Good morning. Welcome to AIA 2022 annual results Q&A. I'm Fion Li, Director of Investor Relations for AIA Group. Today with me in Hong Kong are Lee Yuan Siong, our Group Chief Executive Officer and President, and Garth Jones, our Group Chief Financial Officer. We also have our regional chief executives and other members of our group executive committee with us in the room. I hope you have had a chance to watch the video presentation, which we post to our corporate website earlier this morning. Before we start our Q&A, Yuan Siong would make some opening remarks. Yuan Siong, please.
Thank you, Fion. Good morning from Hong Kong and welcome. AIA has delivered a resilient performance with new business momentum improving strongly in the second half of 2022, as the effects of the initial Omicron wave subsided and normal activities resumed. VONB for the group was up by 6% in the second half with positive growth in all our five largest markets. VONB exceeded $3 billion for the full year, and EV Equity was $77 billion, before returning more than $5.8 billion to shareholders through dividends and our share buyback. Our large and growing in-force portfolio supported increased operating profit after tax, and the group's capital position remained very strong despite significant capital market volatility. Free surplus was substantially higher at $23.7 billion before dividends and buyback.
The board has declared an increase of 5% in the final dividend, bringing the total dividend for the year to HKD 153.68 cents per share , up 5.3%. In Mainland China, we saw a return of double-digit VONB growth in the second half of 2022, before COVID-19 restrictions infections affected sales in December. Cases subsided, we have seen new business recover and a return to positive VONB growth in the first two months of 2023. In Hong Kong, VONB was up compared with 2021. We achieved growth across all distribution channels and Mainland Chinese visitor business more than tripled in 2022, and strong momentum has continued into the first two months of 2023.
ASEAN is a major driver of growth for the group. In 2022 accounted for 44% of total VONB. Our markets returned to strong growth in the second half with broad-based performances across Thailand, Singapore, Malaysia, and the Philippines. Our joint venture with Tata AIA in India continued its excellent track record with VONB up by 52% in 2022. In summary, AIA's multiple engines of growth combined with our unmatched financial flexibility has resulted in a strong recovery and ensures AIA is exceptionally well-placed as Asia rapidly opens up for further growth. Over to you for questions. Thank you.
Thank you, Yuan Siong. We now begin our Q&A session. Over to you, operator.
If you wish to ask a question, you need to make sure that you are logged in to the Zoom webinar. Please click the hand-raising button and wait for your name to be announced. After I call your name, please press the Unmute button shown on your screen and ask your question. If at any time you need to cancel your request, please unclick the hand-raising button. Let's proceed. Our first question comes from MW Kim of J.P. Morgan Securities. M.W, please press the Unmute button shown on your screen and ask your question.
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Yeah. Thank you. This is M.W Kim from JP Morgan. I have two question. The first one is about. It's more the conceptual question, how to value your company moving forward. Thank you for sharing the CSM value over $55 billion as of January 22. As the financial numbers look clear to the economic capital on the IFRS 17, would it fair to say that AIA's comprehensive, the equity, which was $101 billion as of January 22, is better proxy measuring the corporate value of the in-force flow compared to the embedded value? That's my first question. The second one is about the India. It seems that the company is successfully building the big franchise in India.
Post the recent tax regulation change, we are observing the low valuation multiple for private insurance compared to the year ago. At this stage, I just wondering, what was the most challenging part to the increase the ownership in India? Thank you.
Yeah. Thanks, M.W. Yeah, clearly the IFRS 17 accounts are an improvement on the IFRS 4 accounts. The IFRS 4 accounts are noneconomic, as you know. On the IFRS 17 accounts, they're more economic. We continue to believe that the embedded value provides a better basis for looking at the valuation of the company, as it clearly reflects free surplus and the margins we have in our risk discount rates and so on for risk. That's where I'd point you in terms of valuation. I think on the India question, you know, we had good strong growth in India, 52% growth in VONB. We've seen that business go from strength to strength and is now number three in the market.
It's the leader in retail protection by a long way. We've seen actually in terms of the regulations, progressive regulations and I've just come back from India. Certainly the mood on the ground there is very positive. Clearly, there is some tax changes, but we believe fundamentally the basis for going forward in India is very bright. We have a growing middle-class population. We'll seek to do what we can to improve the penetration which is low in the market at present.
