Good morning from AIA Central in Hong Kong. Welcome to our First Quarter 2024 Update Q&A session. 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, either with us in the room or joining us remotely. Before we start the Q&A, Yuan Siong and Garth will take you through a short presentation on our first quarter new business performance and our new capital management policy. Yuan Siong?
Good morning, everyone. Today, I'm very pleased to announce our first quarter results and our new capital management policy, clearly demonstrating the strength of AIA's business model and our financial discipline. Value of new business for the group grew by 31% in the first quarter of 2024. We delivered AIA's highest ever quarterly new business result, building on our very strong VONB performance in 2023. Our new capital management policy provides greater clarity as to how we will deliver higher annual capital returns to shareholders. Following this new policy, the Board has approved a further $2 billion buyback, which increases our existing share buyback program to a total of $12 billion. I am confident that AIA is exceptionally well-positioned to capture the highly attractive opportunities available to us across the region.
We continue to focus on driving high quality, profitable new business growth that delivers increased future earnings, free surplus generation, and greater shareholder value. Let me now take you through the first quarter new business highlights. VONB was $1.3 billion, a record high for a quarter, and up by 31%. We delivered double-digit growth from all our reportable segments, with VONB margin increasing by 2.1 percentage points to 54.2%. AIA China was up 38%, driven by very strong double-digit growth from our premier agency, supplemented by growth from our highly selective bancas surance partners, where VONB margin increased to around 40%. Growth was broad-based across our established operations and new branches, and the VONB margin for AIA China increased further from the second half of 2023 to 54.6%.
AIA Hong Kong grew by 43%, with double-digit growth from both the domestic and mainland Chinese visitor customer segments. New business from mainland Chinese visitors continued to build momentum, with VONB in the first quarter higher than in the fourth quarter of 2023. Our three largest ASEAN markets, Thailand, Singapore, and Malaysia, all grew by double digits, with combined VONB growth of 16%. Our other markets segment was up by 10%, with excellent growth from Tata AIA Life in India, and strong performances from Australia, the Philippines, and South Korea. Today's announcement clearly demonstrates the strength and diversification of AIA's businesses, which enables us to capture the significant growth opportunities across Asia and deliver capital returns to shareholders. I will now hand over to Garth.
Thank you, Yuan Siong. There are two key components to our enhanced capital management policy announced today. The first component is an annual payout ratio target that supplements our progressive dividend policy with annual share buybacks. The second component is a commitment to regularly review our capital position and return capital that is excess to our needs at least annually. As a result of this, we are adding $2 billion to our existing share buyback program. We expect this to commence as soon as practicable and to complete in around 12 months. Let me now explain how this policy works in practice and how we assess our capital position from a shareholder's perspective. While the Group LCSM surplus is our principal regulatory solvency measure, we've always said that free surplus provides a more representative view of the capital position for shareholders.
Since the introduction of the LCSM framework, we've shown a reconciliation of the Group LCSM surplus and free surplus consistently in our interim and annual results. Free surplus removes items included in the LCSM that are not available for distribution to shareholders, for example, the surplus within Par funds. We calculate the group's total capital resources by adding free surplus to eligible Tier 2 debt and required capital. On this basis, the ratio of total capital resources to required capital was 269% at the end of 2023. The first priority within our capital management framework is to maintain a strong and resilient balance sheet.
While required capital includes the prescribed capital levels for our various businesses set by our regulators, we hold additional capital that allows us to withstand a range of extreme but plausible stress scenarios, while also ensuring we do not constrain organic new business growth. For example, we include a repeat of the GFC, pandemics, persistent high and low interest rate scenarios. We also allow for combinations of these scenarios at the same time. Based on our assessment of our current capital needs, including these scenarios, we target for shareholder total capital resources to comfortably exceed 200% of required capital. On completion of the remaining $2.8 billion from the existing share buyback program, together with the additional $2 billion buyback announced today, our free surplus on a pro forma basis, as at the end of 2023, reduces to $11.5 billion.
