AIA Group (OTC:AAGIY) Limited (1299.HK), a leading insurance company, announced robust interim results during their 2024 earnings call, highlighting a 10% growth per share on a constant reporting basis for operating profit after tax (OPAT) and underlying surplus generation (USFG). The company's growth strategy, focused on expanding its presence in China and leveraging its strong agency force, has paid off with promising growth prospects in various Asian markets.
Key Takeaways
- AIA Group reported a 10% increase in OPAT and USFG per share on a constant reporting basis for the first half of 2024.
- The company provided double-digit guidance for OPAT growth of 9% to 11% over the next three years.
- AIA Group is expanding in China, with plans to obtain 1 or 2 new provincial licenses annually.
- Strong performance noted in India, with AIA as the third-largest private insurer and a robust partnership with TATA.
- High growth in Hong Kong, driven by a premier agency force and demand from the MCV customer segment.
- The company has experienced margin expansion in Thailand and strong growth in Singapore and Vietnam.
Company Outlook
- AIA Group anticipates opening 1 or 2 new provincial licenses per year in China, targeting the middle-income and above customer segment.
- The company is optimistic about future growth in Singapore, Thailand, and Mainland China.
- Plans to discuss capital management and share buybacks in more detail during the full-year results announcement in March next year.
Bearish Highlights
- The potential impact of a composite license in India is uncertain.
- CSM movement had a negative variance due to higher U.S. rates.
Bullish Highlights
- AIA Group has seen double-digit growth in traditional protection products and strong growth in long-term saving products.
- The Premier Agency force sold a significant amount of tax-deductible personal pension benefit plans.
- New tax-deductible long-term care products launched in July.
Misses
- Despite soft economic growth and political turmoil, AIA Group has not observed any significant changes in product demand or agent business.
Q&A Highlights
- The company emphasized that profitable new business and increasing operating earnings are key drivers of the business's value.
- AIA Group values its business based on embedded value (EV) and value of new business (VONB).
- The Q&A session concluded with no further questions.
AIA Group's interim results reflect a strong performance across its key markets, with particular emphasis on growth in China and India. The company's strategic focus on targeting higher-income customer segments and expanding its agency force has contributed to its positive outlook. While there are uncertainties, such as potential regulatory changes in India, AIA Group's proactive approach to product diversification and capital management positions it favorably for future growth. The full impact of these strategies and the company's capital allocation will be further clarified in the full-year results announcement next March.
InvestingPro Insights
AIA Group Limited (AAGIY) has demonstrated a commitment to shareholder returns, as evidenced by its impressive streak of raising dividends for 14 consecutive years. This consistency in dividend payments underscores the company's financial stability and dedication to rewarding its investors. For those interested in dividend reliability and growth, AAGIY presents a noteworthy option, with a current dividend yield of 4.86% as of the latest data.
However, the company's high P/E ratio, currently standing at 15.2, suggests that its stock may be trading at a premium relative to near-term earnings growth. This could indicate that investors are expecting higher future earnings or are willing to pay a premium for the company's quality and stability. For a more detailed analysis, investors can find additional InvestingPro Tips on AAGIY at https://www.investing.com/pro/AAGIY.
Investors should also note that analysts are predicting a sales decline in the current year, which may warrant a closer examination of the company's growth strategy and market dynamics. Despite these concerns, AAGIY's liquid assets exceed its short-term obligations, which is a positive sign of the company's liquidity and its ability to meet immediate financial obligations.
For those considering AIA Group Limited as an investment, it's important to consider these InvestingPro Insights alongside the company's recent interim results and growth strategy. With additional InvestingPro Tips available, investors can gain a more comprehensive understanding of AAGIY's financial health and market position.
Full transcript - AIA Group Ltd ADR (AAGIY) Q2 2024:
Lance Burbidge: Good morning from AIA Central in Hong Kong, and welcome to our 2024 Interim Results Analyst Briefing. I'm Lance Burbidge, Chief Investor Relations Officer for the AIA Group. With me on stage, I have Lee Yuan Siong, our Group Chief Executive and President; Garth Jones, our group Chief Financial Officer; and our 3 Regional Chief Executives: Jacky, Hak-Leh and Leo. Also in the room, I have other members of our Executive Committee, who can answer questions in case needed. With that, I will move over to our operator and open to questions.