Just supplement on India. I think India is an exciting long-term opportunity for us. We have an outstanding partner in Tata, and we are fully aligned with our partners to take advantage of the opportunities that India presents to us together. You know, our joint venture, Tata AIA, has continued its excellent track record with VONB up by 52%. In fact, we are very happy with our ability to execute in this very highly attractive market. VONB has grown consistently and a very strong growth over the last five years in each and every one of the last five years, increasing by 3.5 times over this five-year period.
That demonstrates our ability to execute. We have the highest persistency, in terms of the quality of business, in India. I personally, I've visited India twice last year. I'm quite excited by what I see on the ground. Yeah. Thanks.
Thanks. Next question, please. The next question comes from Charles Zhou of Credit Suisse. Charles, please press the mute button shown on your screen and ask your question.
Okay, can you hear me?
Yes, Charles.
Okay. Thank you. I have a two question. You know, I think we're very happy to see that you mentioned the MCV deliver positive, you know, strong momentum in, you know, in Hong Kong in the first two months. Could you please maybe give us a little bit more colors on, you know, how strong it is? I want to understand about the sustainability of your MCV business, maybe from two from three perspective. First is about the deposit rate. As you know, the expected return for insurance product is about maybe 5%-6%. When deposit rate is about 1%-2%, I think it's quite competitive. In the current environment, where bank already offers 3%-4%, how do you see, you know, the competitiveness?
Secondly, we also know that the overall capital market was quite challenging last year, and also probably will continue to do so. On the asset side, it probably will be difficult for insurance company to generate decent return. How do you see going forward from a fulfillment ratio that you see to make sure that your product remain to be very competitive and your customers is satisfied? As third perspective is, can we talk about the capital control for the MCV? How do you see this? Also I would like to understand maybe how much is from the general size policy and how much stay below $5,000 for the MCV so far that you observe.
My second question is about Mainland China. I think, you know, you received a regulatory approval to establish Henan branch in May, I think, last year. Can you maybe share with us, like, how is the progress so far for Henan branch, and what's your plan, you know, going forward to open new branch in China? Is this still, like, one branch per year? Thank you.
Okay. I hand over to Jacky to answer the questions on MCV. Maybe Gav can take the question about the asset performances, and Jacky then to circle back on the China. Yes. Thanks.
Yeah. Thank you, Yuan Siong. Thank you, Charles. Let me give you some more highlight on the MCV momentum in Hong Kong and Macau. As you have seen, in last year, 2022, our MCV business, mainly from Macau, triple compared to 2021. This momentum continued strongly in the first two months across Hong Kong and Macau. In terms of your sustainability question about our fee front, let me give you a highlight because here in Hong Kong and Macau, we focus on selling life and health insurance and long-term savings.
In our recent customer survey, you know, for mainland Chinese visitors, the interest remain very strong to come to Hong Kong to consider buying long-term life insurance, health insurance and long-term saving. The short-term deposit rate, we don't see is any impact on this purchase of long-term protection and long-term saving in Hong Kong and Macau. As to the fulfillment ratio, I will leave it to Gav. I will give you a slight highlight. You can see that we announced our fulfillment ratio year by year. In fact, I will also recommend you to look at our total cash value ratio. In fact, in the majority of our participating products, our total cash value ratio is over 90% in the past number of years.
In terms of the capital control, after that, I will pass it to Gav on the asset side. You know that mainland Chinese visitors has been a business in Hong Kong and Macau for almost two decades. AIA Hong Kong and Macau, we are very clear in our requirement in accepting the business. The mainland Chinese visitor has to come to Hong Kong and Macau in person. We see that majority, 95% of the MCV business, they are regular premium paying business, and the average premium size is roughly $1,000 per month. This remain unchanged.
We continue to apply a very stringent compliance requirement on all these MCV business, and we have control in place, and we are confident in the quality of our MCV business in Hong Kong and Macau. Let me pass to Gav on the asset side.
