This morning, we published a high level comparison between AIA and PRU (link). In this Note, we add some more color to our analysis, focusing on the opportunities and near-term issues in the Mainland China business. In our view, China could be a key driver for both stocks’ valuation multiples but we remain more optimistic on AIA vs. PRU. We highlight four differences: 1) Back-book: AIA China’s capital requirement is largely supported by ‘insurance risk’ vs. CITIC-Pru’s ‘market risk’; 2) Embedded Value: CITIC-Pru's EV is ~US$6B (100% basis), while AIA China’s EV was ~US$12B. If P/EV is a key valuation metric, then acquiring a 50% stake in a J/V with exclusive bank distribution could cost >US$3B (and towards $5B); 3) License value: CITIC-Pru already has the most provincial licenses covering Mainland (85% of China GDP) vs. AIA China’s current coverage in only three provinces/four cities (40% of China GDP); and 4) Solvency ratio at CITIC-Pru is lower than AIA China, which could support faster organic growth at AIA in China.

 Opportunity in China is big. AIA China reported Rmb41B (~US$6B) in premiums in 2020; CITIC-Pru reported Rmb21B in premiums in 2019(~US$3B). Compared to Ping An Life/China Life (~20% share each), their market share is c. 1%/0.7%. In the last 10 years, AIA China's new business value has increased to US$968mn (or by 16x) and CITIC-Pru's new business profit has increased to~US$540m (or by 10x), proving China as their strong growth engine.

 Liability reserve under solvency framework. The risk profiles measured by solvency framework are pretty different for AIA and PRU. As per 4Q20 figures, AIA China’s insurance risk amount compared to minimum solvency capital was 75% (vs. CITIC-Pru 35%). CITIC-Pru has a similar solvency risk profile to China's domestic insurers. Thus, if Pru Asia considers increasing its stake in the J/V, one interesting focus would be whether to fully acquire less profitable backbook or to use a reinsurance scheme to maximise front book growth.