The pro forma ratio of shareholder total capital resources to required capital reduces to 238%. Our new enhanced capital management policy provides greater clarity and will deliver higher annual capital returns to shareholders. Starting from our 2024 annual results, we will target a payout ratio of 75% of annual net free surplus generation through dividends and share buybacks. Net free surplus generation is calculated as shown, using figures that we have consistently included in our results announcements. Net free surplus generation is calculated before investment return variances. While investment return variances, foreign exchange, and other non-operating items create free surplus volatility from year to year, they have averaged under $80 million a year since our IPO. This formulaic approach automatically adjusts for further organic investment in profitable new business.
As we grow the business, the balance sheet and required capital will increase, driving the need to retain some net free surplus generated. However, with a 75% payout ratio, we expect the total capital resources to required capital ratio to fall over time from 238% as we grow and regularly return capital to shareholders. For clarity and completeness, our policy of delivering prudent, sustainable, and progressive dividends remains unchanged. The balance of the payout above dividends, with a target 75% aggregate payout ratio, will be provided by way of share buybacks announced at the annual results each year. Let me now illustrate how our capital management policy will work in practice based on our 2023 annual results. As I said, there are two components to the policy, and it is important to consider these together.
Net free surplus generation was $3.9 billion after new business investment of $1.3 billion. Under the first component of the policy, based on the 75% payout ratio target, $2.9 billion would have been returned to shareholders. The 2023 interim and final dividends total $2.3 billion. The $0.6 billion balance would therefore have come in the form of an additional share buyback. We will announce this year's net FSG final dividend and additional share buyback at our 2024 annual results. Under the second component of the policy, the regular review of our capital position, we have today added $2 billion to our existing share buyback program. This is in addition to the $2.8 billion we will return in 2024 and the annual dividend payment.
Together, these amount to roughly 10% of our recent market capitalization. In conclusion, you can see that overall, our new capital management policy provides both greater clarity and higher capital returns to shareholders. I'll now hand back to Yuan Siong.
Thank you, Garth. In closing, today's very strong new business growth, combined with the clarity from our new capital management policy, clearly demonstrate the strength of AIA's significant competitive advantages, operational delivery, and financial discipline. We have the right strategic priorities, and our consistent execution gives me great confidence that we can continue to deliver significant value creation for our shareholders. Over to you, Lance.
Thanks, Yuan Siong. With that, we will now begin the Q&A session. So over to you, operator. 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 shown on your screen and ask your question. If at any time you need to cancel your request, please unclick the hand-raising button. Let's proceed, and our first question comes from Charles Zhou of UBS Securities. Charles, please press the unmute button on your screen and ask your question.
Okay. Good morning, everyone. So congratulations. I think it's a very strong set of results, and also finally, we got more clarity about-
Charles, please press the unmute button on your screen and ask your question.
Yes. Hello, can you hear me? I've already clicked the unmute button. Hello? Okay. Okay, yeah. Can you hear me? I think the operator just keep asking me, yeah. I think I've already clicked the unmute button.
We can hear you now.
Okay, great. Okay. Yeah. Congratulations. I think it's a very strong set of results, and also finally, we're glad to see some clarity about the enhanced capital management plan. So I've got two questions for management. First, you know, some of your peers have provided a long-term target for the underlying free surplus or maybe some free surplus. So can you maybe, d oes AIA have any targets, or can you talk about any targets for the long term? Otherwise, any colors or key considerations in thinking about the net free surplus generation will be very helpful to us, because, Garth, you know, we need to do some projection here.
And second, after the recent regulatory inspection on the MCV-focused brokers in Hong Kong, I would like to hear from management, what do you think about the outlook for this channel in second quarter and also beyond, and also AIA Hong Kong growth prospects as a whole. Do you think it, you know, this is an individual event, or does it indicate a wider clampdown, such as capital control on the MCV business? Thank you.
Yeah. Firstly, thanks, thanks, Charles. I understand the need to try to project this in some way forward. I think the important thing to remember is that, as with our metrics on earnings, similarly, the successive layers that we put on a profitable new business translate into underlying free surplus generation. So, as we explained, I think, at the full year, as you add further new business layers, those add to earnings, they improve the ROE, and then also they add on to the free surplus generation going forward, this layering comes through. I'd suggest in terms of forecasting, it's probably better to talk to our IR team and get technical support. There are a few elements to put in there.
