Good morning from Hong Kong, and welcome to AIA's 2024 interim results presentation. We have delivered excellent financial results with double-digit growth across our key operating financial metrics for new business, earnings, and cash generation. VONB grew 25% to a record $2.5 billion in the first half, driving a substantial uplift in operating return on EV to 16.5%. AIA's ability to deliver successive layers of profitable new business has accelerated growth in earnings and cash generation, with both OPAT and UFSG up by 10% per share. Higher earnings and proactive capital management supported an increase in operating ROE to 15.3%. Our capital position remained very strong, with free surplus of $14.6 billion, and this is after returning $3.4 billion to shareholders in the first half through dividends and share buybacks.
The board continues to follow our prudent and sustainable and progressive dividend policy and has declared a 5% increase in the interim dividend per share. We are focused on growing profitable new business that compounds over time, allowing us to sustain growth in earnings and cash flow generation for longer and drive attractive shareholder returns well into the future. In April, we announced a new capital management policy that will deliver higher annual distributions. We target to pay out 75% of annual net free surplus generation through a combination of dividends and additional share buybacks. We will also regularly review our capital position and return excess capital to shareholders. Following this new policy, the board approved a $2 billion addition to our share buyback program in April, bringing the total program to $12 billion, with $3.1 billion remaining as at 30th June 2024.
Today, we are announcing an OPAT per share compound annual growth rate target of 9%-11% from 2023 to 2026 . We are confident in AIA's very strong financial position, as well as our ability to continue delivering profitable new business that sustains earnings growth. Our belief in AIA's future delivery stems from the leading positions we hold in our markets, alongside the expansive headroom to grow in each of our operations. Let me now take you through how we achieved today's results and are well positioned to deliver our ambitions in twenty twenty-four and beyond. We have a clear growth strategy focused on Asia, the world's most attractive region for life and health insurance. High levels of private savings, low insurance penetration, and limited welfare coverage fuel strong demand for our products.
We target the resilient middle class and affluent customers across the region with compelling propositions that meet their individual needs. In the first half, we sold policies to close to one million brand-new customers, and repeat sales within our large existing customer base continue to grow as we nurture long-term relationships through our professional advice. AIA's integrated products and services ecosystem is designed to address customers' needs as they evolve, and our product mix is well balanced across traditional, protection, and long-term savings, with attractive returns and rapid payback on capital invested. This unique combination of growing middle-class customers, compelling propositions, and high-quality advice has driven a strong increase in sales and profitability in the first six months of twenty twenty-four. AIA's success is built on our proprietary Premier Agency that generated over 70% of the group's VONB in the first half.
The combination of growth in active agents and higher agent productivity drove a 19% increase in VONB to $1.9 billion. As we continue to build scale, new recruits were up by more than 20%, with growth across most of our markets. This strong performance reflects the confidence in our future growth opportunities, as well as the high levels of trust in our business model as agency leaders persuade the best candidates to leave their existing careers and join AIA. We are committed to the highest professional standards and recently retained our number one MDRT global ranking for a record 10 years in a row. Our distribution is further strengthened by strategic partnerships with banks, brokers, and digital platforms, bringing complementary access to large customer pools.
Partnership VONB increased by 43%, with an excellent performance in the bancassurance channel as we grew active sellers and delivered a higher VONB margin. These twin engines drive growth across our markets, and you will now see how they perform and will further strengthen in our five largest businesses. AIA China's strategy is differentiated by its focus on meeting the needs of a more affluent customer base, with professional advice and high-quality personalized products. In the first half, VONB was up 36%, supported by very strong sales and a higher VONB margin. Long-term customer relationships helped to support multiple repeat sales, and a 23% increase in the number of new customers in the first half provides significant additional future growth opportunities for our distribution. Our premier agents target the evolving needs of Mainland China's growing middle-class consumers, where demand remains robust.
Growth in active agent numbers and increased productivity drove agency VONB up by 20% overall and up by 44% from our new geographies. Our success is driven by young, dynamic, and entrepreneurial agency leaders, who ensure sustainable new business growth by attracting, developing, and retaining the best agents. Recruitment momentum remained excellent, with a 26% increase in new recruits. Demand for protection remains strong, with a double-digit increase in VONB, and we have continued to make good progress in shifting our mix of long-term savings more towards participating products and tax-deductible pensions. In agency, we have a well-balanced product mix and VONB margin increased to over 60%. Our highly selective bancassurance partnerships achieve very strong VONB growth, with VONB margin now exceeding 40%.