Thanks, Charles. I think, you know, the important thing to remember with our long-term savings products is they're long-term. Often policyholders will be with us for few years or more. The objective of our participating products in particular is to provide stable returns over the long run through a combination of dividends and terminal bonuses. Those obviously depend on a number of factors. Clearly, the market movements will be the greatest impact over time, and they will shape bonuses. We smooth those so that our policyholders don't need to worry about stock markets this week or next week. We're invested for the long term.
As people continue to pay their premiums each month, then we'll continue to invest those assets and take a long-term view and smooth the returns to policyholders, we believe. The returns are very attractive, and we aim to meet the reasonable expectations of our policyholders over time.
Let me take the second question on the Mainland China expansion. As we have even said in the past, we are aim at opening 1 to 2 new branch per year. In 2022, we are able to open our Hubei branch, and that was in January. At the same time, in 2022, we are able to upgrade our Tianjin and Shijiazhuang branch. We are also able to open our Hankou SSC in the Hubei. In fact, as to Henan, on last November, we just submitted our opening application to the Henan CBIRC Bureau .
we see that we are in fact, are making good progress in our expansion, in the new provinces and the cities, in Mainland China.
Thank you. Next question, please.
The next question comes from Thomas Wang of Goldman Sachs. Thomas, please press the unmute button shown on your screen and ask your question.
Thank you. Morning, everyone. Thomas Wang from Goldman Sachs. A couple question. Firstly, focusing on the MCV, we're seeing some of the banks talking about a very strong return of the mainland Chinese residents coming to Hong Kong, opening bank account, putting deposit. Also, you talk about strong momentum carrying into January and February. Just a little bit more color on how you're thinking versus, because bank are talking about versus 2018, 2019 levels, how do we think about that? Just on Jacky's comment, there, talk about average premiums, about $1,000 per month. That's what translates about $12,000 per annum.
I remember a few year back, we were talking about average ticket size from Mainland China visit was about $5,000 per annum. Has that been an increase in the average ticket size there? Then the second question is on the SSI. You know, we're seeing the... We have a large, so triple B corporate bond portfolio. Can you give a little bit color in terms of which industry that's... I'm assuming that's mostly U.S. dollar bond. A little bit more color on which industry or industry distribution for that portfolio. Then we talked about $100 million or so impairment since IPO. And just which industry, is there any sort of which industry was that impairment in? Thank you.
Okay, thank you. Again, I ask Jacky to answer this very popular question on MCV. Mark to take the question on the on our bond portfolio.
Thank you, Yuan Siong. On the average ticket size of MCV business, perhaps that HKD 5,000 is the number before the pandemic. It's almost three years ago. You may also imagine, as I just mentioned, that in our survey on the MCV customer, they are really interested to come to Hong Kong to buy long-term life and health and long-term saving product. Perhaps the demand is also pent up for a while. We still observe that this kind of premium size is still well within their capital control limit.
Now in terms of the MCV momentum, I want to give you some more highlight about our AIA Hong Kong and Macau readiness. In fact, we are fully ready. We have a robust plan. As you see, once the border open, you already see a big, big billboard across the MTR station across the border. Hong Kong and Macau well prepared for all this opening of the border. In terms of our agency force, we have about 6,800 MCV-focused agent, and this number is largely intact compared to 2018. Almost 75% of them, they have been with us before the pandemic, and we are able to recruit the new MCV-focused agent during the last three years. I'll give you more color.
In fact, almost 67% of these 6,800 MCV focused agent, they are active in last year. Making use of our Macau branch for referral business on MCV, as well as doing domestic business. Almost 50% of these 6,800 MCV focused agent, they were at least qualified as MDRT once in the last five years. We are really fully ready and able to capture the full potential of the return of the MCV business in Hong Kong and Macau.
Thomas, it's Mark Konyn here. Thank you for the question. Our bond portfolio is high quality. It's well diversified. We tend to invest across all sectors. We have a slight bias historically for sectors that issue long-dated bonds, given our liability structure. Over the last several years, and going forward probably, we are underweight those sectors that are more carbon intensive, given our ESG and climate objectives. Thank you.
Thank you. Next question, please. The next question comes from Kailesh Mistry of HSBC. Kailesh, please press unmute button shown on your screen and ask your question.