Why we thought of net free surplus generation was that then, clearly, the best way we can create value for shareholders is by growing the business organically. Then the higher the new business strain, then that will obviously impact net free surplus generation, but, that will indicate that we are growing the business very strongly, and creating greater value for shareholders.
I would just add that the underlying free surplus generation is a very key metric that the management is very focused on. It is one of the key metrics in our short-term incentive program, and we intend to introduce this as another metric in our long-term incentive program as well. So it is a very important metric that the management is very focused on. Yep.
Hi, Charles. Thank you for the question on the MCV broker. First of all, the investigation by the Hong Kong Insurance Authority and ICAC, it is still under investigation, and the identity of the broker has not been disclosed. First of all, I want to let you know that in fact, since the border we opened in last year, the Hong Kong life insurance industry has been in discussion with the Hong Kong Insurance Authority to keep, review, and investigate the sales practice of certain sales intermediaries to ensure full compliance of the MCV business and to ensure the long-term sustainability of the MCV business. In the case of AIA, you all, you know that AIA holds a very high standard on compliance on MCV policies.
We require the MCV customer to be present in Hong Kong or Macau, and our staff at the Wealth Select Centre will meet with the customer, will ensure all the proper documentation, et cetera. We also carry out welcome call to check the MCV customer on the sales process, et cetera. In fact, AIA very welcome the initiative taken by Hong Kong Insurance Authority in this case. As I said, this is still under investigation, but in view of the heightened risk of this concerned broker, AIA Hong Kong already suspend new business coming from this broker.
First of all, I really want to reiterate that the MCV business is a business in the Hong Kong insurance industry for almost more than two decades, and the MCV customer flow coming to Hong Kong remain very strong. In the case of AIA, we have a diversified distribution channels, and our core agency channel actually took up more than 80% of the MCV business of AIA Hong Kong, and the rest is coming from our diversified bancass urance partnership and more than 100 brokers. So we see that the so-called short-term impact from this broker to Hong Kong to AIA actually is very, very minimal. In fact, this will really help the long-term sustainability of the MCV business through the broker channel.
Yeah, I agree with Jacky, and I really welcome the actions taken by the Hong Kong IA, because I believe it will support the long-term sustainability of MCV business in the Hong Kong market.
Thanks. Does that answer the questions, Charles? Not heard that back.
Yes, yes. Okay, thank you.
Yeah.
Thank you.
Okay, thanks, Charles. Next question, please.
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. Can you hear me?
Yes.
Okay, great. Thank you, gentlemen, for this opportunity. A couple of questions. Firstly, just wanted a little bit more detail on that total capital target of comfortably above 200%. Can you sort of share a little bit more color on that, and how you think about free surplus and eligible debt mix within that resources? How much sort of you're comfortable raising that use of eligible debt to as capital resources? Sorry. The other thing is Mainland China. Can you talk about the bancas surance and agency mix in terms of sales and VONB in the first quarter?
Then have you kind of completed with the rollout of bancas surance, and this is the so the major rollout of bancas surance channel, and how do you see that mix evolve for the rest of the year and into next year? Thank you.
Yeah, thanks, Thomas. As we showed earlier, we're targeting this shareholder capital ratio that comfortably exceeds 200%. When we look at reviewing our capital position regularly, and looking at the capital that is in excess of our needs, that also includes optimizing our overall capital structure, depending on debt market capacity and conditions. Clearly, the group retains additional financial flexibility from its debt capacity. From a ratio perspective, our current credit ratings, our Moody's leverage ratio could go up from the current around 15%-20%. But we're comfortable with our current financial ratings. Clearly, our business is a life insurance business. It's retail. It's not as sensitive to credit ratings as, say, commercial non-life insurance.
But we do look at both the amount of capital we need and the structure of that capital, on an ongoing basis, in order to optimize both. Yeah.
