AIA Group is aiming to boost infrastructure investment as much as possible globally - with a focus on Asia - saying that the asset class perfectly matches the liability of life insurers. The move will also permit it to support local development, a company spokesman said.
AIA is one of the largest life insurance companies in Asia and the infrastructure push will enable it to access projects across the region, from China, India, to Korea, Australia and Southeast Asia.
“Not only do we need to invest to provide good returns for policyholders in the region, but this is also a very good opportunity for us to contribute to local infrastructure development in the region. So local access in Asia is an important focus for us,” said Chi Zhang, AIA Group’s director of infrastructure debt investment, during AsianInvestor’s Infrastructure Investing Forum 2022 recently.
Zhang said the life insurer sees good opportunities in Asia, where local currency assets naturally fit its liabilities on the ground.
AIA’s insurance business covers 18 markets in Asia, including mainland China, Hong Kong, Taiwan, Thailand, Singapore, Australia and other countries in Asia Pacific.
As of the end of 2021, total assets of AIA have reached $340 billion, according to its 2021 annual results released on March 11.
INFRASTRUCTURE AS AN ASSET
“Infrastructure is a very special and important asset class because it has a very different nature (to other asset classes) - it's more stable with higher recovery rate,” Zhang told the panel discussion.
“Its long duration perfectly matches our requirements as a life insurer. So we have been very focused on infrastructure assets. We actually invest across the globe in the range of infrastructure assets like renewables, ports, airports and so on.”
On allocation strategies, Zhang said AIA tries to boost the exposure “as much as we can.” However, he noted that the hurdle is the scarcity of good assets with reasonable returns due to fierce competition in the region.
The right partners were still scarce, he noted, and were essential for working with local regulators and governments to source good deals.
Among infrastructure investment, Zhang said renewables, such as wind and solar power stations, were a very important theme for AIA.
In October 2021, the Hong Kong-based life insurer said it had divested its entire directly managed listed equity and fixed income exposure to coal mining and coal-fired power businesses, seven years ahead of schedule. In December, AIA committed to achieving net-zero greenhouse gas emissions by 2050.
Zhang noted that infrastructure investment market in Asia, which has seen strong growth over the past decade, had become more mature over that period.
China and India were the two biggest markets in renewable infrastructure investments in Asia, he said.
“We also see opportunities in Vietnam, the Philippines, Australia, Korea. This is becoming a hot topic these days. So these are very important, and we see good opportunities across the region.”
In terms of risks, Zhang said the political, or administrative issues, were always present, particularly when local government and other entities attempted to re-negotiate the contract or the tenor.
“So these are the kinds of underlying risks that we have been very careful about. We have been very selective in these transactions, but we see good pipelines in the region and we are continually investing across the region,” Zhang said.
He noted that as the market matures and technology evolves, the cost of investing in infrastructure in Asia had come down, shifting the risk of the project from the government or its relevant entities, towards the pure underlying risk of the project.
“The importance of all these risks and the magnitude of all these risks are changing throughout the year. And the investors and the local government, they are getting more and more familiar with the assets, so we're actually seeing the improvement,” Zhang said.