Investing.com -- Moody’s Ratings has confirmed the Aa2 insurance financial strength ratings (IFSR) of AIA Company Limited (AIA Co) and AIA International Limited (AIA International), alongside AIA Group (OTC: AAGIY ) Limited’s (AIA) A1 long-term issuer rating and senior unsecured debt ratings. The ratings agency has also shifted its outlook for these entities from negative to stable. This move follows Moody’s confirmation of the A1 rating of the Government of China with a negative outlook, and the affirmation of the Aa3 rating of the Government of Hong Kong SAR, China, with an outlook change to stable from negative on May 26, 2025, and May 27, 2025, respectively.
The change in AIA’s outlook is primarily driven by the affirmation of Hong Kong’s Aa3 rating and the revision of its outlook to stable. The affirmation takes into account Hong Kong’s significant credit strengths, including its substantial fiscal and external buffers, high incomes, competitive economy, and history of effective monetary and fiscal policy. The outlook revision indicates that Hong Kong’s credit profile is likely to withstand global trade tensions and lower trade growth, thanks to its robust economy, financial position, and policy framework.
AIA’s outlook shift to stable also reflects the easing of downward pressure on AIA Co and AIA International’s IFSRs, which are one notch higher than Hong Kong’s government rating. This is due to their geographically diversified businesses and financial profiles. AIA’s key credit fundamentals are closely tied to Hong Kong’s economic and market conditions due to financial and operational connections. AIA Hong Kong, the insurance group’s largest market, contributed 38%, 35%, and 34% to the group’s total operating profit after tax (OPAT), value of new business (VONB), and total assets, respectively, in 2024.
Despite a negative outlook on China, AIA’s second-largest market, AIA China showed resilient financial performance with stable OPAT growth of 5% and robust VONB growth of 20% in 2024. This growth was driven by a productive agency force and ongoing expansion into new regions within China.
AIA Co and AIA International’s Aa2 IFSRs are higher than Hong Kong and China’s government ratings, reflecting the insurer’s diversified sales, earnings, and capital generation outside of these regions. The company has no concentrated exposure to specific sovereign bonds. Other markets, including Malaysia, Singapore, and Thailand, comprised about 38% and 41%, respectively, of the group’s OPAT and total assets in 2024.
The affirmation of AIA’s ratings also reflects the insurer’s dominant presence across APAC insurance markets, its large and profitable in-force book, its consistent record of strong profitability, and its capacity to generate capital from diversified markets. AIA has maintained strong liquidity and access to capital markets, with its Moody’s-adjusted financial leverage low at 16.5% as of December 31, 2024.
AIA’s $1.6 billion share buy-back announced in March 2025 would further reduce the insurer’s shareholder capital ratio to 223% from 236% at the end of 2024. This could impact the insurer’s strong financial flexibility and gradually erode its historically high capital buffer, particularly in the face of potential market volatility or a deteriorating operating environment.
The strengths of AIA are counterbalanced by higher operational risks and volatility stemming from some of its operations being in less-developed countries. The company’s material exposure to government bonds in these jurisdictions, whose sovereign ratings are lower compared to the insurers’ IFSRs, also adds to the risks.
AIA’s A1 issuer rating is currently two notches below the Aa2 IFSRs of AIA Co and AIA International, reflecting the enhanced group-level regulatory oversight under Hong Kong group-wide supervision.
Factors that could lead to an upgrade or downgrade of AIA’s ratings include changes in the IFSRs of AIA Co and AIA International. The potential for upgrade is limited in the coming 12-18 months, but could occur if there is a significant improvement in the operating environments and sovereign ratings of its major markets, while maintaining very strong business and financial profiles.
Conversely, AIA’s issuer and debt ratings could be downgraded if the IFSRs of AIA Co and AIA International are downgraded. This could happen if the companies’ operating environments deteriorate, the sovereign ratings of their key markets are downgraded, the group’s capital position deteriorates significantly, the insurer’s profitability substantially declines, the group’s adjusted financial leverage rises to more than 20% on a sustained basis, or if the group undertakes a heavily debt-funded acquisition or substantially increases its exposure to less-developed markets.
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