Operator: [Operator Instructions] Our first question comes from Charles Zhou of UBS.
Charles Zhou: Congratulations. I think it's a very strong set of results, not only about the value of new business, we are also glad to see 10% growth per share CR basis for OPAT and also the USFG. So I have 3 questions. The first question is related to OPAT and USFG, 10% growth CR per share basis in the first half. So what are the reasons and drivers behind? And I think for the first time, AIA also, we're glad to see that you provide us a double-digit guidance for the OPAT, 9% to 11% for the next 3 years. Can you maybe walk us through the drivers behind? And do you have any USFG guidance? That's the first question. Second question is related to China. I think previously, you said you have a target of 1 new branch per year, to open a new branch. Now it's already late August. Do we have any update for this year of new branch opening? And third question, we know in China, we are seeing falling rates. Equity market is also very challenging, macro environment is very challenging in Mainland China. How are you going to deal with this? Can you maybe answer it from both asset and liability? And if possible, can you also maybe give us some sensitivities or quantified impact?
Lee Yuan Siong: Okay. Thank you, Charles, for your question. I'll just kick off by saying, as you know, we are a long-term business. Each year, we write profitable new business and this new business generates future streams of earnings, which is very predictable. And actually add on profitable new business each year. We add on new layers of future earnings, and that actually is the primary driver of earnings growth. I'll hand over to Garth to talk about it in more detail.
Garth Jones: Yes. Thanks for the question, Charles, and thanks for the congratulations. Again, a very strong performance, as you noted. We're very pleased with the performance, strong new business growth translating into earnings growth and UFSG growth, as you can see. As Yuan Siong just mentioned, the primary driver is the new business growth. You see that coming through the new business CSM that's been added, again, a substantial addition in the first half. and active management of the in-force book to ensure that the assumptions actually occur in practicing. Again, you saw positive variances in the first half that reflect that. I think the target reflects our confidence in the future and our confidence to deliver new business and to manage the in-force portfolio. If you look forward, we set a target of 9% to 11%. I should stress the 11% isn't a cap. And I should also stress that it also includes allowance for the BEPS 2.0, the global minimum tax, at the illustrated level that we've shown today. So with that, I think the UFSG drivers are similar. Obviously, UFSG reflects a shareholders' view and is free surplus generation, it's not earnings, but the drivers are similar new business and management of the in-force. And I think the slides we've shown you will give you some guidance as to how you might project that going forward.
Lee Yuan Siong: On your second question on the China new territories, I'd like to just say that I'm very pleased with the progress that we are making in terms of the performance of the new geographies that we entered. In fact, this year, I have visited Tianjin, I visited Seichuan, I visited Hubei province. And I'm very encouraged by what I saw. I think they are making very good progress in terms of growing the agency force. As for the progress with regards to new licenses, I'll hand over to Jacky.
Jacky Chan: Thank you, Yuan Siong. And Charles, I just want to begin by saying that we are very pleased with AIA China's very strong performance in the first half, 36% VONB growth. And the growth is broad-based across both existing and new geographies, we opened since year 2020, and across both agency and bancassurance channel as well as across both traditional protection and long-term savings products. And the reason why we are able to deliver strong growth in view of this, as you said, economic challenge in China, is because we focus on the middle income and above customer segment, and we have a differentiated premier professional agency force and the underlying driver of our agency. You see 11% growth in the number of active agents. We continue to grow our recruitment by 26%. And even our total agency manpower has grown in the first half. And as to the new geographies, the growth of 44% VONB is supported by 37% growth in number of active agents. We continue to have dialogue with the regulators in both Beijing and also the provincial bureau that we would like to open new license. And we are happy to say that the discussion has been very positive, and we continue to expect 1 or 2 new provincial license in a year.
Lee Yuan Siong: Yes. On your third question about the China interest rates and the macro environment, I'd just like to emphasize the fact that we've been in the region for more than 100 years. We have grown and built our business in the various markets and we have operated through many economic cycles. So managing the asset and liability is something that we do as part of our business. I'll hand over to Garth to talk more about how we are handling the asset and liability situation.
