Good afternoon from AIA Central in Hong Kong, and welcome to our Third quarter 2023 Q&A. I'm Lance Burbidge, Chief Investor Relations Officer for AIA Group. Together with me today are Lee Yuan Siong, our Group CEO and President, and Garth Jones, our Group CFO. We also have other members of the Group Executive Committee with us in the room, are all joining us from Singapore on Zoom. Today, this morning, we published our third quarter new business highlights on the Hong Kong Stock Exchange and our corporate website. I'm sure you've had a chance to go through the document. Given the current environment, we thought it would be helpful to host a call, but before we start our Q&A, Yuan Siong will make some opening remarks on the third quarter performance.
Good afternoon, everyone. Let me start with some highlights from another excellent quarter for AIA. VONB was up 35% to $994 million. This is the group's highest ever third quarter and reflects the strong demand for our products and services across Asia. We have built on our very strong first half performance, with further double-digit increases from our key growth engines of mainland China, Hong Kong, ASEAN and India. Both our agency and partnership distribution channels delivered excellent VONB growth. Agency VONB grew by 27%, supported by higher agent activity and a very strong increase in agent productivity. We also saw a quarter-on-quarter increase in high quality recruitment for the group and in each of our five largest markets.
Working with our unrivaled network, our partnership channel delivered a 62% increase with growth in all of our reportable segments. A favorable product shift, a favorable product mix shift helped the group's VONB margin increase from the first half to 51.2% in the third quarter. AIA China's VONB margin improved through the third quarter, driven by product mix and repricing. As recruitment momentum has increased quarter-on-quarter during the year, we have seen an increased proportion of sales coming from customers new to AIA. I'm also delighted that we recently received regulatory approval to upgrade our Shijiazhuang license to cover the whole of Hebei Province. In September, we also received the approval for a new city in Hubei Province, Xiangyang, where we expect to open in the first quarter of 2024.
Just yesterday, we received another approval for setting up a new operation in Luzhou, in Sichuan Province. AIA Hong Kong delivered another quarter of excellent growth, with sales to mainland Chinese visitors continuing to represent about half the total VONB. In Thailand, strong momentum has continued in the third quarter, with similar growth to the first half. AIA Singapore and AIA Malaysia grew across our agency and partnership channels. Finally, other markets was up, excluding Vietnam, with strong double-digit growth from India and the Philippines. Our business in India continue to generate strong double-digit VONB growth, driven by excellent performance of its proprietary agency. Tata AIA Life is now the largest contributor to VONB in the other market segment and ranked number 3 in Indian private life insurance. In summary, these new business results again reinforce the strength, quality and diversification of AIA's businesses.
We are confident that the continued execution of our strategic priorities uniquely positions AIA to capture the enormous long-term opportunities in the Asian life and health insurance market, and deliver long-term sustainable value for all our stakeholders. Now over to you for questions.
Thanks, Yuan Siong, we're ready for your questions. So, over to you, Kelly. Thanks.
Ladies and gentlemen, we will now begin our Q&A session. If you wish to ask a question, you need to make sure that you're 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 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, and our first question comes from Charles Zhou of UBS. Charles, please press the unmute button on your screen and ask your question.
Okay, great. Thanks. Congratulations! I think, you know, this is another very strong quarter, and I think the value of new business also beat the market expectations. So I have two questions. The first one, I do want to ask about the MCV business in Hong Kong. My understanding is that the value of new business from the MCV in Hong Kong declined Q-on-Q. So could you maybe just talk a little bit about this one? And also, I believe, you know, both the sell side or maybe the buy side, people also expect that, you know, the recovery rate compare with 2018 will just, you know, probably keep increasing. So how do you see this one?
Because, you know, when we track the individual, you know, MCV arrival in Hong Kong, I think, in terms of the number of MCV arrival of, you know, compare with the same period in 2018, actually peak in August, and then we see the recovery ratio actually decline in September and also in October. So do you feel, you know, you know, that, you know, this will probably be the new normal, or do you think that the MCV business could also, you know, recover, going forward, maybe even exceed the 2018 level? So overall, I just want to hear, you know, your thoughts about the MCV business, you know, going forward, and perhaps also in October.
Shall we expect, you know, better growth going forward and what's the normal, you know, or the recovery for the MCV business? So this is my first question. Second question, you know, let's talk about margin. I know this is probably, you know, probably a little bit, you know, boring, but I do receive, you know, the question from the investor asking me about the margin. So we're glad to see the Q-on-Q margin improve by two percentage points. But I also want to talk about the margin in China. You know, so we noticed that, you know, your margin actually progressively improves throughout the quarter. So shall we expect this trend to continue? And do you still see the margin as maybe one of a key focus for you guys?
