Mark Konyn joined the insurance giant AIA last year as group chief investment officer. He managed a portfolio that AsianInvestor estimates at around US$135 billion, covering 18 markets in the region and with 200 investment staff in total, 70 of them in Hong Kong.
Hong Kong remains the firm’s largest market in terms of premium income, followed by Thailand. Not surprisingly, China is its largest growth market and AIA has the advantage of being the only foreign insurer with a wholly-owned licence in China.
Q What is the objective of AIA’s investment management?
A We think of ourselves as asset owners, rather than investment managers. Our job is to build a book of assets which match the liabilities our business is generating, but also to look out further ahead to understand the dynamics of how our underlying business growth can be satisfied by future investments.
So trying to understand the capabilities that we need going forward – the control framework that we need around that and the risk management that we apply to that, to make sure that we build our book of business and as it becomes more diversified, that we’ve got the tools and the people in place to manage the liability side.
From the asset owners view, the asset side is only half the story of course. It’s dynamic, and the key to maintaining your book and being able to match your book is the feedback you have in terms of the product offering you have in the market as an insurance company, and making sure that what you offer can be matched by an underlying book of assets, so in certain countries that hasn’t been well managed.
We’ve seen foreign companies pour out of Taiwan because of the negative spread; the guaranteed returns being too high relative to the rates that could be achieved. And yet, those liabilities continue to be added to. So there’s a disconnect. You’ve got to have an efficient use of capital and I think insurers, whether you are working in investment or on the liability side, it’s the connectivity between the two which is going to dominate the overall approach, even more so going forward.
Q In this yield-compressed world, where are investment returns coming from?
A Everyone’s affected by negative yields globally, but AIA has been building our book for a long time, so we don’t have a lot rolling off the books at any one time. And we have a business that’s growing quickly, so those headwinds are not a problem for us.
We’re primarily focused on income – 85% of our assets are in interest bearing securities. All institutions are having to work harder to get that incremental yield, so you’re seeing more money flow into illiquids, whether that’s private debt or loans, private equity or infrastructure debt.
Asia is not homogenous; you have different curves in each of the markets. You have different term structures. Some are trading at very low rates historically, so it’s a mixed bag for us in Asia.
Q How is AIA evolving its asset-liability management, given that returns may remain lower for longer?
A We have projections of cashflow off the existing book and future cashflows generated from new business. We look out into the market and see where the supply is and we plan for it; very strategic. We look at the capital usage and we make sure we take account of the impact that regulatory changes may have on our book.
We use all available tools we have access to [in] the capital markets globally and particularly in this region. I think we are known as being fairly developed and advanced in the way we operate.
We are operating in 18 locations and we have investment teams in 12 locations, so there are 12 different currencies trading our liabilities. So we have a group department in Hong Kong that provides oversight to the whole investment function, and in each location experienced CIOs and teams to run their individual components of the entire book. I don’t think any institution, asset owner or asset manager, covers local credit as well as, or certainly any better than we do, because we’ve been in the market for many years.
Q How is the asset side of the portfolio developing?
A Insurance is a long-term business, so you wouldn’t expect to see significant change, but that’s good because it shows we have managed the business well for the long term. Of the 85% of our assets in fixed income, half of that approximately is credit. This is our focus; when you buy long-dated debt, the biggest decision is at the time you purchase. You want to make sure that those credits are money-good. So you do a lot of the work up-front, in anticipation of development of credit markets in this region.
You could take a deep breath there, and say we’re being optimistic, that we haven’t seen any development which would suggest Asian credit markets are going to start a path of accelerated development. But in anticipation of deeper markets, you’ve got to look much more at how credit is priced after you’ve bought them, because you would expect to see greater liquidity. So we are starting to build market pricing methodologies into our models, which perhaps haven’t been as rigorous in the past. It’s more about getting the work right up-front.
Look out for part two of the interview with Mark Konyn in the coming days.