Hi. Good morning. Thank you for taking my questions. Few questions. The first one is on the expected return on the EV. This was lower than I'd been expecting. Reading through the comments, one of the reasons mentioned is higher unallocated expenses. Could you tell me what the dollar value of this is, and what activities it relates to? Because it's in the operating number, should I assume this is recurring going forward? So that's the first one. The second one is on China. On slide nine, sorry, slide six, if you put together January and February 2023, would the VONB growth be double-digit?
Also, can you make a comment on whether the business mix is now reverting back to pre-pandemic levels now, you know, face-to-face meetings are resuming, et cetera, et cetera. Then, No, that was it. Sorry. Go ahead.
Okay. thanks. I think the EV question goes to Gav, and the China question goes to Jacky.
Yeah. Thanks, Kailash. In terms of the unwind, there are three items that you should think about there. The first is the Hong Kong RBC. We obviously had an improvement in the embedded value because of the Hong Kong RBC, accelerating the recognition of future profits into free surplus, as we discussed at the half year. That has a lower unwind on the value of in-force as a result. Also in the second half, there would be a lower unwind because of the capital mark-to-market movement in the first half. If you look at the closing embedded value at the end of the first half, that would've given you some indication. The third is this increase in capitalized and allocated expenses.
One thing about our embedded value is that it accounts for every dollar of expense in the business, and fully reflects the present value of all unallocated expenses. We think this is a very prudent approach. We think it's conservative. Not everybody does this. What you'll see is that the value in the accounts was about $500 million. It's a one-off capitalization in that sense, and represents operating expenses that are expected to continue in the future, but are unallocated to the business. Most of those are related to our TDA, our technology, digital, and analytics additional headcount that we've put on.
Yeah. As to the China result in the January and February, I think, I need to bring you to the understanding that especially last year in 2022, since December, there is a redefinition of COVID-19 into a Class B, Category B, infectious disease. The country is under, I think, a widely spread of this Category B infectious disease, and this impact, yeah, in fact, continue from December to January, well before Chinese New Year or during Chinese New Year. You can imagine with this impact, many of the agent or customers, yeah, they are sick.
Therefore, you see that in January, which is a very important month, which is the biggest month of China, it was down because of that. You can see that February really has a very, very strong momentum because the Class B infectious disease really went through the whole country quickly, and people also quickly recover and business momentum resume to normal strongly. We can see that our agents are predominantly doing a lot of face-to-face meeting with the customers. The customers' intention and the need to have long-term life and health insurance and also long-term savings product actually come back very strongly.
We can see that, February really has a strong momentum. As a result, February plus January plus February combined, we return to positive growth. I would say this is a quite an unprecedented kind of result, showing the strength of our premium agency. I want to add a color about the product mix, as you also talk about. You also saw our strong in focusing on the protection sales. I have to be very proud to tell you that, AIA China launched a very innovative A whole life critical illness product launched in the Q4 of last year and that come up with a strong protection product growth in the fourth quarter. That continue in our jump start in January and February.
In fact, protection product in 2022 remain our largest contribution to VONB. Want to give you this favor about our continued focus on the protection mix product. Of course, you also know that as we already talked to you a few times ago, the attractiveness of long-term saving continue to come up strongly. Therefore, as a result, we are now seeing a more balanced mix of protection and long-term saving product.
I'll just supplement. I think, over the last three years of the pandemic, I have made it a point to visit China twice a year, for which I've had to spend many days in quarantine. It was all worth it. Just to say that, in the first two months of this year, I've already been back to mainland China twice. From what I see on the ground, there's a strong recovery in economic activity in China. Thanks.
Thank you. Next question, please.
The next question comes from Jenny Chang of Morgan Stanley. Jenny, please press the unmute button shown on your screen and ask your question.
Jenny, we can't hear you.
Jenny, you are unmute. You can speak now. I think we need to go to the next one. Jenny, please, hope you can come back later.
The next question comes from Edwin Liu of CLSA. Edwin, please unmute your mic and ask your question.
Hello, can you hear me?
Yes, Edwin.
Yeah. Thanks for taking my question. Two questions from me. First question is in terms of your partnership with PSBC in China. I know it's still early days, but can you give us some early indication in terms of what kind of margin you are generating? I think, in general, I think people expect that most likely you are mainly selling a savings type product from your channel at PSBC. It would be helpful if you can provide some color in terms of the, what kind of margin, in terms of your MB, that you can generate from that partnership. Just second question, a bit more technical. Thanks for the CSM disclosure. Very helpful.
