Good morning, everybody. Welcome to AIA's twenty nineteen Interim Results Presentation. I'm Lance Berwidge, Chief Investor Relations Officer for AIA Group. Today's presentation will follow the same format as last year's interim results. First, our Group Chief Executive, Liang Rui, will start with a summary of the group's financial performance and business highlights from each of our market segments.
Garth Jones, our Group Chief Financial Officer, will then take you through the financial results in detail. Kang Rui will then come back and talk about our strategic progress and opportunity. And finally, our Regional Chief Executives will join Keng Hooi and Garth on the stage, and we will open up the session for questions. With that, let me
hand over to Keng Hooi.
Thanks, Lance. Good morning, everyone.
Good morning.
I'm delighted to announce excellent results for AIA in the 2019. This performance reflects our continued focus on executing our strategic priorities across all of our markets in the Asia Pacific region. While AIA is not immune to market volatility, our results continue to demonstrate the resilience of our business through market cycles. Let me begin with the key highlights. In the 2019, value of new business grew by 20% to $2,300,000,000 and EV equity exceeded $60,000,000,000 for the first time.
Operating profit after tax increased by 12% to $2,900,000,000 driving a further 70 basis points increase in operating return on equity. Underlying free surplus generation rose 15% to $2,800,000,000 The Board continues to follow our prudent, sustainable and progressive dividend policy and has declared an increase of 14% in the interim dividend to HKD33.3 per share. Once again, we have delivered double digit growth across all of our key financial metrics as we continue to focus on capturing the significant growth opportunities across our markets. AIA has a uniquely diversified business across the Asia Pacific region. The scale and quality of our multichannel distribution platforms enable us to provide much needed professional advice to millions of new and existing customers.
Our proprietary agency is the primary source of our new business and generated 72% of the group's VONB. Across the region, our partnerships complement our agency extending AIA's distribution reach. AIA's balanced product mix underpins the group's attractive sources of earnings and our broad geographical reach enables us to capture the long term growth drivers across our markets. These areas of diversification are key to our resilient business model. Our agency distribution deliver a very strong performance with 21% growth in VONB.
Continued execution of our premier agency strategy drove a further increase in both active agents and productivity. We now have over 12,000 NBERT members across the group, up 22% over the year. Excellent growth from our strategic partner bank partners supported strong growth in our partnership distribution, which includes brokers and banks. Bangkok Bank in Thailand and ASB in New Zealand both made strong progress as we leverage our regional experience in our most recent bank partnerships. We continue to invest in our digital tools that enhance our distribution and service.
In the first half, nearly 90% of all our new business was submitted digitally and over 60% was auto underwritten. Increasingly our agents benefit from high quality leads generated by our own propensity models and data analytics. Innovation has always been an AIA strength and we continue to expand our core capabilities to deepen customer engagement and support sustainable growth. In China, we launched a breast cancer critical illness product bundled with our flagship all in one protection that leverages with doctor services such as diagnosis and medication delivery. In Singapore, we launched a new wealth product to give our customer access to bespoke and exclusive investment funds as part of our funds platform for the first time.
And we continue to enhance AIA vitality across our markets. Let me take you through some market highlights for the first half. AIA Hong Kong delivered 19% growth, which was broad based across our distribution channels and customer segments. We achieved double digit growth from our partnership distribution although we have seen some recent softening in sales from the IFA broker market since the June. Our Premier Agency strategy supported increases in both active agents and productivity in the first half resulting in very strong VONB growth.
Now around 27 of our agents in Hong Kong are MBRT registered. We are confident that the long term structural drivers of growth for our business in Hong Kong remain resilient. In China, our Premier Agency trading programs encourage agents to become lifelong trusted partners to our customers providing tailored advice on our range of long term savings and protection products. And for our agency leaders, we have driven greater adoption of Master Planner, our powerful digital management app. We have also enhanced policyholder benefits in our protection products and launched our own medical network for our high net worth customers.
These strategies have supported strong growth in active agents and higher agent productivity. And as a result, AIA China was again our fastest growing market segment with 34% growth. In Thailand, our business continued to grow supported by continued success in our FA program and good progress in our partnership with Bangkok Bank where we have activated insurance specialists in over 800 branches. 15% of our agents are now FAs, but significantly higher productivity means they have contributed 30% of agency VONB in the first half. VONB for AIG Singapore was flat as reduced sales volume were offset by positive product mix.