Garth Jones: Thanks, Yuan Siong, thanks for the question, Charles. I think, obviously, we match our assets and liabilities as close as we can. That's part of our active A&L management. And when we look at the assets, the first thing we look at is the liabilities. We see that our assets are predominantly in government bonds and predominantly in long government bonds. And that means our assets and liabilities are matched as closely as it can be. And you see that in the embedded value sensitivities that we gave out earlier with just a 1% reduction if we move to spot. And if we move the rates down by 50 basis points, then you see a 4% reduction in the embedded value. I think that reflects the A&L management. On an ongoing basis, we obviously reprice and redesign our products. And as interest rates have come down in China, we have positioned the portfolio more towards participating products, in anticipation that if they move lower, we will again move more into participating products than the current product range.
Lance Burbidge: Thanks, Garth. And Charles, does that answer your questions?
Charles Zhou: Yes.
Operator: The next question comes from Thomas Wang of Goldman Sachs (NYSE:GS).
Thomas Wang: A few questions from me. I think, firstly, on the OPAT per share target. So it's great to see management providing more medium-term target. Just want to clarify, how much sort of buyback and share count reduction have been reflected in that target? If we can sort of simply have maybe an OPAT growth CAGR, what's the underlying assumption of OPAT growth CAGR -- underlying that OPAT per share CAGR target? And secondly, on the CSM movements, what we see, there is a change in the new business CSM to [indiscernible] value multiple. So I think that comes down to roughly 1.5, 1.6 versus previous. I think a couple of years back at 1.9. I just want to get a sense of where this should land if we think about, say, 2 or 3 years down the line?
Lee Yuan Siong: Yes, Garth?
Garth Jones: Yes. Yes, thanks. As far as the OPAT, we said the target was a per share CAGR. The reason for that, Thomas, is that part of the earnings is the earnings on the surplus capital. We will, obviously, as we go forward, following our new capital management policy, be providing returns to shareholders, both through dividends and through buybacks, and we will look at the position in terms of our shareholder capital ratio and so on, on an ongoing basis. So by using a per share metric, we're saying that, well, if we use the capital to buy back more shares, then clearly, the OPAT itself will reduce by the investment on that capital that per share will increase. So that's the reason for that. On the CSM, the new business CSM, again, as I said earlier, one is an earnings metric, one is a shareholder value metric and reflects not only the surplus that will be generated from the business but also the cost of the capital, full expenses and so on and uses much higher discount rates than the IFRS earnings. So they are quite different. I think the critical thing is that they're both very positive. And you can see that the new business CSM has added considerably to the existing CSM. And as you mentioned, the new business CSM is far above the value of new business at 1.5x. I think it was Lance that said it should remain stable. It does vary like product and geography. But I think the critical thing is that the new business CSM will add to the existing CSM and that's obviously reflected in our target that we gave out today.
Lance Burbidge: Thanks, Garth. Any question, Thomas?
Thomas Wang: Yes. Just maybe if we can sort of get a sense of what's the driver of the changes year-on-year on that new business sales, just the VONB multiple. As you said, it's product mix. Which geography or which product segment that was driving that change?
Garth Jones: Yes, there are a sort of variety of factors within that, Thomas. It's perhaps easier to talk to Lance off-line about more of the detail. For example, if you look at the power and non-power products in China, they'll have different ratios and so on. So I think it's one of those things where it's better to look at it holistically and say, well, how does it look holistically and not lose sight of the bigger picture.
Lance Burbidge: Okay. Thanks, Thomas.
Operator: The next question comes from MW Kim of JPMorgan (NYSE:JPM).
MW Kim: Congratulations on the very good results. I have two questions. One is about India. So as the company communicated, relatively weaker. The India new business value growth in first half was due to the last year's high base. That said, the business looks very big scare. If the India government would allow the company license in the foreseeable future, how would we think about the product margin outlook in India operation? And also would you share the possible timeline of a separate India business disclosure, please? The next question is about the CSM. If we assume that the bond yield starts to decline from here, would we have potentially the lower new business CSM margin multiple, especially for the whole life? And also under such a big and good new business CSM growth, is it reasonable to assume luckily the mid-single digit, the CSM balance growth outlook in the next few years?
Lee Yuan Siong: Thank you for your question on India. India is obviously one of our growth engines, it's an exciting opportunity, a very large market. We have strong presence. The business is performing very well. Our partnership with TATA, I think the relationship is excellent. We have a very high-quality business where the persistency impact is market-leading, and we are #3 in terms of the private insurance in India. So I'll hand over to Leo to talk about India a bit more.