I guess, I want to try to understand what kind of discount rate that you apply when you calculate your CSM. I guess the way to think about it is you would apply an illiquidity premium over the risk-free rate. I think similar to what you have provided for your risk premium when you disclose.
Hello? Hello?
Sorry.
Edwin, please continue.
Yeah, similar to what you have provided for your EV disclosure, you have provided a risk premium. Similarly for CSM, is it possible that you could provide some color in terms of what kind of illiquidity premium that you use? Sort of a blended one for our reference. Yeah. Thank you.
Okay. Jacky, if you could take the question on PSBC and gov, technical questions.
Yeah. Thank you, Yunxian. Yeah, we are very happy to be able to partner with PSBC, China Post Group Corporation. Yeah, they really has a very unique distribution, point of sales across mainland China, over 40,000 point of sales. In fact, we launched a number of product with our partnership with PSBC. We have short-term, we have a mid-term saving non-par product, and we have annuity, long-term saving annuity product, and we also have a high-end medical product together with increasing sum as well, whole life. you know, we are always very disciplined in our product and our financial and pricing.
In fact, we see that the bank insurance market in China is also coming back to generate more quality growth because the whole country direction is driving quality growth. We see the bank insurance is also coming to that terms, and we are very happy to continue to work with PSBC.
Thanks. You're quite right, Edwin. In terms of the discount rate we've used, the risk-free plus an illiquidity premium, that's considerably less than the risk premium we have in our embedded value. I think on the slides you'll see that there's a sort of indication of the impact of that to the difference between embedded value and the CSM effectively. We used a top-down approach and blended that in. We'll come back with more details, on the precise basis in June when we publish the full set of accounts for 2022.
Thank you. Next question, please.
The next question comes from Sam Tang of UBS. Sam, please press the unmute button shown on your screen and ask your question.
Hi, good morning. Can you hear me?
Yes, Sam, we can hear you.
Yeah. Thanks for taking my questions. Actually have two questions. The first one is on Malaysia. I noticed that there's a quite big margin increase in the in the Malaysia in the second half. I wanna just wonder what's the kind of a driver for that. The second question is on China. Just wondering what kind of indication of the newly announced, you know, on the regulatory side, the new regulatory body that announced a couple of days ago, and what kind of implications on the pace of, you know, new province expansion. Thanks.
Okay. Hang Li, can you take the Malaysia question?
Thanks, Lee Siong . Thanks, Sam, for the question. AIA Malaysia achieved a very strong growth in 2022, especially in the second half, where the VMB grew by 26%. In fact, the growth came from both the agency and PD channel , with greater focus on protection for both channels. Our agency channels growth for 2022, both in terms of VMB as well as new recruits, were actually substantially higher than the pre-COVID level, and that's a reflection of the successful execution of our agency transformation strategy in 2022, especially in the second half of 2022. Our agency force successfully increased the percentage of businesses from protection business, particularly CI and medical business, compared to the same period in the prior year.
Likewise, for our bancassurance partnership with the Public Bank, we achieved another year of very significant uplift in productivity, resulting in another excellent year in VONB growth. In 2022, the % of credit life business increased as a result of the increase in the overall banking activities. In addition to that, we also saw the non-lending book business from Public Bank increased significantly in 2022. Our success with Public Bank is a reflection of the close collaboration between the two organizations that enables to put in place a very structured sales generation program supported by some enhancement in the digital tools that we roll out last year.
Okay, on your question regarding the regulatory changes in Mainland China, I'd like to first start by saying that we have always have a very, very good relationship with the regulators in China and in other markets that we operate in. We engage in, you know, a lot of constructive dialogue with the regulators. I can say that AIA is very, very well regarded by the Chinese government. Now, in terms of the new regulatory agency, you know, it is still early days because it has just been announced. Based on my understanding, this new agency will take on the existing responsibilities of CBIRC and some additional responsibilities that will be transferred from PBOC and CSRC.