Our geographical expansion remains on track, and in the first half, we successfully launched operations in three new cities in Sichuan and Hubei provinces. AIA's differentiated positioning in Mainland China gives us confidence that we can continue to grow strongly through economic cycles. AIA Hong Kong was the largest contributor to the Group's VONB, delivering $858 million in the first half, up 26%. Demand was very strong across both domestic and mainland Chinese visitor customer segments. Our Premier Agency is the leader in Hong Kong and Macau, and agency VONB was up 20% from growth in active agents and higher productivity. We continue to add greater capacity to our agency, with new recruits up 19%, keeping us ready to meet the sustained demand for high-quality life and health insurance.
Our agency generated the majority of MCV business, and more than 70% of VONB in this segment was from customers new to AIA. Partnerships delivered 41% VONB growth, with excellent performances in the IFA and broker channel, as well as from bancassurance. Overall, our market-leading traditional protection products contributed 15% growth in VONB, and as we continue to launch, upgrade, and reprice products, VONB margin increased to over 65%. AIA Thailand is our largest ASEAN business, where we have an excellent track record of consistent execution. VONB grew by 16% in the first half, and we remain the clear market leader. Agency delivered 18% VONB growth as we continue to uplift quality and standards, including through our highly productive financial advisor program. Quality recruitment remains a key priority, and we achieved a 20% increase in the number of new recruits.
In bancassurance, VONB through Bangkok Bank was up 22%, as we raised productivity to unlock the significant potential from the bank's large retail customer base. Technology, digital, and analytics is at the heart of AIA's strategy and enables every part of our business, helping us to deliver superior new business growth while realizing significant operational efficiencies. This is clearly evident in AIA Thailand, where our expense ratio reduced to 6.5% and supported strong growth in earnings. In Singapore, 27% VONB growth was driven by a 31% increase from our Premier Agency, and IFA and broker channel was up 24%. Our agency is the most professional, most productive, and largest Thai distribution force in the market. One in four AIA agents are MDRT qualified, and we rank the clear number one again in Singapore.
In the first half, we continued growing our agency, with new recruits up 13%. Agency productivity increased by 24% as we expanded our propositions targeting the affluent and high-net-worth segments. New products and enhancements to AIA Altitude, our customer loyalty program, enable us to capture higher customer wallet share. As a result, VONB of long-term savings propositions was up 35%, and demand for our comprehensive suite of traditional protection products was also strong, with VONB up 18%. In April, we successfully launched AIA International Wealth, which targets affluent and high-net-worth customers across the region. We see large potential for further growth from AIA Singapore as we tap into increasing domestic demand and leverage Singapore's position as a regional hub. AIA Malaysia continued to deliver strong new business results, with VONB up 14%, supported by our focus on protection, both traditional and unit- linked.
Overall, Premier Agency growth was the result of a 14% increase from our conventional business as we continue to take proactive steps to strengthen our Takaful segment. Our partnership business achieved a very strong performance, including an 18% VONB increase from Public Bank, as well as excellent growth from the corporate solutions business. As we leverage Amplify Health's powerful data and analytics capabilities, we are making good progress in targeted product design and repricing to make health insurance more affordable and sustainable for our customers. These efforts supported a significant improvement in the medical loss ratio compared with the second half of 2023. Across our markets, the focused execution of AIA's growth strategy has delivered excellent new business results. Successive cohorts of new business add substantial layers of recurring earnings to our in-force portfolio, driving underlying CSM annualized growth of 9.1%.
We actively manage the in-force portfolio, and our TDA-led strategic priorities have supported expense efficiencies, effective claims management, increased customer loyalty, and high persistency. Our recent actions on medical claims have helped deliver a return to positive operating experience variances across EV and IFRS, with both improving by around $400 million compared with the second half of 2023. Compounding profitable new business and in-force management has led to a 29% per share growth in EV operating profit and a 10% per share increase in OPAT. In turn, higher earnings and cash generation enable us to maintain our financial strength, drive further profitable growth, and enhance shareholder returns. Our new capital management policy underlines our commitment to returning excess capital to shareholders. In April, we announced an additional $2 billion to our existing share buyback program, which brought the total to $12 billion.