Maybe can you maybe give us the margin split between the agency and bancassurance helping us to better understand? And lastly, maybe this is, you know, this is also the question for, you know, Yuan Siong. So what do you see, you know, like, what is the real moat of AIA China, you know, compare with domestic peers? Do you see higher margin is one, or do you feel the Premier Agency is the key? Thank you.
Okay, thank you for your... I think you got three questions instead of two. But anyway, first question, I think I'll hand over to Jacky, to talk more about MCV business. But I, as I've emphasized, often in the past, the demand for Hong Kong insurance products amongst mainland Chinese consumers, is very, strong and robust. As I said before, I think it is even higher than it was, pre-pandemic, and for the reasons which I have elaborated many times, before. So, Jacky?
Yeah. Thank you for the question. So first of all, I'm very pleased that AIA Hong Kong and Macau delivered another excellent increase in the VONB in the third quarter of 2022. And it is really driven by our strong Premier Agency of a double-digit increase in number of active agent, and also a very strong increase in the productivity in terms of ANP per active agent. In fact, in the so-called quarter-to-quarter, but as you understand, we always emphasize that we manage our business on a whole year basis. On a quarter-to-quarter, there could be fluctuation or seasonal change. In fact, our domestic business in third quarter remained very strong. We have a quarter-to-quarter growth in the domestic business.
On the MCV segment, I also want to mention that, in fact, we continue to track the MCV business versus the arrival of mainland tourists. It is still broadly in close correlation with the visitor number. And in terms of the average case size, as we said in the first half result, or we observe, there are a big increase in the average case size from the MCV customer compared to the pre-pandemic level. And that big increase, there is still, yeah, there is still a big increase in the average case size. But in the third quarter, we observed a slight reduction in the average case size for the savings plan. It is just less than a 10% kind of reduction, but compared to the pre-pandemic level, it is still a big increase.
We observed that in the third quarter, the agency MCV business, in fact, remained relatively stable in terms of the business momentum, number of case. In the IFA brokers channel, we observed a slight reduction in the number of cases through our IFA broker channel, and there could be various reason causing that. Maybe I think, many of our analysts also aware in the IFA broker channel in Hong Kong market, it is under very fierce competition in terms of giving our the yeah broker compensation. But AIA Hong Kong, we always remain financially disciplined in this area.
So we will continue to sharpen our proposition and ecosystem services, et cetera, for the MCV business across all the channel instead of competition on price or compensation. But as a whole, I just want to draw your attention that, in fact, the strong growth of AIA Hong Kong in third quarter, they are supported by very strong fundamental in our business underlying drivers.
Your second question around the margin, specifically about the China margin, again, I'll ask Jacky to talk about it more in detail. But first of all, as you know, now we are always focused on VONB growth, right? So this is what we always focus on. We don't target any particular level of VONB margin. That said, I think, as we have explained before, the economics of the new business that we write in China or in our other markets remain very, very attractive. The new business that we write, you know, attract, you know, internal rate of return well in excess of 20% with very short payback periods.
The VONB margin that we write in Mainland China remains very, very healthy. Yeah.
Yeah, thank you for this question. So, once again, I will want to start by saying that it is very pleased to see that AIA China's growth actually accelerated from the first half, 2023, to third quarter. Actually, with VONB growth of over 20% in the third quarter. And this underlying growth is driven by a very strong agency fundamental, because agency channel is our core channel in China. It is driven by double-digit increase in number of active agents, and also enhance the productivity of our Premier Agency in Mainland China. And in terms of a growth from a different kind of product, in fact, we have growth from both protection and savings business.
Protection product, yeah, remain the largest in terms of number of new business in the third quarter. So, I just want to give a little bit a color on the margin, as Yuan Siong already mentioned. Actually, we grow the whole VONB more volume, not just focusing on margin or ANP volume alone. Now, by channel and channel, in fact, our margin increased or improved from second quarter to third quarter. Agency margin broadly stable, but a little bit increased compared to second quarter. For the bancassurance channel, the margin also increased in the third quarter compared to the second quarter. As you know, in China, there is a product repricing, actually, that has more impact on the bancassurance product.