Hi, Thomas. Let me take you through our very strong AIA China results in the first quarter. We are very pleased that the growth is broad-based across both agency and also bancassurance channel. Furthermore, our protection VONB also grows double-digit in the first quarter this year. Our agency remains our core channel, and the agency growth is driven by growth in a number of active agent, and a more than 20% growth in number of new recruits and number of new active agents. This is very broad-based, and the ANP per active agent also grows strongly in first quarter. So our agency really continues to perform very well in both protection and the long-term savings products.
As our differentiated banc assurance, we continue to focus on our partner, strategic partners banks, including China Post Group, Bank of East Asia, Shanghai Pudong Development Bank, and Bank of China. We've continued to focus on the affluent and above customer segment, and the average case size speak for itself. It is a very, very strong average case size. Our banca ssurance profitability actually also improved in first quarter. From last year, first quarter to this year, first quarter, that was what almost a VONB margin of 40%. So we are very pleased with this differentiated banc assurance channel. In the first quarter, the banc assurance channel contribute roughly 15% of our total VONB of AIA China. We continue to be very bullish about the outlook of our AIA China business in Mainland China.
Thanks, Jacky. Does that answer the question, Thomas?
Yeah, yeah. Thank you.
Okay, thanks. Next question, please.
The next question comes from MW Kim of J.P. Morgan. MW, please press the unmute button on your screen and ask your question.
Hello? Can you hear me?
Good morning.
Oh, yeah. Yeah, thank you so much for taking my question, and really appreciate your quarterly management call. Following this announcement, as previously mentioned, the underlying free surplus generation perhaps become more important, the figure, to the shareholders and broader stakeholder. So my first question is about the management, the KPI. So currently, the new business value has a larger weight in the management, the KPI. Would we expect a potentially higher weight on underlying free surplus generation in short-term incentive scheme moving forward? And next question is about the India. As the company commented in the report, India joint venture seem to enjoy excellent journey with bigger scale. Would we expect more detailed number in India business in the foreseeable future? Thank you.
Thank you, Kim. Now, in terms of the nature of our business, it's a long-term business, and as you know, writing profitable new business is key to supporting our future earnings and future free surplus generation. So we will continue to be very focused on our VNB, and it will continue to be the most important metric in our incentive programs. Right? I've mentioned just now that we are very focused on operating profit. We are focused on EV. We are very focused on underlying free surplus generation. As a result, we are introducing the underlying free surplus generation as a new metric to the LTI program. Yeah.
This will allow us to have an additional focus on the UFSG number going forward. Yeah.
Yeah. Thanks, MW. Just to add, you know, we've always said that, you know, VNB is a leading indicator. As I just mentioned, that leading indicator of VNB then translates into a stream of earnings, a stream of free surplus going forward. And so that leading indicator will continue to be important. What you'll then see is that the earnings and the free surplus will come through, and it's important then that we look at those, and that reflects then the ongoing operating performance and management of the in-force. Clearly, we'll look at managing the capital, so we're managing the E as well as the R in order to further improve our ROE over time. On India, as you say, excellent growth in India.
We're very excited about that business. It continues to perform very, very well. I think you'll see increasingly more information coming from that. Clearly, there's a lot of information in the local market that's available in addition to what we provide. You know, we'll look to keep people well-informed of our developments there, because we think it's a key growth engine for the future.
Thanks, Garth. Any follow-ups, MW?
That's very clear. Thank you. Thank you.
Thank you. Next question, please.
The next question comes from Kailesh Mistry of HSBC. Kailesh, please press the unmute button on your screen and ask your question.
Morning, everyone. Thank you for the incremental disclosure today on capital management and new business. However, I've got three, three questions. The first set of questions are on capital management and the modeling of that. I guess one of the key assumptions is required capital. That grew by about 10% per annum over the last five years. Is this a reasonable assumption, going forward, or should it be higher, given the new business growth? On eligible debt, just to follow up on the previous answer, I think Garth mentioned you had additional capacity of five percentage points on the Moody's calculation. Just to clarify, is that all eligible for an LCSM basis? Which I think is the number that's included in this calculation.
Secondly, just on China, what was the product mix in the first quarter, versus 2023? I guess, split between pensions, protection, and the, the other savings business. On Hong Kong, offshore, again, what was the product mix? Did we see a bounce back in protection, and did the savings case sizes hold up? Thank you.