As at thirtieth June 2024, dividends and share buybacks have totaled over $15 billion since 2022, and we have a further $3.1 billion remaining under the current buyback program. Our proactive capital management optimizes returns for shareholders, and our financial discipline is a key differentiator and enabler of our future financial delivery. In summary, today's excellent results are the direct outcome of exceptional businesses operating in the right markets to execute our growth strategy. I have every confidence in AIA's continuing ability to achieve profitable new business growth that compounds over time, enabling us to sustain higher earnings and cash flow generation for longer and deliver attractive returns well into the future. Now over to Garth.
Thanks, Yuan Siong , and good morning, everyone. I will now take you through the financial results in more detail across growth, earnings, and capital and cash. Our excellent VONB performance, with 25% growth overall, was driven by significant increases across all of our reportable segments and double-digit growth in 11 markets. Yuan Siong has already covered the very strong results in our five largest operating segments that you see here. These together made up over 90% of the Group's VONB. Other markets grew by 9% to $224 million, with an excellent performance in the Philippines in particular. In Indonesia, our partnership with BCA delivered strong double-digit growth, and we recently extended the partnership out to 2038. India, the largest contributor to this segment, was lower against a very high base in 2023, as previously highlighted.
However, a strong performance from our Premier Agency has seen a return to growth in April to June this year. Our new business generates attractive returns, with an IRR on capital invested consistently above 20% and with short payback periods. We delivered improvements in new business capital efficiency and higher margins across our different product categories, supported by more favorable product mix, repricing actions, and new product launches. Overall, PVMBP margin increased to 11%, and VONB margin grew by more than three hundred basis points. Our ability to write large-scale, high quality, and profitable new business with a very attractive financial profile is a key differentiator for AIA and a major factor in our confidence in the group's future growth. EV operating profit per share grew by 29%, and operating return on EV stepped up to 16.5%.
This was lifted by an additional $0.5 billion of VONB compared with the first half of 2023, and improved positive operating variances of $0.4 billion, supported by our proactive claims management initiatives. Together with the expected return on EV, these led to a very strong increase in EV operating profit to $5.4 billion in the first half. EV equity was up by 8% over the first half to $74.2 billion before shareholder returns, driven by EV operating profit. Both operating and investment variances were positive and together added $0.9 billion over the first half. Our positive operating variances have now added $4.3 billion to EV equity since IPO, demonstrating the prudence in our assumptions.
In the first half, we returned $3.4 billion to shareholders through dividend and share buybacks, resulting in closing EV equity of $70.9 billion as of the 30th of June, 2024. Our EV methodology uses spot market yields for bonds and trends over time to our long-term assumptions. Overall, you can see that our long-term assumptions are below market forward government bond yields. You can also see on the right-hand side that the Group's EV continues to be highly resilient to interest rate movements. Our sensitivities assume a 50 basis points change across the whole yield curve and remain small. Some of you have raised questions about China and U.S. interest rate movements.
If we were to use the spot yields on Chinese bonds as of the thirtieth of June throughout, instead of graduating to long-term assumptions, AIA China's EV will be just 1% lower. If we assume the drop in Chinese bond yields by 50 basis points, then AIA China's EV reduces by 4%. AIA Hong Kong is largely invested in US dollar assets that currency match our liabilities. A 50 basis points fall in US yields results in a 3% increase in Hong Kong's EV. Now moving to IFRS earnings. The contractual service margin represents our stock of future profits. In the first half, our underlying CSM growth after CSM release increased to 9.1% annualized. This growth in CSM came from $3.8 billion of new business and $1.4 billion from expected in-force return.
Variances and others were small, while exchange rate effects reflect the strengthening of our US dollar reporting currency relative to Asian currencies. The CSM release rate of 9.5% was stable, while the resulting CSM release grew by 10% and contributed $2.8 billion to OPAT in the first half. The 10% increase in CSM release drove growth in OPAT per share for the group, also up by 10%. The CSM release forms the vast majority of the insurance service result, which increased by 9% to $2.9 billion. Within this, operating variances were positive, supported by proactive claims management initiatives and the repricing of our medical business. The net investment result increased by around 6% after adjusting for the impact of the share buyback, reducing the return on shareholder funds.