We saw the margin from bancassurance also, yeah, improve from third quarter to from second quarter to third quarter. As a whole, the overall margin in China in the third quarter is also affected by the changes in the channel mix. As in our first half result, we already mentioned about this. For the third quarter in AIA China, according to a channel mix, our bancassurance channel actually make up a slightly higher proportion of the business compared to the second quarter. As a result of the repricing, especially on the bancassurance product side, there are more sales of the bancassurance product before the new repriced product in the bank channel kick in. So, yeah.
And then on your third question, directed and me, I think, it is clear to me that, you know, what you refer to as, AIA China's moat, which is our what differentiates us from the market, is clearly our Premier Agency model, which is highly differentiated and, very different from the, agency model that we see, among some of the local or the other international players in Mainland China. We have the most productive agency channel, you know, full-time, and, you know, and very focused on selling protection business.
I think another very unique point about the AIA China is the fact that we our ability to expand into new provinces, which gives us access to, you know, even much greater numbers of middle class and affluent customers in the future. So this, I think, is really what differentiates AIA China from the rest of the market. And I continue to be very optimistic about the prospects of AIA China going forward. Yeah.
The next question comes from Kailesh Mistry of HSBC. Kailesh, please press the unmute button on your screen and ask your question.
Hi, good evening. It's Kailesh here from HSBC. I guess my questions are just coming back to China. Just wanted to understand a little bit about if you could just provide a little bit more color on the product mix, in particular, in savings. Is it mainly par business that you're selling, or has there been a material sort of pick up in pensions business? And, you know, if you can make any comments on margin, that would be helpful. And ditto on the critical illness side. Has, you know, has there been any major product changes there to make it more attractive? I guess my second question is around, you know, how the new business value translates into new business CSM.
Kailesh-
Yeah.
You have to be... Speak louder.
Yeah. Is that better, Yuan Siong?
Yes, please.
Yeah. My, my second question is around how the new business value translates into new business CSM. If I understood correctly, at the half year, that ratio fell partly driven by business mix. In this quarter, we're seeing better business mix, so should we infer that that ratio starts to move back up again? Which is obviously important for our CSM forecast. And just one last one, if I can just squeeze it in. There's a lot of noise in China about the Institute of Actuaries recommending lower investment returns, which obviously leads to lower risk discount rates. I don't want you to comment on whether you would do that, because obviously you'll let us know about the full year. But just wanted to understand, is the sensitivities that you provide at the group level, is it the same for China?
Or should we be thinking there's something materially different for, you know, for example, a 50 basis points decrease in interest rates overall? Thank you.
So, thank you, Kailesh. So let me take the first question about the product mix of AIA China. So I continue to emphasize our Premier Agency . And our Premier Agency , their DNA actually is to sell, right, a very balanced product and also protection focused. So I want to reiterate in terms of the new business cases from in the third quarter. Again, yeah, more than half of it they are protection business, and they are critical illness product make up continuing something like 70% of our protection business. And as we already mentioned in the first half result, we do see a stronger interest for long-term saving product in Mainland China, especially our Premier Agency .
They are reaching to the affluent and above customer segment. In fact, one of the key product in the third quarter remain the tax-favored or tax-deductible personal pension benefit product. That remain our top selling product in the agency channel, and our other saving product are also long-term saving. So, just to give you a little bit color, we also continue to see that the tax-deductible private pension product, yeah, drive a more acquisition of new customer. And, many of our new agent, yeah, they also seize this opportunity to make use of this long-term saving plan to acquire new customer.
In fact, roughly 40% of those private pension benefit customer, they were new to AIA, and we start to see the repurchase of this customer for our AIA agency. So far, we see that at least the repurchase rate from this private pension customer was above 10%. So I would say that AIA, with the Premier Agency , we are able to capture all these long-term saving opportunity in China.
Yeah. Yeah, thanks, Kailesh, and glad you got your your question in this time. Firstly, on the new business CSM, just to maybe help you with, it does vary by product and by market and so on. But to give you some help with your forecast, the multiple in the third quarter was similar to the first half. So that should help you with your forecasting. In terms of the China interest rate, for the embedded value, we've said, you know, the sensitivities are small, and you'll see that, you know, in China, it's no different in that regard. For VONB, yes, it there is a negative, as there is for the rest of the group, when you look at it overall.
But, you know, again, as we've seen, we can reprice, and that has a positive impact. So, you have to look at the pricing as well, the repricing that we've already done this quarter. Yeah.
Thanks, Garth.