We maintain our leading agency position and our exclusive partnership with Citibank delivered solid growth. In January, we launched a new quality recruitment platform for our agency in Malaysia and this generated half of our new agent recruits in the first six months. Early signs are encouraging. These quality recruits are achieving significantly higher productivity than standard recruits. We delivered double digit growth from our agency and 10% overall growth for AIA Malaysia.
Finally, our other markets grew total RMB by 17% and included excellent growth in Vietnam. Double digit growth from Australia was supported by the inclusion of sovereign and the renewal of several large group schemes. While our strategic partnership with BCA delivered strong growth, overall VONB in Indonesia declined. In The Philippines, we delivered very strong growth from agency and buying assurance. We also launched a new quality recruitment program as we transform our agency.
And in April, we were delighted to be allowed to participate in the Myanmar market through a 100% owned subsidiary and we are now working towards launching our business. In summary, in the 2019, we have continued to build on our track record of delivering sustainable profitable growth. Today's excellent results reflect the tremendous hard work and focus on executing our strategic priorities from all of our exceptional teams. Let me now hand over to Garth, who will take you through the financial details. Garth, yes.
Thanks, Henry, and good morning, everyone. AIA's financial performance in the 2019 demonstrates our continuing ability to deliver strong and consistent results across all our key financial metrics. Volume new business grew by 20% to $2,300,000,000 EV operating profit increased by 11 to $4,500,000,000 driven by very strong VONB growth and prudent management of our large in force portfolio. This has driven a further increase of 30 basis points in our operating ROEV to 17.3% and EV equity exceeded $61,000,000,000 Operating profit after tax was up 12% to $2,900,000,000 helping to increase operating ROE by a further 70 basis points to 14.6%. Shareholders' allocated equity increased to $40,000,000,000 after the payment of the increased dividend, driven by the strong operating result and positive mark to market movements in our equity portfolio.
Underlying free surplus generation increased by 15% to $2,800,000,000 and the solvency ratio for Area Co was 415%. Based on this strong and broad based performance, the Board has declared an increase of 14% in the interim dividend to per
share.
The Board continues to follow our prudent, sustainable and progressive dividend policy, while retaining the financial flexibility to fund future growth. These excellent financial results reflect AIA's continuing focus on executing on our strategic priorities and financial discipline to generate attractive returns. I'll now provide more detail in each of the usual three areas. AIA's unique diversification across geography, high quality distribution and products allows us to selectively deploy capital and optimize long term value for shareholders. A and P increased by 9% to $3,400,000,000 with more than 90% of A and P sourced from regular premium business.
BONB margin increased by 6.1 percentage points to 65.6%. The increased margin was partly driven by a shift to more profitable geographies and products. Assumption changes and other were a significant contributor with around 40% of the increase here from the positive effect of the tax rule change in China. Year end updates to operating assumptions in light of sustained positive experience also helped increase VONB margin. The equivalent new business margin on a PVNBP basis improved from 10% to 11%.
As we've said many times, we focus on growing total VONB and do not target volume or margin alone. Despite an opening EV, which is impacted by last year's market fall, EV operating profit increased by 11% to $4,500,000,000 driven by very strong VONV growth and further improvements in operating performance. Operating variances were positive and added $343,000,000 to profit. The higher operating profit increased operating ROEV by 30 basis points to 17.3%. The EV as at thirtieth June also benefited from 1,600,000,000 of positive investment return variances as a result of market movements during the first half of the year.
Other non operating items included currency translation effects of nearly $470,000,000 Overall, our EV equity increased by 5,200,000,000.0 after the payment of 1,400,000,000 of dividends to €61,400,000,000 Our closing EV equity is shown after a deduction of €5,600,000,000 for additional consolidated reserving and capital requirements and the present value of group office expenses. LLO's continuing positive experience reflects the quality of our distribution and products and confirms the appropriateness of our EV assumptions. Mortality and morbidity claims experience was positive as were persistency and expense variances reflecting both our pricing discipline for new business and the proactive management of our existing book. Our EV results continue to demonstrate the prudence in our operating assumptions. Overall, cumulative operating variances since our IPO have exceeded $2,300,000,000 Our EV methodology uses spot market yields and trends over time to our long term assumptions.