Other revenue and expenses, finance costs, and tax grew by 2%. Overall, operating margin remained strong at 16.1%. The addition of large-scale, profitable new business, combined with active in-force management, gives us confidence that we can continue to grow our stock of future profits through the CSM, and in turn, deliver our OPAT growth target. The combination of strong OPAT of $3.4 billion and the ongoing share buyback program helped drive an increase in operating ROE to 15.3%. Net profit was $3.3 billion, similar to OPAT, with small overall non-operating movements. After returning $3.4 billion to shareholders during the first half, shareholders' allocated equity was $43.6 billion. We continue to seek to optimize ROE through OPAT growth and active capital management.
Today's results have demonstrated how the return of strong new business momentum has helped accelerate growth in OPAT per share to 10%. Alongside our effective in-force management, we are confident in AIA's ability to continue delivering profitable new business that sustains earnings growth. We have therefore announced a compound annual growth target for OPAT per share of 9%-11% from 2023 to 2026. For clarity, our OPAT per share growth target already allows for an illustrative impact of the introduction of the OECD's global minimum tax rate, commonly known as BEPS 2.0. Finally, turning to capital and cash. The group's financial position remained very strong, with free surplus increasing by 12% over the first half to $17.9 billion before capital returns to shareholders.
This increase was driven by underlying free surplus generation of $3.4 billion. After reinvesting $0.8 billion in new business at highly attractive returns, in the first half, our net free surplus generation was $2.2 billion. Investment return variances and other non-operating items mostly relate to the effect of exchange rate movements. After returning $3.4 billion of capital to shareholders through dividends and share buybacks, free surplus was $14.6 billion at 30th of June. UFSG is our key operating measure of cash generation before investment in new business and central costs. Overall, UFSG grew by 10% per share. There are four components that make up UFSG, and these ongoing disclosures are intended to help with modeling this. The first component is expected distributable earnings of $2.0 billion from our in-force book.
This figure is consistent with the expected emergence we reported for many years in our EV report. Next is the expected return on assets backing free surplus and medium-term notes that added $0.7 billion in the first half. Third, the addition of new business further diversifies our in-force portfolio and leads to a reduction in reserves and required capital. This recurring new business diversification benefit added $0.4 billion in the first half. Finally, operating variances were positive, $0.3 billion, reflecting better experience than our assumptions. Together, these comprise the $3.4 billion of underlying free surplus generation we delivered in the first half. The key driver of future UFSG growth is successive cohorts of profitable new business, adding to the substantial distributable earnings from our large in-force book. We've illustrated this on the left-hand side of the slide.
Every dollar of new business we invested in the first half generated, on average, four additional dollars of discounted future distributable earnings, demonstrating the highly attractive returns we achieve on organic growth. Over the next ten years, our substantial in-force portfolio is expected to generate $45 billion of distributable earnings. This assumes no other operating variances, such as the $0.3 billion we delivered in the first half of this year. This total increased by $2 billion over the half, primarily as a result of new business added. This is why VONB growth is such an important focus for AIA. At our first quarter update, we provided a shareholder view of the group's capital position. Shareholder total capital resources includes free surplus, plus eligible debt and required capital, as stated in our EV report.
Required capital includes the prescribed capital levels for our various businesses, as set out by our regulators. In addition, we hold capital to withstand a range of stress scenarios, while ensuring we can fund our organic new business growth plans. Our shareholder capital ratio was 242% at the 30th of June, allowing for the remaining $3.1 billion from the existing share buyback program. Our new capital management policy, announced in April, provides greater clarity on how we will deliver higher annual capital returns to shareholders. There are two key components. The first is an annual payout target of 75% of annual net free surplus generation that complements our well-established dividend policy. The balance of the 75% payout above dividends will come from additional share buybacks announced at the annual results each year.
This target payout is set at a level which we expect will gradually reduce the shareholder capital ratio. The second component is a commitment to regularly review our capital position and return excess capital. Under this component, we announced an additional $2 billion to our existing buyback program in April, bringing the total to $12 billion. This policy underscores our commitment to systematically return capital in excess of our needs, while continuing to deliver organic growth at attractive returns. The board has declared a 5% increase in the interim dividend as at 30th of June, 2024. Dividends and share buybacks totaled more than $15 billion over the last 2.5 years. We will announce the final dividend and the results of the annual payout consistent with our capital management policy in our 2024 full year announcement next March.