I think the thinking is to make this much more streamlined, much more efficient in terms of the regulation of the financial services industry. Just for example, one of the responsibilities that will be transferred from PBOC to the new agency is the supervision of financial holding groups like CITIC and Everbright and, you know, other financial services groups. Where in the past, these financial services groups were regulated by the PBOC, as opposed to, you know, financial services groups like Ping An Insurance Group, which was regulated by CBIRC. This obviously creates, you know, a requirement for coordination in the old structure when it comes to regulating financial services groups.
By bringing it together under one agency, it makes it much more streamlined. Like I said, it's still early days, as to, you know, you know, what the, you know, exact implications are and how this agency will perform and what it looks like. I think, you know, what I shared with you is based on my personal understanding. In terms of our geographical expansion plans for AIA China and our targets going forward, in terms of our expansion, I think, they remain unchanged. Yeah.
We will have Jenny Jiang from Morgan Stanley. Jenny, can you please see if you can ask the question now?
yes. Hi, everyone. Can you hear me now?
Yes. Thank you. Please go ahead.
Okay, great. The two parts of the question, one is more on China. I think I have a little bit of echo here. One is on China, whether we, you know, will see more material channel mix going forward, given, you know, China has some yield curve shift and we've done some expansion with China Post Life. I think some analysts asked about the product mix part, and we're a little bit shifting towards savings. It seems like bancassurance is really taking off in China. Would that be, you know, some new driver for China, say, five years down the road? We also, you know that China Post Life is doing very well. You know, how can we expanding the relationship with Postal Savings Bank of China to sort of helping AIA China to grow?
The second question is more on technology. AI seem to have made a very big breakthrough this year. Whether that, you know, will change our sort of strategic planning on our tech upgrade. I know we've done a lot, but is that enough? Are we doing, you know, fast enough? How we are gonna integrate this new AI technology into our business model or how we'll kind of, you know, tailor or adjust our business model to this sort of very different future technology. Those are the two questions. Thank you.
Thank you, Jenny. I'll let Jacky take the question on channel and products in China. Then Biswas, our Chief Technology Officer, will take the AI question. Thanks.
Thank you, Jun Zhao. For AIA China, our most differentiated premier agency remain the most important channel for AIA in Mainland China. As we continue to expand into new provinces, new cities, we will continue to focus on building a premier agency force. We believe this is our clear and core differentiation in the Mainland China market. Quality growth and using professional high quality agency to give a high quality advice to the customers is the key for success in Mainland China. We don't foresee, you know, a so-called big change in the material mix in our channel, et cetera. We are very happy to work with PSBC.
As I said, they have a unique POS outlet across Mainland China, and it is also complementary to our focus on premier agency on those affluent and above customer segment. As I said, AIA China continue to be very disciplined in our product pricing and financial, and we focus on long-term protection and long-term saving product. This is what I would like to let you know. In terms of product mix, I believe everyone also observed that nowadays, more and more Mainland Chinese customer, they really see that a long-term saving product is an alternative wealth management solution. We do see this is actually good for our life insurance industry in Mainland China, and especially for our AIA China.
As I said, we continue to drive the focus on protection. In fact, the penetration in Mainland China is still very low. We will continue to turn up with innovative proposition coupled up with our premier agency force. We believe, we'll continue to drive the very healthy, more balanced product mix across AIA China.
In terms of bancassurance, I just add that, you know, we will continue to be very selective in terms of our partnerships with banks. We want to find partners that are very aligned with us in terms of our the values. In terms of, you know, wanting to work with us for the long term. Yeah. We have extensive experience working with these kind of bank partners across all our markets. These partnerships have been very complementary to our, you know, premier agency strategy in all our Asian markets. Yeah.
Yeah.
Hi. Sorry. Thank you for your question. As you would have seen on slide 10, we've been the Digital Insurer of the Year for the 2nd year in running. You're right that we made fast strides in the last three years of our TDA program. As a part of this program, year and a half ago, we put in AIA's artificial intelligence strategy. As a part of this strategy, we continue to take a look at emerging technologies around areas of cognitive computing, natural language processing, and computer vision, including evolving technologies that are, that become available like ChatGPT, to look at the vast amounts of data that we have and further turbocharge our already maturing technology platform.