Leo Grepin: MW, thanks for your question on India. As Yuan Siong mentioned, the momentum is strong in India. If you look at the period April to June, following our one lag reported first half, which really covers October until March, where last year, we had a strong first quarter because of a change in tax regulation in India. We had comparable very strong last year. But the latest quarter that you've seen reported through industry disclosures was very strong, and TATA AIA was stronger than industry. So we see -- we continue to see very strong momentum, in particular, from our agency and then our strengthening partnership distribution partnerships. For example, we expanded IDFC and then added 2 new banca partnerships, so strong momentum. In terms of how this translates, if there's a change in regulation with the allowance of a composite license. I think there's still a lot of details to be figured out. This potential composite license has been in discussions now for a couple of years and has not come up yet for -- it's not been approved yet. The details of it also are changing quite a bit. So I think it's too early to really prognosticate on the impact that this would have on the industry dynamics or potential profit margins across the industry.
Lee Yuan Siong: Garth, on the CSM question.
Garth Jones: Yes. On the CSM question, thanks, MW. I think I'd refer you to the financial and operating review, which has the sensitivities in for interest rate movements. For the non-participating business, that's largely locked in at issue. And then for the participating business, that flows through the CSM and is amortized. So you can see the sensitivities are small. As far as new business, clearly, we reprice and while the market consistent basis of the IFRS basis is more market consistent than the value of new business. Over time, that will fluctuate out. So I think the sensitivities are small is the key thing to think about. And new business, we can reprice and redesign and so on. And for India, I think it's a case of when it's big enough, so my challenge to Leo is to make it big enough.
Lance Burbidge: Thanks, MW. Does that answer the question?
MW Kim: Yes.
Lance Burbidge: Thank you.
Operator: The next question comes from Kailesh Mistry of HSBC. Kailesh, we cannot hear you.
Kailesh Mistry: There we go. Is that better?
Lance Burbidge: Yes.
Kailesh Mistry: Thank you also for the additional disclosure on free surplus disclosure on Slide 31 and 32. So I just wanted to clarify a couple of points. I guess just on the expected return, the base for that is the $14.5 billion free surplus plus $12 billion of medium term notes. On the diversification benefit, has that always trended around that $400 million number? Or how has it grown historically, just so I can think about how that goes forward. Operating variances, are they consistent with the EV operating variances? And then on Slide 32, the cash generation from the new business, I think, is the $3.4 billion number. Should we assume that breaks down into the 5-year bucket the same as the in-force for our projections? Secondly, moving on to OPAT. Obviously, the target is welcome. Just wanted to understand is the interest rate assumption as interest rates currently are? Or are you assuming something different in setting that target? So yes, those two, please?
Lee Yuan Siong: Garth, I guess, a question for you.
Garth Jones: If I can remember all. Yes, the expected return on free surplus and assets backing MTNs is indeed as it says on the term. Now the diversification benefit from new business, that's something that occurs every year as we write new business, and it's broadly been similar to the value of new business. It clearly varies by product and by market, but it's been broadly similar to value of new business growth. For the rest of it, you asked about variances. Variances were similar, yes, I think, 0.3. They're still with -- it's EV, consistent with the EV and UFSG, they are effectively both on the same basis. And in terms of the buckets, I think you'll see each year how that adds going forward. And I think the critical thing here is that we've illustrated the DE from the in-force is relatively stable. And I think that's important.
Lee Yuan Siong: And the interest rate assumption on the OPAT target.
Garth Jones: Yes. Obviously, it's framed in the current environment, but we have run a range of scenarios going forward, and we remain confident that the target that we've set can be met.
Lance Burbidge: Does that answer everything, Kailesh? Or did we miss something?
Kailesh Mistry: I think you answered it. I had one more that I forgot to ask, which is on the Hong Kong business. I guess two things. Firstly, I think it's the only one, if I haven't missed it, where you haven't talked about active agent growth or not. So if you could update us on that, that would be great. Secondly, on the offshore business, was the second quarter greater than the first quarter, which was greater than the quarters in the second half of last year, I think. And could you just update us on case sizes and protection versus savings mix, I think?