In conclusion, the group has delivered an excellent financial performance in the first half of 2024. VONB was up 25% to a record level, and both OPAT and UFSG were up by 10% per share. In the first six months of 2024, we returned $3.4 billion to shareholders in the form of dividends and share buybacks. Operating returns increased, with ROEV up to 16.5% and ROE up to 15.3%. As we actively seek to optimize returns to shareholders, we announced our new capital management policy in April to deliver higher annual distributions for shareholders. We have further increased the dividend, and our share buyback program is ongoing, with $3.1 billion remaining to be completed by April next year, and today, we announced a three-year growth target for OPAT per share.
There are substantial opportunities for AIA to continue to deliver attractive returns for shareholders well into the future, and I have every confidence that we will do so.
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 three 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.
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.
Hello. Hi, good morning. 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 CER basis for OPAT and also the UFSG. So I have three questions. The first question is related to OPAT and UFSG. 10% growth CER 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%-11% for the next three years. Can you maybe walk us through the drivers behind? And do you have any UFSG guidance? That's first question. Second question is related to China. I think previously you said you have a target of one new branch per year to open a new branch. Now, it's already late August, do we have any update for this year 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? Thank you.
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 you know, as we 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.
Yeah. 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 being 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 practice. Again, you saw positive variances in the first half that reflect that. I think that the target reflects our confidence in the future, our confidence to deliver new business and to manage the in-force portfolio.
If you look forward, we set a target of 9%-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 shareholder's 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.
On your second question on the China and 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 Sichuan, 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. You know, as for the progress with regards to new licenses, I'll hand over to Jacky.
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. Forty-six percent real VNB growth, and the growth is a broad base 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 such 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, is 11% growth in number of active agent.
We continue to grow our recruitment by 26%, and even our total agency manpower has growth in the first half. 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. We are happy to say that the discussion has been very positive, and we continue to expect one to two new provincial license in a year.
Yeah. On your third question about the China interest rates and the macro environment, I'd just like to, you know, emphasize the fact that we've been in the region for more than a hundred years. We have, you know, 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, you know, as part of our day-to-day business. I'll hand over to Garth to talk more about how we are handling the asset and liability situation.
Yeah. Yeah, thanks, Yuan Siong , and thanks for the question, Charles. I think obviously, we match our assets and liabilities as closely as we can. That's part of our active ALM management. And when we look at the assets, the first thing we look at is the liabilities. You'll 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 they 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 fifty basis points, then you see a 4% reduction in the embedded value. I think that reflects the ALM management.
On an ongoing basis, we obviously reprice and redesign our products. 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.
Thanks, Garth. And Charles, does that answer your questions?
Oh, yes. Thanks.
Thank you. Next question, please.
The next question comes from Thomas Wang of Goldman Sachs. Thomas, please unmute yourself and start your question. Thank you.
Thank you. Thank you for the opportunity to ask a question. A few question 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 dilution, share count reduction have been reflected in that target? If we can sort of simply have maybe a OPAT growth CAGR, what's the underlying assumption of OPAT growth CAGR be underlying the OPAT per share CAGR target? And secondly, on the CSM movements, will we see there is a change in the new business CSM to new biz NBV value multiple? So I think that comes out to roughly one point five or point six versus previous.
I think a couple of years back, we were at one point nine. Just want to get a sense of where this should land at, if we think about, say, two or three years down the line. Thank you.
Yeah, Garth?
Yeah. Yeah, thanks. As far as the OPAT, as you—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, but the per share will increase. So that, that's the reason for that.
On the CSM to 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 the... you know, 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 one point five times. I think it was Lance that said it should remain stable.
It does vary by 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.
Thanks, Garth. Any follow-up question, Thomas?
Yeah, just maybe if you then we can sort of get a sense of what's the driver of the changes year on year on that new business CSM, just EV/EBITDA multiple. Is that, as I say, it's product mix, or which geography or which product segment that was driving that change?
Yeah. There are a sort of variety of factors within that, Thomas. It's perhaps easier to talk to Lance offline about more of the detail. For example, if you look at the par and non-par 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.
Got it. Thank you.
Okay. Thanks, Thomas. Next question, please.
The next question comes from MW Kim of JP Morgan. MW, please unmute yourself and ask your question.
Good morning, and thank you so much taking my question, and congratulations on the very good result. I have two questions. One is about India. So as the company communicated, relatively weaker, the India new business value growth in second half was due to the last year's high base. That said, the business looks very big scale. If the Indian government would allow the company license in a 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 start to decline from here, would we assume potentially the lower new business CSM margin or multiple, especially for the whole life?