Yeah. Thanks, Kailesh. In terms of the required capital, you'd expect that to grow in line with the business. I think the important thing to look at is the free surplus overall, rather than just being fixated on a ratio. Clearly, the free surplus will continue to grow. I think the key thing will be to sort of have a broad model of the business, and maybe again, the best thing to do will be to talk to the IR team to work through how that might be best done. But as we said, we expect that ratio of free surplus to required capital to continue to fall over time, based on the 75% payout ratio of net free surplus generation.
And we'll continue to review that on an annual basis at least, and see where we are. In terms of the eligible debt, clearly, the room we have in terms of the ratings does vary by rating agency. We've quoted the Moody's number here. It does provide us with important financial flexibility for whatever purpose. And clearly, you also have to consider the capacity of debt markets and structuring, and so on, at the same time as well. So a number of things to think about. In terms of the LCSM, the LCSM clearly includes regulatory eligible debt. There are different conditions for that and for ratings agency eligible debt. They are broadly similar.
Each rating agency, as you know, has different criteria. So, we look to have debt that covers all of those different requirements and be eligible for both ratings and for solvency, but there are differences between each basis.
Hi, Kailesh. On product mix, China. So there are really some difference, because in China, they are always innovate a product and keep in pace in the competitive market. So last year, first quarter, we didn't have the tax-deferred personal pension benefit. Last year, first quarter, we only saw a very small portion of participating business. And also last year, first quarter, we have we rolled out the first in the market, the so-called simplified issue, CI. So it is quite different in the agency channel.
So this year, first quarter in the agency channel, the Tax-deferred Personal Pension plan actually is one of our top-selling product in the agency channel, and it also help our new agent and also our agents in general to acquire new customers. Then secondly, we continue to focus on CI, our flagship As You Wish Critical Illness product has growth in our first quarter this year compared to last year first quarter. And overall, our total protection VONB has strong double-digit growth, as we also focus on a lot of those renewable medical insurance business in the agency channel. And lastly, in the agency channel in this year, we roll out participating product. In first quarter, it make up about 10% of our agency VONB. So this give you a feel of that difference.
But as a whole, the agency channel VONB margin, even though the interest rate comes down, we already adopt the China Association interest rate in the VONB, and our agency VONB margin still hold up at about 60%, at a similar level compared to our first quarter last year. As to our bancassurance channel, our differentiated bancassurance channel, as I said, the margin increased to 40%. And the bank bancassurance channel continue to sell a lot of a mix of long-term saving product and long-term protection product. So that is about the product mix of AIA China in the first quarter. As to Hong Kong, the MCV product mix roughly remain unchanged.
The protection sales remain to contribute more than 50% by new business policies. And the average case size of the MCV business roughly hold up at about $19,000, similar level as last year whole year. And and our our long-term saving product continue to be very welcome by the MCV customer. So basically, I would say in the case of AIA Hong Kong Macau, the MCV product mix roughly is similar to the last year level.
Thanks, Jacky. Any follow-up questions, Kailesh?
No, no follow-up questions, but just a sort of request, I guess. Some of your peers do allow us to model that required capital a little bit more clearly, so that additional level of disclosure might be helpful. And similarly, on the undiscounted fifth profit emergence, which I think you currently put in five-year buckets. But yeah, those would be two requests for disclosure, I guess. Thank you.
Understood. Yeah. Thank you. Okay, next question, please.
The next question comes from Richard Xu of Morgan Stanley. Richard, please press the unmute button on your screen and ask your question.
Sure, thank you for the opportunity. Again, very congrats on a very solid first quarter. Two questions from me. One is, obviously, some of these strong numbers were still probably helped by the low base. You know, for Hong Kong going forward, you know, for example, for second quarter, was high base last year, and then going forward for the full year. Based on the current trends, what are some of the guided expectations for growth for, you know, first half, and then maybe, you know, any guidance for a little bit more further for that? The second question is on China. Obviously, China is going through some transition. Certainly, we are seeing a more balancing of the economic development in China.
Are you seeing any differential in growth from different regions? For example, you know, first-tier cities versus some of the new locations, particularly any early indicators of growth in some of the new offices, like Henan Province, et cetera? Thank you very much.
