association (“IOD”) regarding corporate governance is made pursuant to the policy of the Office of the Securities and Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on inside information. The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CGS-CIMB Thailand does not confirm nor certify the accuracy of such survey result.

Score Range: 90 - 100 80 – 89 70 - 79 Below 70 or No Survey Result Description: Excellent Very Good Good N/A

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Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Distribution of stock ratings and inv estment banking clients for quarter ended on 30 June 2020 800 companies under cov erage for quarter ended on 30 June 2020 Rating Distribution (%) Inv estment Banking clients (%) Add 60.1% 0.4% Hold 25.9% 0.1% Reduce 14.0% 0.3%

Spitzer Chart for stock being researched ( 2 year data )

AIA Group (1299 HK) Price Close

93.0 Recommendations & Target Price

88.0

83.0 83.0 67.1 67.1 72.0 75.0 92.0 81.0 76.0 92.0 94.0 96.0 84.0 79.0 82.0

102.0 102.0

96.0 96.0 80.0 83.0 94.0 78.0 73.0 68.0 63.0 58.0 53.0 Add Hold Reduce Not Rated Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (Thai IOD) in 2019, Anti-Corruption 2019 ADVANC – Excellent, Certified, AEONTS – Good, n/a, AH – Very Good, n/a, AMATA – Excellent, Declared, ANAN – Excellent, Declared, AOT – Excellent, n/a, AP – Excellent, Certified, ASP – Very Good, Certified, BAM – not available, n/a, BANPU – Excellent, Certified, BAY – Excellent, Certified, BBL – Very Good, Certified, BCH – Good, Certified, BCP - Excellent, Certified, BCPG – Excellent, Certified, BDMS – Very Good, n/a, BEAUTY – Good, n/a, BEC – Very Good, n/a, BGRIM – Very Good, Declared, BH - Good, n/a, BJC – Very Good, n/a, BJCHI – Very Good, Certified, BLA – Very Good, Certified, BPP – Very Good, Declared, BR - Good, n/a, BTS - Excellent, Certified, CBG – Very Good, n/a, CCET – Good, n/a, CENTEL – Very Good, Certified, CHAYO - Good, n/a, CHG – Very Good, Declared, CK – Excellent, n/a, COL – Excellent, Declared, CPALL – Excellent, Certified, CPF – Excellent, Certified, CPN - Excellent, Certified, CPNREIT – not available, n/a, CRC – not available, n/a, DELTA - Excellent, Declared, DEMCO – Excellent, Certified, DDD – Very Good, n/a, DIF – not available, n/a, DREIT – not available, n/a, DTAC – Excellent, Certified, EA – Excellent, n/a, ECL – Very Good, Certified, EGCO - Excellent, Certified, EPG – Very Good, n/a, ERW – Very Good, n/a, GFPT - Excellent, Certified, GGC – Excellent, Certified, GLOBAL – Very Good, n/a, GLOW – Very Good, Certified, GPSC – Excellent, Certified, GULF – Very Good, n/a, GUNKUL – Excellent, Certified, HANA - Excellent, Certified, HMPRO - Excellent, Certified, HUMAN – Good, n/a, ICHI – Excellent, Declared, III – Excellent, n/a, INTUCH - Excellent, Certified, IRPC – Excellent, Certified, ITD – Very Good, n/a, IVL - Excellent, Certified, JASIF – not available, n/a, BJC – Very Good, n/a, JMT – Very Good, n/a, KBANK - Excellent, Certified, KCE - Excellent, Certified, KKP – Excellent, Certified, KSL – Excellent, Certified, KTB - Excellent, Certified, KTC – Excellent, Certified, LH - Excellent, n/a, LPN – Excellent, Certified, M – Very Good, Certified, MACO – Very Good, n/a, MAJOR – Very Good, n/a, MAKRO – Excellent, Certified, MALEE – Excellent, Certified, MC – Excellent, Certified, MCOT – Excellent, Certified, MEGA – Very Good, n/a, MINT - Excellent, Certified, MK – Very Good, n/a, MTC – Excellent, n/a, NETBAY – Very Good, n/a, OSP – Very Good, n/a, PLANB – Excellent, Certified, PLAT – Very Good, Certified, PR9 – Excellent, n/a, PSH – Excellent, Certified, PSTC – Very Good, Certified, PTT - Excellent, Certified, PTTEP - Excellent, Certified, PTTGC - Excellent, Certified, QH – Excellent, Certified, RATCH – Excellent, Certified, ROBINS – Excellent, Certified, RS – Excellent, n/a, RSP – not available, n/a, S – Excellent, n/a, SAPPE – Very Good, Declared, SAT – Excellent, Certified, SAWAD – Very Good, n/a, SC – Excellent, Certified, SCB - Excellent, Certified, SCC – Excellent, Certified, SCN – Excellent, Certified, SF – Good, n/a, SHR – not available, n/a, SIRI – Very Good, Certified, SPA - Good, n/a, SPALI - Excellent, n/a, SPRC – Excellent, Certified, STA – Very Good, Certified, STEC – Excellent, n/a, SVI – Excellent, Certified, SYNEX – Excellent, Certified, TASCO – Excellent, Certified, TCAP – Excellent, Certified, THANI – Excellent, Certified, TIPCO – Very Good, Certified, TISCO - Excellent, Certified, TKN – Very Good, n/a, TMB - Excellent, Certified, TNR – Very Good, Certified, TOP - Excellent, Certified, TPCH – Good, n/a, TPIPP – Good, n/a, TRUE – Excellent, Certified, TU – Excellent, Certified, TVO – Excellent, Declared, UNIQ – not available, n/a, VGI – Excellent, Certified, WHA – Excellent, Certified, WHART – not available, n/a, WICE – Excellent, Certified, WORK – Good, n/a. 1 CG Score 2019 from Thai Institute of Directors Association (IOD) 2 AGM Level 2018 from Thai Investors Association 3 Companies participating in Thailand's Private Sector Collective Action Coalition Against Corruption programme (Thai CAC) under Thai Institute of Directors (as of November 30, 2018) are categorised into: companies that have declared their intention to join CAC, and companies certified by CAC. 4 The Stock Exchange of Thailand : the record of listed companies with corporate sustainable development "Thai sustainability Investment 2018" included: SET and mai listed companies passed the assessment conducted by the Stock Exchange of Thailand: THSI (SET) and THSI (mai) SET listed companies passed the assessment conducted by the Dow Jones Sustainability Indices (DJSI)

Insurance - Life │ Hong Kong AIA Group │ July 10, 2020

Recommendation Framework Stock Ratings Definition: Add The stock’s total return is expected to exceed 10% over the next 12 months. Hold The stock’s total return is expected to be between 0% and positive 10% over the next 12 months. Reduce The stock’s total return is expected to fall below 0% or more over the next 12 months. The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the stock. Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition: Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation. Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation. Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition: Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark. Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark. Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

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