Lee Yuan Siong: Yes. I'll hand over to Jacky to talk about Hong Kong, but I just want to start by saying that I'm very pleased with the performance in Hong Kong because we saw very strong growth both from domestic and MCV segments.
Jacky Chan: Thank you, Yuan Siong. In fact, the Hong Kong growth is also driven by a very strong fundamentals of the Premier Agency in Hong Kong. Number of active agent growth and our new record also grew by 19%, so adding more active manpower to both domestic and the MCV customer segment. And as to the MCV, as you talked about on the second quarter, AIA Hong Kong have quarter-to-quarter growth, Q2 over last year Q2, double digit growth in VONB. And we continue to see a strong demand from the MCV customers. And in fact, our MCV customer number, new business in the first half continued to have a double-digit growth compared to last year first half. So we continue to see that strong demand of MCV offshore coming to Hong Kong remain unchanged.
Lance Burbidge: Thanks, Jacky. Thanks, Kailesh, for the questions.
Operator: The next question comes from Richard Xu of Morgan Stanley (NYSE:MS).
Richard Xu: Two questions from me. One is on China. Could you talk a little bit about the agent recruiting trends? Is the current environment actually better for agent recruitment given some of the challenges in China labor market at the moment? And what are the future plans? And then also on China, the product mix, could you talk a little bit on that as well? I mean it seems like both agents and products are the key contribution for the very impressive growth in China. So a little bit more color on that will be very helpful. And then secondly, on the other markets, you talk a little bit about India. [indiscernible] clearly as a whole, it was lagging other markets. Any outlook on that? And for example, Vietnam or other markets, will we see, in addition to India, what will they be rebounds in other markets?
Lee Yuan Siong: Yes. I'll hand over to Jacky to talk about the China recruitment and product mix. Like I say, after I visited China frequently and have many interactions with the local management plus the agency force. Very happy with the quality of the agency force. I think in terms of the quality of the recruitment, we are really very selective even in the new geographies, it was commented to me by external parties that we recruit agents as rigorous -- that the recruitment process for the new agent is as rigorous as the recruitment for full time employee in AIA.
Jacky Chan: Yes. Thank you, Yuan Siong. I just want to reiterate this because the differentiation of AIA China is really our premier full-time professional agency force. So as you say, oh, now it's a big economic challenge in Mainland China, but we continue to be highly selective or the new agent has to go through at least 3 rounds of interviews. And right now, our new recruit has growth of 26%, and in fact, more than 94% of those are new recruits. They have a college degree or above. So we really continue to focusing on increasing our quality and premium agent. And that's why you can see that we continue to drive a very strong growth of active agent from both the new recruit and also the existing agent. And as to the product, that is also closely related to our Premier Agency because we are targeting the middle income above customer segment, which more resilient under this so-called economic challenge environment. And in terms of the product mix, you can also see that in first half this year, we also diversify more towards participating product. And our Premier Agency is more than capable of able to explain this more complicated participating product to the customers. So in the first half, you can see that our product mix, as I said, we have double-digit growth on our traditional protection products as well as very strong growth from the long-term saving product. And as for the long-term saving product, we have diversified with participating long-term saving products. And our Premier Agency force also continued to sell quite a bit of those tax deductible personal pension benefit in the first half. That kind of retirement and personal pension benefit saving plan made up of roughly 25% of our new business in the first half. And I just want to let you know, in fact, in July this year, we continue to launch new products, which are tax deductible, which is a very welcome tax-deductible long-term care product, which in effect is a more [indiscernible] product. So this really reflects how our Premier Agency force targeting the affluent customer segment work very well in the current situation.
Lee Yuan Siong: On other markets, I think Leo explained just now about the temporary fluctuation to the strong growth in India as a result of the very high base in January to March last year due to the tax changes. But if you take out India, other markets actually grew by 21%. We all know in the past, we've talked about the challenges that in the Vietnam market, but we've seen good recovery momentum in our Vietnam market. At the same time, we are very pleased with the fact that we were able to extend our bancassurance partnership with BCA in Indonesia to 2038. So very encouraged by the performance of other markets. And as I said, India is a temporary fluctuation in the growth. That's very specific to India, yes.
Lance Burbidge: Thanks, Yuan Siong. Did That get all the questions you had there, Richard?
Richard Xu: Yes.