If you go back to slide 10, you'll see that we finished about 200 odd use cases last year on artificial intelligence and data analytics. What that's doing is turbocharging different areas of our business value chain from distribution to operations to finance to really build intelligence into these performing platforms. As we go forward into this journey, we almost think of it as being at the base camp. As more and more artificial intelligence technologies mature, in an ethical manner, we will continue to integrate that into our base technology stack and make sure that we use it to harness the power that is out there to fast-track our business propositions across the value chain. Thank you.
Thank you. Next question, please.
The next question comes from Michael Chang of CGS-CIMB Securities. Michael, please press the unmute button shown on your screen and ask your question.
Hi, can you hear me right now?
Yes, Michael.
Okay. Hi. I've got two questions. First one, again, back to MCV. Under MCV, I noticed that the broker channel, the IFA channel, did see quite strong growth last year, and there was specific mention of Hong Kong. Could you perhaps shed some light on the relative V or MV margin dynamics between the broker source MCV versus the agent source MCV?
Maybe related to that, the fact that you can refer from Hong Kong to Macau is a big strategic advantage. Maybe you can shed some light on the portion of the MCV business that was referred from Hong Kong last year, and the portion that actually came from Macau, standalone region. One final thing on the MCV. Could you shed some light on the geographic mix? Last year, MCV rebounded back to 10% of the VONB. What part of that is from Guangdong versus the rest of China, and how does that compare to 2018?
Moving on to the China business, I think over the last couple of years, the mainland China business has been very much maybe a bit more tilted towards increasing cross-selling or upselling into existing customers. For the month of February, given the, you know, the post-pandemic life, what portion of the business is coming from new customers versus old customers? Thanks.
Yeah, Jacky?
Yeah. Thank you.
Yeah.
Firstly, on the MCV business. Yeah, I can see a lot of interest is in the MCV segment. Give you a bit more color. Yes, yeah, we also have a strong channel of MCV business from the brokers. In last year, our brokers in Macau is also getting quite a number of these MCV business. That triple growth of MCV in last year actually contributed by both agency and also the broker channel in Macau.
And, um, in terms of, uh, the, uh, uh, uh, the strong momentum coming into the first two months, uh, as the Hong Kong and mainland China border reopen, we also see the same, actually, the MCV momentum coming strongly from both the agency channel and the brokers channel in AI Hong Kong and Macau. So, uh, so, so, so I would say, uh, this is really, uh, coming back, uh, uh, uh, to normalize, uh, to the pre-pandemic level. Um, in terms of geographic mix, I would say imagine, right, in the last few years, uh, uh, is the Macau border open, uh, with the Guangdong province. So we do see that roughly forty percent of the business in the MCV Macau come from Guangdong.
Compared to the pre-pandemic level, in fact, during the pandemic time, while the Hong Kong border and Mainland China are open, we see a wide spread of MCV customer from coming across north to south, east to west, from Mainland China. This is give you, yeah, some flavor or color in terms of the geographic mix. Now, in terms of the AIA China, I have to say that, as I said, the Mainland Chinese customer, they really see long-term saving as an alternative wealth management solution. We see a picking up of a long-term saving product, and therefore the product mix become more balanced.
In fact, we continue to see a strong momentum and need for protection product, especially when AIA China will continue to innovate in our protection product proposition. Protection product remain the largest contributor to AIA China in terms of VONB. We see that roughly 92% of customer could buy our long-term saving product. In fact, they already bought our protection product. We always keep training our agent to sell protection product as the first product to the customers. We see that this will continue and we continue to grow our overall number of customer base in mainland China. The new customer growth continue. As I said, the penetration rate for insurance remain very low in mainland China.
Thank you, Jacky. We have time for one final question. The last question comes from Leon Qi of Daiwa. Leon, please press on the mute button shown on your screen and ask your question.
Hi. Thanks for having me to wrap up the questions again. This is Leon Qi from Daiwa. I have three questions today. First is a technical question on solvency and capital, then on Thailand. Finally, it's going back to Hong Kong again. Firstly, on your LCSM cover ratio, appreciate it's still very steady. It went up, excluding the buyback, even in very challenging capital markets. Just wondering, given our product mix is actually having a little bit diversification towards savings both in Mainland China and Hong Kong, will we actually enjoy more diversification benefit under the calculation of LS, LCSM ratios under the PCR methods?