And also, under such a big and good new business CSM growth, is it reasonable to assume roughly that the middle single digit the CSM balance growth outlook in next few years? Thank you.
... Yeah, thank you for your question on India. India is obviously one of our growth engines. It is an exciting opportunity, a very large market. We have a strong presence. The business is performing very well. Our partnership with Tata, you know, the-- I think the relationship is excellent. We have a very high quality business, where the persistency, in fact, is market leading, and we are the number three in terms of the private insurers in India. So, I'll hand over to Leo to talk about India a bit more. Yeah.
Yeah. Hi, good morning, MW, and 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 a comparable very strong last year. But the latest quarter that you've seen reported through industry disclosures was very strong, and Tata 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 two new bancassurance partnerships. 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 been in discussions now for a couple of years and has not come up yet for has not been approved yet. The details of it also are changing quite a bit. 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.
Garth, on the CSM question?
Yeah, 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.
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. Thanks.
Thanks, MW. Does that answer the question?
Yes. Thank you.
Thank you.
Thank you, and on to the next question, please.
The next question comes from Kailesh Mistry of HSBC. Kailesh, please unmute yourself and ask your question.
Morning, Kailesh.
Kailesh , we cannot hear you. Please press the unmute button on your screen and ask your question.
Ah, there we go. Is that better?
Hi, Kailesh.
Hi, Kailesh .
Hi. Good morning, everyone. Thank you for taking my questions. Thank you also for the additional disclosure on free surplus disclosure, on slides 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 five-year buckets, 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 yeah, those two, please.
Garth, I guess, the questions for you.
If I can remember all the questions. Yeah, yeah, the expected return on free surplus and assets back at MTM, so that, that is indeed, as it says, yeah, on the tin. 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 volume new business growth. For the rest of it, the... You asked about the bucket?
Variances.
Variances.
Variances were similar, yeah, yeah. I think point three.
Consistent.
It's consistent. Yeah.
EV.
EV.
It's EV, yeah. Consistent with the EV and UFSG. Effectively both on the same basis. In terms of the buckets, I think you'll see each year how that adds going forward. I think the critical thing here is that we've illustrated the D from the IFRS is relatively stable, and I think that's important.
Yeah. And the interest rate assumption on-
The OPAT target.
OPAT target.
Oh, yeah. 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. Mm-hmm. Does that answer everything, Kailesh , or did we miss some?
I think you answered it. I had one more that I forgot to ask, which is on Hong Kong, 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?
Yeah. I'll hand over to Jacky to talk about Hong Kong, but I just want to start by saying they're very pleased with the performance in Hong Kong, because we saw a very strong growth both from domestic and MCV segments. Yeah.
Yeah. Thank you, Yuan Siong. In fact, the Hong Kong growth is also driven by a very strong fundamentals of their Premier Agency in Hong Kong. Number of active agent growth, and our new recruit also grow 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, we our Hong Kong have quarter-to-quarter growth Q2 over last year Q2 double digit growth in our 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 continue 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.
Thanks, Jacky. Thanks, Kailesh, for the questions. Next question, please.
Thank you.
The next question comes from Richard Xu of Morgan Stanley. Richard, please press the unmute button on your screen and ask your question.
Thank you for taking my question. 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 the 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? 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 EM new and other markets, you know, talk a little bit about India. I mean, obviously, clearly, as a whole, it was lagging other markets.
Any outlook on that, and for example, Vietnam or other markets, we'll see, you know, in addition to India, will there be a rebound in other markets? Thank you.
Yeah. I hand over to Jacky to talk about the China recruitment and product mix. Like I said, I've 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 if the recruitment process for the new agents is as rigorous as the recruitment for a full-time employee in AIA, you know?
Yeah. Thank you, Yuan Siong. I just want to reiterate this, because the differentiation of China is really our premier full-time professional agency force. So as you say, "Oh, now is a big economic challenge in Mainland China," but we continue to be highly selective. All the new agent has to go through at least three rounds of interviews. And right now, our new recruit has grown for 26%, and in fact, more than 94% of those new recruit, they have a college degree or above. So we are really continue to focusing on increasing our quality and premier agents. 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.