The next question comes from Thomas Wang of Goldman Sachs. Thomas, please press the unmute button on your screen and ask your question.
Thank you. Thank you for the opportunity to ask the question. Just a couple one. First one, a quick one. On the terms of number of policy, CI policy in the MCV sales, I think we talked about first quarter, second quarter being, I think, 35, 38. Can you just give us an update towards the CI number policy mix in MCV sales in the third quarter? And then secondly, staying on MCV, I think Jacky talked about sales is broadly still broadly tracking the number of visitors. But obviously, the number of visitors was actually quite a lot, up a lot, 27% in the third quarter versus second. But sales was actually lower. I'm just thinking, looking at how fourth quarter number of visitors will...
I mean, I understand third quarter there's a lot of tourism. But thinking about fourth quarter, if we think about normalizing, is it normalizing to a second quarter type of visitor number and the sort of sales tracking that? Is that something we should think about? Just that. Yeah. Thank you.
Hey, Thomas, your first question on MCV, you say 35, 38. What is?
I think the-
CI.
Oh.
CI mix of MCV business.
Oh, oh, oh, CI. Yeah. The CI mix... No? Yeah, already unmute. So yeah, the CI mix remain largely unchanged. In fact, we see a little bit increase in the average case size of CI in the third quarter, just to let you know. So, the CI mix remain largely, so it is still account for 38% of the number of policy in the third quarter. So, the CI, the need for CI from Mainland Chinese customer remain very high. So, yeah, in fact, our MCV business, we always emphasize that the MCV business in Hong Kong and Macau has been there for more than a decade.
They continue to have the fundamental attractiveness of the kind of product and services available in Hong Kong and Macau that continue to attract the Mainland Chinese customer, especially the more affluent and above segment, who are interested for you know more flexible product for diversification of wealth management, et cetera, and long-term saving. So we see that this fundamental driver of those need remain very very strong. So we continue to have a very strong confidence in the MCV business in Hong Kong and Macau.
I was just gonna add on the tracking of visitor numbers. I think when you look at it, even at an industry level, you'll see it's less than 1% of visitors that buy insurance policies. So I think having too much reliance on visitor numbers, especially from a quarter-to-quarter perspective, and you mentioned seasonality, that I think it's something that I would steer you away from.
The next question comes from Andrew Crean of Autonomous. Andrew, please press the unmute button on your screen and ask your question.
Good morning or good afternoon. A couple of questions, actually. Firstly, I wanted to get a bit more detail around this issue about agency recruitment growth in China, which you say is very strong double digit. That, having had a flatlined agency numbers through the lockdown, as you grow that number, could you give us a sense as to how fast it's growing? And how fast new recruits come through into active agents, so that we can get a sense of the power in the engine in 2024. And then secondly, a very simple question: How long do you think the malaise in Vietnam is going to hang over your company and the industry generally?
Okay, I think ask Jacky to talk about the agency recruitment, you know, trends in Mainland China, but I'd like to also emphasize that, you know, at AIA, we are very focused on, you know, quality. So we ensure that, you know, the people that we recruit and put on maintain high standards of, you know, quality. Yeah.
Yeah. Actually, we are also very pleased that the new agent recruitment momentum continue to build the attraction in the third quarter of this year. And it is a very good growth of a number of new agents recruit across both our existing province and also the new province or the new cities. So we have a broad-based growth in the number of new recruit. And as Yuan Siong mentioned, we continue to emphasize on the quality new agent. So the new recruit has to go through, yeah, at least something like four times of a selection. So we continue to maintain a strong focus to grow quality new agent.
Also want to let you know that, in fact, we also see that our new agent active ratio, as you also talked about, the activation of new recruit. New agent active ratio was also uplifted very strongly, especially with our good proposition of the past pension product. So this really support the new agents' activation and onboarding.
Okay, can I ask Hak Leh to talk about Vietnam?
Thanks, Yuan Siong. Thanks, Andrew, for the question. As you mentioned before, the life insurance industry in Vietnam was adversely affected by the negative sentiment that affects the whole industry because of adverse external environment. At AIA, the... We remain focused on building the strong foundation for agency force, particularly to transform our agency force to the Premier Agency, premier full-time agency model, as what we have successfully implemented in many markets. For the bancassurance business that we have in Vietnam, we have stepped up the effort to further strengthen the customer proposition to differentiate products for each segment within the bank.
Really, as you know, life insurance is a long-term business. We remain very optimistic about the long-term opportunities of life insurance in Vietnam, given the size of the economy and the underlying drivers.