Also I do notice that, in the past few years in the legislative council documents related to PCR ratio, there has been mentioning about switching from standardized approach to internal approach. Just wondering if we have any process on that front, which could actually potentially help us save a little bit more capital. Well, sorry, a sub-question under that is that do we have a comfortable level of PCR ratio, given we mentioned our capital management framework last year at this time? Just wondering from a buyback perspective, if we have a comfortable ratio on LCSM, PCR-based ratio, for our reference.
Secondly on Thailand, basically, we've seen a quite strong rebound of VONB margin in the second half of last year. Just wondering what was the reason behind? Was the margin of our interlink protection riders even higher? Because we do understand that has been a major driver for the margin in Thailand a few years ago. Is it coming back or it's driven by other types of products? Lastly, on Hong Kong MCV, appreciate if management can give us any color in terms of our agents, number of agents, who used to be specialized in MCV customers.
What was the number by the end of last year, which was effectively right before the full border reopening of Hong Kong, and what has the momentum so far this year been, to give us a sense of the pace of recovery? Thanks a lot.
Thanks, Garth. Can you take the LCSM question? Hartley, the Thailand margin question, and Jacky, the MCV? Thanks.
Yeah. Thanks, Leon. The LCSM ratio is high. As you say, it's close to 300%, and I think that reflects the resilience, the strength, the financial flexibility that we have. We have a very strong balance sheet. You can see that it, as you quite rightly point out, that it's remained very stable and, in fact, increased before the buyback. When you look at the PCRs of each of the businesses that we operate in, they're all very strong. We meet all the requirements clearly. Obviously we look at stresses and strains to make sure that that will continue to be the case. The LCSM is then a summation of all of those different PCR requirements.
It does not allow for any diversification between countries, for example. Obviously within country, there may be some diversification between products and so on. I think the critical point to note is that it's stable. You look at the sensitivities there, they're very small. That, you know, that enables us to take all the opportunities that are available to us. We have the capital to do that. We have the financial flexibility to do it. You know, it enables us to continue our $10 billion buyback program.
Thank you, Yuan Siong. Thanks, Leon, for the question. Our business in Thailand recover very strongly in second half, with 19% BoB growth, from both agency and bank insurance channel in Thailand. The agency business grew in both productivity and margin in second half, supported by very strong sales momentum, as well as a highly successful launch of our new Multi-Pay CI rider. In addition to the continued success of our unit linked business. In second half of last year, we also achieved a very strong increase in number of our new recruits, compared to the prior year.
On bank insurance front, our bank insurance channel grew strongly in both credit line business, as well as the new regular premium unit linked products that were distributed by our bank partners. As you can see, the margin increased. In fact, the growth in second half wasn't just in margin, but also in overall production, and the margin was very much supported by CI unit linked. Mostly from agency force and also some from the bank insurance channel. Thank you.
Yeah. Again, very interest on the MCV. I want to add that a very simple, direct answer is that our MCV agency's capability remain intact. This is what I really want to say. Across that 6,800 agent, as I described before. AIA Hong Kong and Macau has the number one agency in the market in Hong Kong and Macau. I also want to add that as you see Hong Kong reopen and the Hong Kong government have the campaign Hong Kong is back, et cetera, everything is coming back to normal and the mask is now no longer required. I also want to add a color that while MCV momentum grows strongly, continue in the first 2 months, the domestic sales also rebound strongly. It's not just MCV.
Our domestic customer segment with our high quality agency across Hong Kong and Macau is supporting a very strong rebound.
Okay. Thank you for your questions. I think, in closing, I'd just like to say that, you know, the last three years, the operating environment has been challenging and volatile, especially in 2022. AIA's proven operating model and execution has helped us to deliver a very resilient set of results. I think, as our operating conditions improve in the second half, we saw a very strong rebound in momentum, recovery in momentum. We believe that AIA's multiple engines of growth, combined with our unmatched financial flexibility ensures that AIA is exceptionally well placed as Asia rapidly opens up for further growth in 2023. Thank you very much.
Thanks, Yuan Siong. Thanks everyone for listening. If you have any follow-up questions, please come through to us at AIA Investor Relations. Thank you very much.
Ladies and gentlemen, this concludes AIA's analyst briefing. Thank you for your participation.