As to the product, that is also closely related to our Premier Agency, because we are targeting the middle income above customer segment, which are more resilient under this so-called a big economic challenge environment. 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 are more than capable of explain this more complicated participating product to the customers. 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 to long-term saving product, we have diversify it with participating long-term saving product, and our Premier Agency force also continue 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 make up of roughly 25%, right, of our new business in the first half. And we just want to let you know, in fact, in July this year, we continue to launch new product, which are tax deductible, which is a very welcome tax deductible long-term care product, which in effect is more a critical illness product. So this really reflect how our Premier Agency force, targeting the affluent customer segment, work very well in the current situation.
Go that way?
Yeah, all right.
Yeah. On other markets, I think, Leo explained, just now about, you know, 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, you know, 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, you know, very pleased with the fact that we were able to extend our bancassurance partnership with, BCA in Indonesia to 2038 . And so, very encouraged by the performance of, other markets, yep.
As I said, India is a temporary, you know, fluctuation in the growth, that's very, very specific to India. Yep. Thanks.
Thanks, Yuan Siong . Does that get all the questions you had there, Richard?
Yes. Yes. Thank you. Thank you.
Thank you. Over to the next question, please.
The next question comes from Michelle Ma of Citi. Michelle, please press the unmute button on your screen and ask your question.
Thank you, management, for giving me this opportunity, and a big congrats on the results with no literally no weakness on this set of results, so I have two questions here. It's about Singapore and Thailand. For Singapore, actually, that's a true surprise for me, very strong growth, 27%. And it's mentioned the growth can be attributable to the growing wealth opportunities, so could you shed more light on this, so I wonder whether, you know, 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 you have so that you can share with us on this wealth opportunities you mentioned, and second, on Thailand.
So Thailand has experienced a product favorable margin expansion with a product mix shifted towards higher margin products. But I think this year we noticed Thailand 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 you know the business you know done by agents especially in the Bangkok area? Thank you.
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, you know, 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, you know, very professional agency force. And as I mentioned in my speech, you know, one in four agents in Singapore are MDRT qualified. You know, it shows the high, you know, 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, you know, after many, many years. I think the foundation for our performance in Thailand is, you know, many, many years of hard work to reform the agency force. If you may recall that ten years ago we started this process to reform and professionalize the agency force in Thailand to introduce the FA program to, you know. You know, after many, many years of hard work, you know, it is beginning to pay dividends. So I'll hand over to Hak Leh.
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 must 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, the VONB whole 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 the product standpoint, the traditional protection business, which has been a key area of focus for us, continued to grow strongly in first half, up 18%.
The long-term savings business deliver outstanding performance of 35% in first half, driven by the success of our bespoke long-term savings products for the affluent and high-net-worth individuals in Singapore. The product was backed by AIA's unique regional fund platform, managed by AIM. You 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. 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. I hope that answers your question.
And 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. It was a massive progress built upon multiple years of hard work. We are very pleased to see them. Our FA programs continue to deliver excellent growth in first half this year, grow by 33%. And from the product mix standpoint, we are the market leader in most key products. We are. We're number one in unit- linked, number one in health insurance, number one in the whole range of protection riders. We do not see 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 because of that, the affordability for purchasing good value for money, the protection policies from us, they remain high, and of course, we've been in Thailand for 86-87 years. We've 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.
Thank you.
Thank you.
I just add one point about Singapore, you know. Well, yes, we saw a strong demand for long-term savings products in Singapore. I'd like to, you know, highlight the fact that two-thirds of the long-term savings products is unit- linked, and the remaining is participating policies. And on Thailand, I think, you know, the near-term economic challenges does not detract from the long-term, you know, attractiveness of the Thai market, you know.
The drivers for growth for the market for that makes Thailand a highly attractive market for AIA remains intact, you know, the young, growing population, the large protection gap, increasing savings, all that, you know, you know, continue to, you know, make us very excited about the prospects in Thailand. Yeah.
Thanks. Did you have a follow-up there, Michelle?
Yeah, yeah. Thank you. Very clear. May I follow up on the bit of Singapore business, onshore versus offshore? Thank you.
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's status as a very important financial hub for the region. And we reach out to the-
Can we say more than 90%?
I would say the large majority, yeah.
Okay, thank you.
Good try, Michelle. Thanks. Next question, please.
The next question comes from Michael Chang of CGS-CIMB. Michael, please press the unmute button on your screen and ask your question.
Can you hear me? Hi.
Hi, Michael.
We can now.