Thank you.
Thanks, Hak Leh. Thanks, Andrew. Next question, please.
Our next question comes from Michelle Ma of Citi. Michelle, please press the unmute button on your screen and ask your question.
Yeah, thank you. Thank you for giving me this opportunity. This is Michelle Ma from Citi. I also have two questions, both on China. So, the first thing is, I noticed there is an extra disclosure on the investment portfolio of AIA China's, the policyholder and the shareholder investment portfolio. So, I appreciate this, but I also notice the allocation looks quite conservative, with, like, 85% of the portfolio was allocated to fixed income type products, and also mostly, that's government and government agency bonds with equity just 11%.... So just, I wonder, with the ever-declining interest rate in China, what will be your, like, investment strategy going forward, and how will you manage your cost of your insurance contracts?
So this is the first question. And the second one is also for Jacky. I think you must be super busy recently, given the Chinese regulator has been rolling out so many, like, potential new regulations, such as what already happened, the re-negotiation of the bancassurance contract commission, and also the potentially that's also going to happen in the agency channel. The alignment of registered expense loading with actual practice, and also starting from March next year, we will have the new management rules for agents. So with so many changes, could you share with us what have you prepared for these changes and how it will going to impact Mainland China's business momentum for next year? Thank you.
Okay, thank you, Michelle. I think we maybe let Jacky talk about the regulatory issues before we ask our Chief Investment Officer, Mark, to talk about the investment, China's investment strategy.
Yeah. Yeah, Michelle, thank you for the question. In fact, you know, at AIA, we see that there is opportunity for a better bancassurance market with all these kind of changes. So, the bank commissions changes, you know, for AIA China, bank channel is not a major channel.
Mm-hmm.
It is a relatively small channel. Our core channel is still agency. But with this commission rationalization rule in Mainland China, that actually provide us with an opportunity to grow a more profitable, sustainable bancassurance business. And for AIA in China, that is really our advantage because we don't have that legacy, and we can grow right from a small base of a bancassurance to a more complementary kind of bancassurance business, which will be a win-win-win for customers, for bank, and for the insurance company.
So, the renegotiation, et cetera, they are largely in good progress and many of the banks are already able to sign up, and we will continue to sign up the rest for the renegotiated commission rate for our bank partner in Mainland China. As to the so-called extension of the fee and commission loading for the other channel in AIA China, you know, we are always very emphasized on our financial discipline, so we don't overpay. So, in fact, we will continue to observe closely the development of all this, and we believe AIA will be very able to fulfill the requirement very well.
In terms of the other coming regulation in terms of the right product, yeah, for the agent, so there will be more complicated product, yeah, probably need agent to have some more experience or even kind of training requirement. In fact, we see that the regulation coming out to be effective in March next year. Actually, they are broadly in line with the draft that came out in July this year. So, so far, the association, the industry association, continue to work closely with the regulator on the detailed implementation.
But as I always emphasize, AIA China's key differentiation is our premier professional agency force, and we believe all these regulation actually to AIA shouldn't be a problem, but for the whole industry, it is a good direction to go towards a more professional, well-trained and qualified intermediary market. It's good for the whole industry development.
Yeah. So in summary, I think we are very supportive of the new regulatory initiatives. I think it will put the industry on a much more healthy footing. AIA, we are well prepared, and well able to make any necessary adjustments to our operating, our operations here. Mark?
Thanks, Yuan Siong . Thanks, Michelle, for the question. I think what the way we operate, the investment portfolio and the program in China is consistent with the way we operate across the entire group. The starting point really is our ALM approach. Given the long-dated nature of our liabilities, that will lead to a domination of fixed income within the portfolios, as is very common. So in China, over 80% of the allocation is in fixed income, of which 90% or over 90% is in government and government agency bonds. I think as we go forward, what we're likely to see is, more reflective pricing, in the credit market. So we've been building up our credit team and applying the same underwriting standards that we've developed over many years across the entire group.
So we would expect to see some more diversification over time, and as the credit market develops, alongside that, we do expect to see more diversification more generally in the program.
The next question comes from Edwin Liu of CLSA. Edwin, please press the unmute button on your screen and ask your question.