Operator: The next question comes from Michelle Ma of Citi.
Michelle Ma: Big congrats on the results with literally no weakness on this set of results. I have two questions here. It's about Singapore and Thailand. For Singapore, actually, that's a true surprise for me, very strong growth of 27%. And as mentioned, the growth can be attributable to the growing wealth opportunities. So could you shed more light on this? So I wonder whether this very strong growth, whether there is any like one-off reason behind this or you are seeing a very sustainable drivers. What kind of on the ground observation do you have so that you can share with us on these wealth opportunities you mentioned? And second on Thailand. So Thailand has experienced -- margin expansion with -- a product mix shift towards higher margin products. But I think this year, we noticed China economy actually, the growth has been a little bit soft. And also, we noticed the political turmoil taking place in the third quarter. So also on the ground, have you observed any change of like product demand because of the economic development? Or is there anything like the political turmoil can deter the business done by agents, especially in the Bangkok area?
Lee Yuan Siong: Okay. Thank you, Michelle. I'll let Hak-Leh talk about Singapore and Thailand in more detail, but I'd just like to say that as a Singaporean, I'm very proud of the performance of AIA Singapore. Now we have a great franchise in Singapore. We have an excellent, very professional agency force. And as I mentioned in my speech, 1 in 4 agents in Singapore are MDRT qualified. It shows the high levels of productivity and professionalism of our agency force in Singapore, and that really underpins the strong performance in Singapore. As for Thailand, I think it is -- after many, many -- I think really the foundation for our performance in Thailand many, many years of hard work to reform the agency force. If you -- you may recall 10 years ago, we started this process to reform and professionalize the agency force in Thailand to introduce the FA program to -- and after many, many years of hard work is beginning to pay dividends. So I'll hand over to Hak-Leh.
Hak Leh Tan: Thank you, Yuan Siong. Thanks, Michelle, for the questions. Let me start with Singapore. Yes, we are very pleased with the excellent performance of Singapore, 27% VONB growth. I stress that the growth was broad-based, across multiple channels and all key product lines. We have a strong agency force, as Yuan Siong mentioned. VONB agency was up 31% from both increase in productivity as well as manpower. Now Agency force in Singapore is very well supported by our superior ecosystem as well as very compelling competitive product propositions. From a product standpoint, the traditional protection business, which has been a key area of focus for us, continued to grow strongly in the first half, up 18%, and the long-term savings business delivered outstanding performance of 35% in the first half driven by the success of our bespoke long-term savings products for the affluent and high net worth individuals in Singapore. And the product was backed by AIA's unique regional fund platform managed by [indiscernible]. So you will see that while the excellent growth of long-term savings in Singapore lowered the overall portfolio margin -- portfolio VONB margin, the growth has actually contributed significantly to the overall VONB growth, which has always been our key focus area. We continue to strengthen our competitive edge in serving the high net worth and affluent segment in Singapore, both [indiscernible] offshore. April this year we introduced first of its kind, AIA international wealth, AIA wealth center in Singapore as well as continue to strengthen our differentiated customer focus driven by our AIA Altitude. So with our market-leading agency force and our expertise in product manufacturing capabilities as well as our superior ecosystem, we are optimistic. We are confident that AIA Singapore is well placed to capitalize on the future growth, especially from the rapidly emerging affluent and high net worth segments. Hope that answers your question. In Thailand, again, as Yuan Siong mentioned, we have a market-leading agency force. Our agency force in Thailand has close to 45% of the market share of the agency segment of the entire industry, also a massive progress built upon multiple years of hard work. We are very to see our FA programs continue to deliver excellent growth in first half this year, grew by 33%. And from the product mix standpoint, we are the market leader in most key products. We're #1 unit linked, #1 in health insurance, #1 in a whole range of protection drivers. We do not see the any major shift in product demand. We believe Protection remains highly relevant to the large majority of the Thai population, the large majority of our customers. And the bulk of our customers are the middle class member. And because of that, the affordability for purchasing value for money, the Protection policies from us that remain high. And of course, we've been in Thailand for 86, 87 years. We have managed our business through multiple cycles of both economic and political turmoils and changes. So I would say in summary, with the strength that we have in Thailand, we remain very confident of the future growth opportunity and our ability to capitalize on them.