Yeah. Thank you, Richard. Yeah, I'm very happy to also continue to talk about Hong Kong and Mainland China. Firstly, although you say, "Oh, last year, first quarter, it was a low base for Hong Kong," but if you look at our Hong Kong VONB in the first quarter this year, I want to say that the total first quarter VONB of Hong Kong actually surpassed the fourth quarter last year of Hong Kong. And within the MCV segment, actually, it has a double-digit growth. The MCV VONB of first quarter this year in Hong Kong, Macau, has a double-digit growth over fourth quarter last year end. So I would say this is really a strong, yeah, it's growing strong from strength from strength.
If you look at the AIA Hong Kong VONB for the month of March, it was the highest ever monthly VONB since the border reopened last year. So I want to give you this kind of color to see that, right? Our Hong Kong and Macau business really is growing from strength to strength. And very importantly, is the underlying drivers. I keep talking about the underlying driver. So the growth of first quarter of Hong Kong and Macau in this year is driven by increase in number of active agent and very strong double-digit growth in number of new recruit and number of active new agent. In respect to the MCV-focused new recruit in first quarter this year, actually, the number double compared to the MCV-focused new recruit number in first quarter last year.
So this shows, right, the underlying driver and the strength of the Hong Kong business. So, you know, we don't give our forecast, but I want to say that, yeah, with all this strong driver, yeah, we have strong confidence about the long-term growth and sustainability of the Hong Kong business. Now, in the case of Mainland China, I also want to say that, yeah, continue to reiterate our growth in AIA China, in the Mainland is broad-based. So it is growth from both the so-called old geographies and the new geographies. We have five new provincial licenses since we got the authorization in 2020. And those new provinces grow by 45% in the first quarter this year.
And the growth is driven by, as I'm going to say, it is a strong double-digit growth of number of new recruit and number of active new agent across both the old geographies and the new geographies. And, as I keep talking about, giving some color on the AIA China differentiated agency model, we really continue to see a good case size, average case size from our AIA China agency channel, as well as our differentiated bancassurance channel, because we're really focusing on the middle income and above our customer segment, and those customer segment are more resilient in the current economic situation. So this is what I want to say about Mainland China.
Thanks, Jacky. Any other questions, Richard?
One, just one follow-up question. You know, I know the crackdown on some of the broker licensed brokers in Hong Kong is long-term positive. Any potential near-term impact in the second quarter, are we expecting, or we see no impact at all?
As I said, the so-called Hong Kong broker issue, actually, for the long term, is beneficial for the whole Hong Kong insurance industry and also for the broker channel, for sustainable quality growth of MCV business. In the case of AIA Hong Kong, you see our major MCV channel is still the agency, which is generating more than 60% of the MCV VONB. So, as a whole, we really don't see any significant impact, you know, to the AIA Hong Kong and Macau business.
Thank you very much.
Thanks, Richard. Next question, please.
The next question comes from Michael Chang of CGS International Securities. Michael, please press the unmute button on your screen and ask your question.
Hi, can you hear me?
Yes. Morning, Michael.
Okay, hi. Thanks. I've got two questions. So, first question was on the MCV recruit. So Jacky actually mentioned that it's doubling year-on-year, and I recall last year you had a chart in the full-year presentation, Q-on-Q, increasing every quarter. So I'm assuming that means that it's still increasing Q-on-Q in the first quarter. But specifically on the MCV new recruits, can I just check, how long do they take to become productive? So maybe how long do they take to reach average agent productivity levels for the new MCV recruits? Then secondly, on the capital, Garth has now mentioned the leverage ratio rising from 15%-20%. Is there any timeframe for that?
Then maybe how much tolerance do you have, say, in the event of doing any M&A in the future, are you willing to go above that 20%? Then one just final comment. Absolutely love the transparency in terms of the numerical VONB growth rates you gave for some of the markets, especially Hong Kong, China. Can we get a commitment that given all this concern about from investors about Hong Kong, China growth rates, that we can expect such transparency on a quarterly basis going forward for Hong Kong, China? Thanks.