Oh, thank you, and good afternoon. I have two questions. Firstly, still on China, given that you have expanded to new regions, I just want to ask if there is any difference in terms of product mix or distribution mix between your new and existing regions. In particular, have you seen, you know, perhaps more or less protection product sales in your new region? My second question is in terms of interest rate. So, in general, life insurer should benefit from high interest rate environment. In particular, we have seen perhaps we used to be in the inverted yield curve environment, now we are getting to more normal environment. So how does that affect your business?
In particular, from financial reporting perspective, how do we see the benefit from rising interest rate to be reflected in your either EV or new accounting financial numbers? Thank you.
Yeah, thank you for the question. In fact, as I always emphasize, protection product actually is the DNA of the AIA agency. Because from the time a new agent are being recruited and join in China, the first thing we train them to sell is the critical illness product. Because of this whole life critical illness product nature, long premium payment term, the commission rate with the relative policy size, we'll be able to make the agent make a good living and survive. So, we do track and also study the so-called product mix by the tenure of agent.
Interestingly, I want to let you know, we see that this kind of emphasis in a protection product mix actually continue to carry forward, yeah, for different tenure of the agency force. So we don't see a big difference in the product mix of the new province compared to existing one, because the new province, of course, obviously has more new agent. But over time, as I also mentioned, because AIA, yeah, we are able to ride on those new tax-deductible pension benefit plan. So when that was available in a certain city, we also observed that, yeah, our agent are able to capture all these opportunities.
So as a whole, in general, we don't see a significant difference in terms of product mix between new cities, new province and existing one. Now, in terms of channel mix, I would say largely agency channel continue to dominate in the new province and new cities. Especially, we emphasizing the recruitment of quality agent in the new province and new cities that we are in. So generally speaking, especially, you know, for new province, new city, you know, in order to support the bank channel, we also need to mobilize also develop resources.
And as you can imagine, if we are, you know, just a new set-up in a city or new province, the POS that we can support will also be limited. So in terms of channel mix, actually, I would say that, yeah, agency obviously, yeah, dominate in general, in all those new province and new cities. And I think that is good, because agency, we believe, remain a core distribution channel for AIA China.
Yeah, I just want to add that I'm quite pleased with the fact that we were able to receive approval to upgrade the Shijiazhuang city license to a Hebei province license, provincial license, because this is quite significant. It means that all the new territories that we expanded into, including Tianjin, including now Hebei, Hubei, Sichuan, and Henan, are all full provincial or municipality licenses. Now, as we explained to you all before, whenever we enter a new province, we actually go and start in the provincial capital. So we started in Chengdu, in Sichuan, we started in Wuhan, in Hubei. In Hebei, now we have Shijiazhuang, which is the provincial capital. And, you know, the, you know...
subsequently, we will expand within each province into the other cities within the province. And many of these provinces would have many, many cities with large population base. For example, Sichuan itself has something like 17 cities within Sichuan province, and we are only now in Chengdu. So I'm also quite pleased to see that we are, we are also able to take the next step in Sichuan and in Hubei, whereby in Hubei, we are now able to prepare for the launch of the next city, which is in Xiangyang, also a prosperous city with a good population base. And in Sichuan, we can go to Luzhou, which is also another major city within Sichuan province.
So, you know, what I've explained to you all before is, you know, step by step, we are seeing it happen. Expanding to new provinces, and then within each province, we start with the provincial capital, then we go to the next cities and subsequent cities. Yep. So I'm quite pleased with that. Garth?
Yeah. On interest rates, we've got disclosed sensitivities, and you'll see that rates up as a sensitivity for the group overall is a small negative to EV and a positive for VONB. The small negative for EV is largely because of U.S. interest rates and our free surplus and capital that we hold at the corporate center being largely denominated in U.S. dollars, so the bonds that we hold would go down in value slightly because of that. On the VONB side, higher rates are overall generally positive for VONB. And, and I think the other point to note is that higher rates also tend to stimulate demand for savings products in particular, and that's what we've seen over the last 12 months. Yeah.
Okay, thanks. Next question, hopefully may even not be on China.
The next question comes from Michael Chang of CGS-CIMB Securities. Michael, please press the unmute button on your screen and ask your question.
Sorry, Lance, I might have to disappoint you. I do have some questions on China, but I’ll ask also in relation to China as well.
It was worth a try.
Next time, maybe. Next time. Okay, so on the China front, given that the demand for critical illness products have accelerated to strong double-digit VONB growth versus the mid-single digit in the first half, could maybe management shed some light on how broad-based is this demand for protection across the different customer segments and across the different geographies? So I think earlier on, it was mentioned that it seems that even in the inland regions or the new regions, there is that the protection demand is very strong for CI. Is this the case across mass market as well as the more high-end segments that AIA is in? So that's just why I'm just trying to get a sense of how sustainable is this really, is this pickup of the CI growth.