Lee Yuan Siong: Thank you, Hak-Leh. One point about Singapore, yes, we saw a strong demand for long-term savings products in Singapore. I'd like to highlight the fact that 2/3 of the long-term savings products is unit-linked and the remaining is participating policies. And on Thailand, I think the near-term economic challenges does not distract from the long-term attractiveness of the Thai market, the drivers for growth for the market that makes Thailand a highly attractive market for AIA remains intact. The growing -- young growing population, the large Protection gap, increasing savings, all that continue to make us pretty excited about the prospects in Thailand, yes.
Lance Burbidge: Did you have a follow-up there, Michelle?
Michelle Ma: Yes. Very clear. May I follow-up on the split of Singapore business onshore versus offshore?
Hak Leh Tan: Thanks, Michelle. The large majority of our business in Singapore are still onshore business, although we are seeing the increasing contribution from offshore, capitalizing on Singapore status as very important financial hub for the region.
Michelle Ma: And can we say more than 90%?
Hak Leh Tan: I would say the large majority.
Lance Burbidge: Good try, Michelle.
Operator: The next question comes from Michael Chang of CGS-CIMB.
Michael Chang: Can you hear me?
Lee Yuan Siong: Yes, we can now.
Michael Chang: It's Michael Chang. First question I had relates to the Hong Kong business. It's a very impressive result for the first half. But maybe could you shed some light on a quarterly basis because the first quarter was up 45% -- first half was up 26%. In terms of forecasting, I just like to understand the quarterly year-on-year growth rates. And related to that, if I take a look at domestic, domestic is extremely strong, up 28% year-on-year faster than the MCV portion of 24%. Can you maybe shed some light on what's driving the domestic Hong Kong business growth in terms of productivity, products and the like? Second question relates to the CSM movement. So I noticed that the CSM movement, you had a negative variance of $172 million in the first half. The reason given was higher U.S. rates. And then if I take a look at the CSM sensitivity to a 50 basis points fall in interest rates, it seems to be positive at 0.8%. So maybe you can just shed some light in terms of, say, if U.S. rates fall going forward, is that possibly or negative? And then maybe lastly, on the Mainland China business. It's a very impressive result. Could you shed some light on the bancassurance outlook, what kind of growth rates was that delivering in the first half. It's now a very material, 16% of VONB. And maybe somewhat related to that, the product mix because I see that the traditional protection mix for VONB in the first half was actually 45%, and that was actually higher than the second half last year of 39%. So it seems that the protection demand is not really falling away in the current environment. It's quite resilient. Could you maybe shed some light on that?
Lee Yuan Siong: Jacky, on Hong Kong?
Jacky Chan: Yes. We want to say that we are pleased with AIA Hong Kong's strong growth across both domestic and MCV customer segment. So it is not just MCV, it's both customer segment. And I want to say that last year, Q1, the border just opened somehow in February. So last year, Q1 was competitively a lower base and therefore our Q1 this year growth is much higher than the Q2 growth on year-on-year basis. But we still have quarter 2, as I said, is a double-digit growth compared to last year Q2. And last year, Q2 was a strong base because a bit of the so-called pent-up demand of MCV after the quarter open. And you also see that we have, this year, Q1 to Q2, we also have a quarter-to-quarter growth. And we remain very positive about the outlook of AIA Hong Kong because we continue to see that this growth are driven by the strong underlying -- the increase in number of active agents, increase in the agency recruitment, which will continue to drive that sustainable business going forward.
Lee Yuan Siong: Yes. And I think also, I'd like to point out the fact that we don't actually manage our business on a quarterly basis. So very pleased that the performance in the first half from Hong Kong and from the rest of the business. On MCV, you can also point to the fact that more and more cities are being allowed to have more freedom to travel to Hong Kong from the Mainland. Now on the CSM, Garth?
Garth Jones: Yes. Firstly, just to say, Michael, I mean, obviously, $172 million is very small. So it's a small number in a big CSM. There is some of the movement in the path, and resulting from interest rates will get put into the CSM. But clearly, it's amortized by the release of the CSM. So that's what you see here.
Lee Yuan Siong: On China bancassurance, our strategy is very differentiated. We are focused on working with a very selective number of banks, and we are very focused working with them to sell to their affluent customers of these banks as we demonstrated in our presentation. Jacky?