Jacky, on MCV?
Yeah, let me... Hi, Michael. Let me start with the MCV question. So actually, we see the new agent recruit, in particular, the MCV new recruit. Actually, they are growing, yeah, quarter by quarter, yeah, since last year, since the border re-opened. So we do see continuous strong momentum in this new recruit. Now, when the new recruit will become effective, I want to let you know in AIA Hong Kong, Macau, we employ a very sophisticated kind of selection interview. So we have AI-based aptitude test and also AI-based interview before they come to see our in-person interview.
Furthermore, in terms of the requirement on our new agent, we have a so-called M3, M6, meaning that the first three months, they had to achieve something. The first six months, the new recruit had to achieve something, otherwise, yeah, they will fail. So, in the case of AIA, I want to say that I would expect, on average, the new recruit, they have to become active, able to contribute to a meaningful production in M3, and then continue to ramp up in M6. So this is what we are working on in managing our new agents.
Yeah. Thanks, Michael. On the debt, clearly, as I said earlier, the debt capacity we have gives us additional financial flexibility. We're comfortable with our current financial ratings, and there is some capacity within the current ratings to extend the debt capacity further. That financial flexibility is important to us. But clearly, we look at the capital structure on a regular basis, as well as looking at the capital levels we need. So we keep assessing it on an ongoing basis. Yeah.
Yeah. Then just on the disclosure, so, I'm glad you found it useful. And really what we would—what we wanted to do is to give you reassurance in terms of the growth that we're seeing, and our confidence in that growth. We don't manage the business quarter to quarter, so, you know, we'll consider it for the future.
Sure. Thanks.
Any-
Sorry, can I just follow up?
Yes.
Yeah, on the capital management, can you just elaborate on what the considerations are for buybacks versus dividends? You know, under what conditions would you actually raise, say, your dividends, maybe relative to operating profits?
Yeah. I think the key thing within the framework we've set out is that, firstly, we look at the underlying free surplus generation, net free surplus generation, as being the basis that is more representative of shareholder capital. Clearly, we have earnings as well, and earnings growth, but earnings represents accounting profits, and we think that the underlying free surplus generation, and net free surplus generation in particular, after allowing for new business growth, is a better way to look at the shareholder capital position.
Thanks, Garth. Thanks, Michael. Next question, please.
The next 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, and congratulations on a very good set of results. Just, can I ask on Hong Kong, I noted that the domestic segment also grew quite nicely, a double-digit growth. Can you just talk about what is driving such growth, given we are sitting in Hong Kong, local economy is not that great, any color would be appreciated, whether it is volume-driven or margin or assumption, et cetera? And if I can follow up on previous analyst question on new recruit for MCV. We are very positive on this trend, but just noted that the Hong Kong government's talent visa may be slowing down a bit.
Just from a longer term perspective, would the recruitment be slowing down if we look at, say, next two or three years in terms of the MCV focus agent recruitment? And just lastly, if I can squeeze one more question. I know you haven't disclosed it in the quarterly result in terms of the operating profit after tax. Can we get a color on, you know, the trend? Has it turned positive in the first quarter on a year-on-year basis? Yeah, thank you.
Yeah, thank you, Edwin. So, let me also give you some more color. I'm also very happy to say that our Hong Kong, Macau business actually has double-digit growth, as you already mentioned. Domestic also growth strongly in the first quarter. And the growth is continuously supported by the underlying driver, the active new agent and the new recruit. Actually, we also have a good growth in the active new agent and active and also the recruit in the domestic segment.
Furthermore, in fact, we don't see a so-called very strong so-called correlation usually in the so-called economic cycle in the life insurance industry, because under whatever cycle, our customers still need very long-term financial planning. Even in the so-called economic downturn, the customer really need to assess, right, their financial risk in terms of protection needs, et cetera. So, we continue to be able to penetrate the domestic customer segment. Because of the aging population, we continue to say that the need for retirement saving is great, and also the need for healthcare and health insurance continue to be great.