Second, then, in relation to the agent numbers as well, if we strip out the new regions, which are obviously seeing very strong growth rate for the agent numbers, are we also seeing very strong agent growth numbers in the existing regions? And then, lastly, in relation to Thailand, I noticed that Thailand's momentum is actually still very strong in 3Q. It continues on the first half excellent growth rates, and in fact, I think it's probably the strongest in the ASEAN region. Can management shed some light over there on what initiatives are being done, and how sustainable can that be going forward? Thanks.
Jacky, can you quickly answer the questions on China?
Yeah, yeah, yeah. So, again, on China, this is also a favorite topic, because, yeah, it looks like there are rumors in the market saying that, "Oh, CI product is very hard to sell." But in the case of AIA, we don't believe it. We continue to see that there should be strong demand on CI because, yeah, for, yeah, people who already bought the CI policy, you know, in fact, the CI, sum assured coverage actually is still low. Roughly on average is 100,000 RMB only. And, and for AIA China, our agents are working with the affluent and above customer segment.
We are able to, yeah, together with our financial needs and analysis tools, we enable our agent to do a good financial planning with the customer and analyze the need. With that, the customer see that, oh, they actually need to increase, yeah, their CI sum assured. So we do see this opportunity continue to be very big there. In April this year, we revamp or upgrade our product to include the Cancer Shield kind of ecosystem. I think this really show that in the third quarter, this really continue to work very well because customer really see that in fact, they do need more CI or cancer recovery coverage together with a better ecosystem and services.
Now, in terms of the agent number, recruit number, in fact, I just mentioned, in fact, we see a broad-based kind of growth, in terms of the agent recruitment across both existing province and also the new province and cities.
Yeah. I think in terms of CI demand, at our interim results, we also explain to the market about how we have developed a tool for our agents to, you know, to do a full needs-based analysis with the customers. And as you know, our target customer segment is the middle class and affluent customers, whereby the demand for CI protection remains strong. And you know, after a full needs-based analysis, we've seen like the sum assured of CI grow 3 times from before doing the needs-based analysis. Yeah. So the demand for CI remains strong.
You need to have the right agents, you need to have the products, and you need to have-
... the right customers, plus you have to provide them with the right training and support and tools to help them, you know, service the protection needs of the customers. We are very happy with the performance in Thailand. I'll hand over to Hak Leh to talk about Thailand.
Thank you, Yuan Siong. Thanks for the question, Michael. As we noted, AIA Thailand continue our strong first half momentum into third quarter and deliver excellent VONB growth across both our agency and PD channel. And that's very much supported by higher sales volume, enhanced productivity and overall more favorable product mix. In Thailand, we remain very much focused on growing protection and unit-linked business, while the overall market's growth so far this year was driven mostly by savings and endowment policies. Our agency channel delivered very strong VONB growth in third quarter, with growth in both the number of active agents as well as the overall agency productivity. And for agency quality recruitment, that is our key priority. We've seen very significant growth in number of new recruits, especially full-time financial advisors, in third quarter this year.
For the PD partners, particularly our partnership with Bangkok Bank, we've seen strong VONB growth, driven by very favorable shift in product mix to more protection riders. We continue to drive an increase in the overall productivity of our insurance specialists supporting the Bangkok Bank partnership. Overall, we are very pleased with the continued strong momentum of our business in Thailand.
The next question comes from Leon Qi of Daiwa Securities. Leon, please press the unmute button on your screen and ask your question.
Hi. Sure, thanks for taking my questions. I have three questions again today. Firstly, still on China, just appreciate you actually mentioned very strong double-digit of VONB. I want to understand that whether this is the sales to new customers or mostly coming from the upsells from existing customers? Because indeed, I noticed that three months ago, in your interim results, you mentioned that the need-based analysis has been proven very effective to increase the sum assured of your existing customers. So just wondering, in the third quarter, are we seeing more results coming from upsells that has led to this very strong VONB growth in critical illness? So that's the first one.
And secondly, in bancassurance channel, I'm very glad to see that VONB margin has been recovering on sequential basis. Well, but just looking at long term, the China market in particular features very fierce competition in terms of... There are a certain level of VONB margin below which we will actually not go down. So is there a minimum threshold of VONB margin for us in our bancassurance channel? And lastly, on Thailand. Appreciate the color just now, but I have a more specific question on FA channel. What is the VONB margin in FA channel? Because I do understand the FA channel reform has been moving from strengths to further strengths.