Jacky Chan: Yes. And in Mainland China, our bancassurance is really differentiated. So we are focusing on those really affluent and high net worth customer segment. You can see that the average case size is pretty large. It is USD 19,000 average case size. And the product mix basically mostly long-term saving product and also some of the long-term protection products. And as you also point out, as a whole, our AIA China product mix, we will continue to see a strong growth in the traditional protection products which are mostly driven by our agency force.
Lance Burbidge: Thanks, Jacky. I think we have 1 question left in the queue.
Operator: The last question comes from Edwin Liu of CLSA.
Edwin Liu: I'm Edwin from CLSA. Maybe three questions from me. Firstly, just to follow up on previous analyst question, and let's double click on the Hong Kong domestic market because the growth is quite impressive at 28%. I know from a supply side perspective, we know there's growth in agents and growth in productivity. But just could you share from a demand side perspective, from a customer perspective, any factors to drive such a high growth? So that's my first question on Hong Kong domestic market. Second question, just on share buyback. Previously, I think you mentioned the enhanced capital management framework, but just to ask is the share price -- the current share price factor when you consider your capital management? So I think you mentioned you will consider your business needs, the current capital level, but I guess when will we expect that the current share price would be another important factor when you consider capital return? Last question, given the new accounting, just curious from a management perspective, any suggestion for the investment community how we should value AIA going forward, still on price to EV or maybe we could change to price learning, price book or use CSM matrix, et cetera?
Lee Yuan Siong: Yes. Jacky, I'll hand over to you to talk about Hong Kong domestic customer demand. What I found coming to Hong Kong is the Hong Kong people like to buy insurance.
Jacky Chan: Yes, certainly. And I want to say that the protection gap in the domestic Hong Kong business remain value back, remain unfulfilled. And you also know that Hong Kong is also a fast aging population. Therefore, the demand for long-term saving, retirement and medical health insurance is back. I also want to add one thing because I have been talking about this too many analysts about this. You can see that the Hong Kong population actually is growing. And why? Because we have new Hong Kong people adding to the Hong Kong population. And I let you know, we also track that. In a way, we may call them the new Hong Kong-ers. And now the Hong Kong government is really encouraging more of the migrants coming to Hong Kong. For example, top talent path scheme, quality migrants scheme, and there are also many college graduates coming from overseas. They can make stay in Hong Kong. And this is actually adding to this Hong Kong population. I can tell you, we do track this Hong Kong as a percentage of our new business in domestic. And I'd just let you know they make up something like now is double digit of our domestic new business. So I continue to see a very, very strong demand to grow their domestic customer segment.
Garth Jones: On share buyback, I think quiet rightly, Edwin, when you looked at our capital management framework, it's about capital management, which we need for the balance sheet and how much net free surplus generation we have. We'll come back to you and talk more about that in March next year when we have the full year results, yes.
Lee Yuan Siong: And the final question?
Garth Jones: What was the final question, again, I lost it?
Lee Yuan Siong: As you know, as I explained before, our business is about writing profitable new business, growing our VONB, which [indiscernible] growth which translates to a surplus that's distributable to shareholders. And obviously, there's -- as we have demonstrated, there's a link from growing new business to increasing operating earnings. So I think internally, we really look at the EV and VONB metric as the key drivers of the value of the business.
Garth Jones: Yes. No, I'd agree with that, Yuan Siong. Edwin, we think that the embedded value is a better reflection of the value to shareholders ultimately. It's based on distributable earnings that emerge over time and the value of the business we add each year. I think what the target does is give confidence that, that will flow into earnings growth. And again, the capital management program shows how that VONB will eventually turn into cash and we return to shareholders either through dividends or through share buybacks. So embedded value is the key.
Lance Burbidge: Thanks, Garth. Does that answer the question, Edwin?
Edwin Liu: Yes.
Lance Burbidge: Great. Thank you.
Operator: We don't have any more questions from the participants. I will now pass it back to Lance to conclude the session.
Lance Burbidge: Thank you. Thanks, everyone, for watching. And thanks, everyone, for participating, that asked questions. Obviously, Investor Relations are available to answer any follow-up questions. And thank you very much.
Operator: Ladies and gentlemen, this concludes AIA's 2024 interim results Q&A session. Thank you for your participation.
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