That's why AIA Group, we have our integrated healthcare strategy, and Hong Kong, we are also executing their healthcare strategy. So we, we, we do see these are the underlying drivers, that they will continue to drive the growth of their domestic business. In terms of the MCV recruit and the sustainability, I think we have been keep talking about this. So if you look at the number of daily average MCV visitor to Hong Kong in first quarter, that was about 91,000. That has already increased, growing from the 2023 overall whole year daily average MCV visitor. This number hasn't, right, go back to the pre-pandemic height.
And, as I continue to mention, right, the demand for quality US dollar long-term saving product from the MCV customer remains strong, and Hong Kong, and those MCV customer in terms of new policy sales, over 50% is protection. The critical illness policy high-end medical insurance policy continue to attract the attention of the MCV customer. This kind of strong underlying driver, I would say, yeah, it will remain very strong going forward. So, I really would like to say that, yeah, we see the long-term sustainability of the MCV business in Hong Kong.
Any, follow-ups there, Edward?
Just the question on Operating Profit After Tax.
Oh, can you repeat the question? Sorry.
Yeah. So j ust want to confirm, or any color from you, in terms of the operating OPAT trend in the first quarter.
Oh, okay. Yeah, yeah, thanks. Yeah, as I mentioned a few times now, the VNB growth translates into OPAT growth and UFSG growth over time. I should say that we noted some recent volatility in the consensus forecast on OPAT on some of the financial platforms, but the current estimates seem to be much more sensible. And you know, you'll see that come through when we announce our results at the half year.
Okay. Thanks, Garth. 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 taking my question. This is Michelle from Citi. I have two questions. First is on the... I'm trying to understand the pace of buyback, 'cause I observed in the past three weeks, the pace of buyback actually slowed down so quite a lot, despite a greater, you know, share price volatility, in the past couple of weeks. So I understand that that's a fully automated program. So, could you shed some light on what's the key factors embedded in this automated buyback program, such as, you know, volatility or absolute share price level or the remaining quota left? So, what's the major factors determining the buyback pace? Second is on China.
So I think compared to other regions, China is quite unique because of the capital control and the decreasing interest rate. So, and also very limited supply of long duration assets available in the market. So I think one concern is the potential mismatch between asset and liability. So, could you shed some light on China's asset and the liability duration, respectively? And also, if we have 50 basis points cut in the investment assumption just for China EV, what will be the sensitivity? Thank you.
Yeah. Thanks very much, Michelle. Yeah. On the first point, the buyback, what we do is we provide an instruction to the broker to buy back a certain amount of shares over a certain amount of time. And with that, we then hand that to the broker to execute. That enables us to continue to buy back the shares during the blackout periods, which we otherwise wouldn't be able to do. That then is the decision of the broker each day to buy back how many shares. In terms of China, I should say that we've continued to focus on protection business, as Jacky just outlined.
And, in terms of the investment, we've been buying long-dated government bonds for many, many years now, and you see that in our asset mix. These produce healthy yields, and if you look at the investment portfolio, you'd find that the majority of it has a duration of more than 30 years. You'll also note that recently, the government in China has been indicating that it will provide a greater supply of long-term bonds, and indeed, that they are supportive of having interest rates that are higher than the current levels. So, with all of that, we remain very comfortable with the asset side, as well as. And, and as you know, we start with the liabilities when we look at the asset side, and we remain comfortable with both.
Yeah. Yeah. Maybe, Michelle, I may add that, as I said, in first quarter this year, in Mainland China, we have participating product, Premier Agency channel, which make up about 10% of the VONB of first quarter. And the participating product has much lower, break- even interest rate. So, in view of, for example, you talk about decreasing interest rate, then our AIA China will continue to reprice product and continue to roll out more participating product with much lower guaranteed interest rate.
Okay. Thank you. Any follow-ups, Michelle?
Yeah, all good. All good.
Thank you. Any more questions?
We don't have any more questions from the participants. I will now pass it back to Lance to conclude today's session.
Great. Thank you. Thank you everyone for listening and participating. If you have any follow-up questions, which I think Garth's volunteered, I have quite a few, please come through to us at Investor Relations, and thanks very much, and good morning.
Ladies and gentlemen, this concludes AIA's first quarter 2024 update analyst Q&A. Thank you for your participation.