It is a key factor driving our margin uplift in Thailand. Just want to understand the margin within that particular channel. Thank you very much.
Okay, and Jacky on CI?
Yeah. Again, on CI, in fact, right now, I think we don't have a so-called detailed analysis of the CI coming from new and existing. However, from what I have, I already described, I would say, it should come from both new and existing. Because our existing customer, yeah, our agent will continue to do the, to have the needs-based analysis with them. As I said, we do observe this kind of increase in the CI sum assured with those needs-based analysis tools on, of course, the existing customer. And again, yeah, we continue, yeah, to expand, right, in new province, recruit new agent, and we train the new agent to sell CI.
The growth of CI come from both new and existing customers. In terms of the bank channel margin, I just want to say that we emphasize at AIA. We always emphasize a very strong financial discipline. So, we do have a kind of a risk and return kind of view when we go into a new channel, develop product, et cetera. So, in this sense, we do have a certain discipline in working with the bank, in the bank channel.
Although, as I said, yeah, we start from almost nothing of a bancassurance, but now it is really a much improved opportunity for AIA to go into this bancassurance channel due to the product repricing and a more reasonable kind of commission fee income to the bank.
Okay. Thailand?
Thanks, thanks for the question. The FA channel refers to a sub-channel within our agency. The FA stands for full-time professional agents. It's a strategic initiative that I've been working on for the last several years. It is, as you correctly pointed out, a channel that's been growing, that's been contributing to our growth.
Because of the selection process, the FA agents are agents that are committed full-time to AIA Thailand. A large majority of them qualified to sell not just traditional policy, but also some investment-linked products. They are more productive than the non-FA agents. They are selling more investment products with more protection riders.
Thanks, Hak Leh. Thanks for the questions. We've got time for one more question, I think.
The last question comes from Charles Zhou of UBS. Charles, please press the unmute button on your screen and ask your question.
Okay, thanks for giving me the opportunity to ask a question again. I mean, I just have a very last, very quick question. As you may know, one of your key regional peers see India as a strategically important market in their, strategy update. So I would like to understand, how do you... Like, what's your view for India in the AIA Group perspective for the next five years or ten years? Thank you.
Well, I think India is a very exciting long-term opportunity for AIA. It's a massive market. I think in this market, it's very important to have a very good partner, and we are in India, we have a very, very good partner. In my opinion, it's the best partner that you can have in India. The relationship that we have is very strong. Personally, I know Chairman Chandra very well, and I've been to India four times in the last two years. So, the business is performing very well, growing very strongly.
As we reported during the interim results and this time around, we are already the number 3 player in the private life insurance market in India. I think India is also experiencing the regulatory tailwinds. The new chairman of the IRDA is much more, you know, focused on developing a healthy life insurance market in India, and he's been working, you know, vigorously to come up with new policies to support healthy development of the life insurance market in India. India obviously has all the right factors for a strong healthy life insurance market. The demographics is working in its favor. Increasingly high levels of digitalization.
You know, the very large protection gap and, you know, as we've demonstrated and explained in the past, we have a multi-distribution channel model that's highly digitalized and working very well. And we also have a very... We have also the best-in-class agency channel in India. Garth is looking after India, so he's very keen to say a few words.
Yeah. No, thanks. Thanks, Yuan Sion g. No, I think you can tell, Charles, that particularly Yuan Sio ng and I are very enthusiastic about India. I was there again last week, and you can feel the energy and momentum in both the country and the business. And we had excellent growth in the agency channel in particular, and that agency is going from strength to strength. We really see in terms of productivity, number one, persistency, number one, and in terms of things like new agent growth, number one, as well as retail sum assured. I think with something like 92% of LIC's retail sum assured, aggregate retail sum assured in the first half in India, you know, their first half is three months off.
So, so really excited about that business, and we see it just going from strength to strength. Really fantastic business.
Thanks, Garth. Thanks, Yuan Siong, and thanks, Charles, for the question, and for everybody else on the call, especially on a Friday evening, for those of us in Hong Kong. If you got any follow-up questions, obviously, please come through to the investor relations department, and have a good weekend. Thank you.
Ladies and gentlemen, this concludes-
Thank you.
AIA's Third Quarter 2023 Q&A. Thank you for your participation.