Yes. Hi, thanks a lot. Thanks for giving me the opportunity to ask questions. It's Michael Chang here. First question I have relates to the Hong Kong business. It's a very impressive result for the first half, but maybe could you shed some light on it on a quarterly basis? Because, the first quarter was up 45%. The first half was up 26%. In terms of forecasting. 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, you know, 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, and the reason given was higher U.S. rates. But 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 positive or negative? And then maybe, lastly, on the Mainland China business, it's 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 the VONB, and maybe somewhat related to that, the product mix, because I see that the traditional protection mix for the 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? Thanks a lot.
Yeah. And Jacky, on Hong Kong?
Yeah. Really want to say that we are pleased with the Hong- 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, you know, last year, Q1, the border just opened somehow in February. So last year, Q1 was comparatively 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 two, as I said, is a double-digit growth compared to last year, Q2. And last year, Q2 was a strong base because yeah, a bit of the so-called pent-up demand of MCV after the border opened.
You also see that we have, this year, Q1 to Q2, we also have a quarter-to-quarter growth. 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 agent, increase in the agency recruitment, which will continue to drive the sustainable business going forward.
Yeah. 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, you know, I'm very pleased with the performance in the first half from Hong Kong and from the rest of the business. On MCV itself, you can also point to the fact that more and more cities are being allowed to, you know, have more freedom to travel to Hong Kong from the mainland. Now, on the CSM,
Yeah, firstly, just to say, Michael, I mean, obviously, $172 million is very small. So, it's a small number on a, on 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.
Yeah. 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 on working with them to sell to the affluent customers of these banks as we demonstrated in our presentation. Jacky?
Yeah, 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 $19,000 average case size. And the product mix basically are mostly long-term saving product and also some of the long-term protection product. And as you also point out, as a whole, our AIA China product mix, we continue to see a strong growth in the traditional protection products, which are mostly driven by our agency force.
Thanks, Jacky. I think we have one question left in the queue.
The last question comes from Edwin Liu of CLSA. Edwin, please press the unmute button on your screen and ask your question.
Hi, good morning. Thank you for the opportunity to ask question. 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 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, a 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 one would 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 management perspective, any suggestion to the investment community how we should value AIA going forward? Still on price to EV, or maybe we could change to price earning, price book, or use CSM metrics, et cetera. Yeah, thank you.
Yeah, Jacky, hand over you to talk about Hong Kong domestic customer demand. What I found coming to Hong Kong is that Hong Kong people like to buy insurance. Yes, certainly. And I want to say that the protection gap in the domestic Hong Kong business remain very big, 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 will also want to add one thing, because I have been talking about this to 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.
We, in a way, we may call them the new Hong Kongers. And, you know, the Hong Kong government is really encouraging more of their migrant coming to Hong Kong through, for example, Top Talent Pass Scheme, Quality Migrant Admission Scheme, and there are also many college graduate coming from overseas. They can may stay in Hong Kong, and this actually adding to this the Hong Kong population. And, I can tell you, we do track these Hong Kongers, yeah, as a percentage of our new business in domestic. And I 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 the domestic customer segment.
Share buyback.
On share buyback, I think quite rightly, Edwin, you looked at our capital management framework. It's about capital management, how much 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. Yeah.
And the final question?
What was the final question again? I lost-
As you know, I explained before-
Oh, valuation. Yeah.
You know, our business is about writing profitable new business, growing our VONB, which VONB growth, which translates to surplus that's distributable to shareholders. So you know, obviously, there's, as we have demonstrated, there's a link from VONB, you know, growing new business to you know, increasing operating earnings. So I think, you know, internally, we really look at the EV and VONB metric as the you know, the key driver of the value of the business. Garth?
Yeah, no, I'd agree with that, Yuan Siong. I think, Edwin, we, you know, we think that, the embedded value is a better reflection of the value to shareholders ultimately. It's based on, distributable earnings-
Mm-hmm.
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.
Mm-hmm.
And again, the capital management program shows how that VONB will eventually turn into cash and be returned to shareholders, either through dividends or through share buybacks. So embedded value is the key. Yeah.
Thanks, Garth. Does that answer the questions, Edwin?
Yes. Yes. Thank you very much.
Great. Thank you...
We don't have any more questions from the participants. I will now pass it back to Lance to conclude the session.
Thank you. Thanks, everyone, for watching, and thanks to everyone for participating that asked questions. Obviously, investor relations are available to answer any follow-up questions. And, thank you very much. Good morning.
Ladies and gentlemen, this concludes AIA's twenty twenty-four interim results Q&A session. Thank you for your participation.