Our long term assumptions smooth out volatility and we made no changes for these interim results in line with our usual practice. At the June, our weighted long term assumption remained below the forward rate, noting that if the current interest rate environment and outlook persists, we will likely lower our assumptions at year end. We're not immune to short term market volatility, however, our sensitivities are small and demonstrate the resilience of the group's EV. To provide further context, we've estimated the EV based on spot interest rates as at August 13. This analysis included a ten year U.
S. Treasury rate of 1.65%. Using these spot interest rates and applying them throughout that is without trending to long term assumptions, the EV would only fall by 1%. We continue to actively reprice new business to reflect the changing environment and make adjustments to our pricing assumptions in light of current expectations of future experience both economic and operating. Our cumulative investment return variances are positive at $1,900,000,000 a similar picture to operating variances.
Moving on now to our IFRS results. Strong growth in the new business and the proactive management of the imports have delivered 12% growth in operating profit after tax to $2,900,000,000 This growth reflects the strong increase in total weighted premium income together with an increasing proportion of participating business with a lower operating margin. Our expense ratio overall remained stable at 7.1%. The breakdown of our operating profit after tax demonstrates the benefit of geographic diversity at scale across the region. OPEC grew for all of our reportable market segments.
Hong Kong delivered nearly $1,000,000,000 of OPAC as strong underlying business growth was moderated by the growing proportion of participating business and less favorable investment experience, including lower new money yields and the impact of last year's stock market movements. China's OPAP of $537,000,000 grew by 32%, exceeding Thailand for the first time. OPAP from Thailand grew by 8% in line with the greater scale of the business and supported by improved claims and persistency experience. Increased OPAP in Malaysia and Singapore reflects business growth with a partial offset in Singapore from lower profitability in our HealthShields related portfolio. Finally, other markets delivered 11% growth driven by Vietnam and Australia including the addition of the acquired business in New Zealand.
As usual, the New Zealand shareholders allocated equity is shown before the IFRS accounting treatment of AFS bonds. Allocated equity does however allow for other market movements. The increase in allocated equity reflects robust operating profit, positive mark to market impact on equities and positive foreign exchange movements offset by the payment of dividends. Overall allocated equity was up 8% from the year end. Our financial discipline over time has delivered increasing returns on equity on both an EV and IFRS basis.
Progressively higher EV operating profit has driven ROEV of five forty basis points since IPO even as our EV equity has nearly tripled. The same increasing trend can be seen for OPAP and ROE, while shareholders allocated equity has more than doubled. These charts clearly demonstrate the highly attractive financial dynamics and underlying quality of our business. Finally, moving to capital and dividends. Underlying free surplus generation increased by 15% to $2,800,000,000 reflecting growth in the business and our prudent management of the in force.
New business investment of $750,000,000 was lower than 2018 supported by a reduced level of cash strain due to the tax change in China and a shift in product mix. Investment variances, exchange rates and other items were positive $848,000,000 in aggregate mainly driven by lower U. S. Interest rates, increasing the market value of bonds within free surplus and the positive mark to market movements on our equity portfolio. After the $1,400,000,000 payment to shareholder dividends, the closing free surplus was $16,100,000,000 The Australian part of the CBA acquisition remains outstanding pending regulatory approvals.
On completion, we expect a net reduction of around $1,000,000,000 to our free surplus. I should also note that we have made a separate announcement about the CBA acquisition this morning. In the coming few years, our group supervisor, the Hong Kong Insurance Authority intends to make two major changes that will affect our regulatory capital position. First, the HKIA will introduce a formal group wide supervision framework for Hong Kong based multinational insurance groups such as AIA. This will require a new group required capital basis, which we expect will become effective around the middle of next year.
The rules are yet to be finalized, but we understand that the calculation of group required capital will be based on a summation of individual entity local requirements. Second, the HKIA is also working to replace the existing HKIL solvency requirements with a risk based capital framework. A third quantitative impact study is due later this year and we anticipate that the new Hong Kong RBC basis will be effective from January 2022. This timeline suggests that the first formal presentation under the Hong Kong RBC will be in our 2022 interim results along with our first set of accounts following the implementation of IFRS 17. While this change in capital landscape and extended timeline create uncertainty, we remain confident of the group's capital strength and our solvency position.
This confidence was reaffirmed recently with the upgrading of our ratings outlook from S and P from stable to positive. Our primary objective is to achieve profitable new business growth at increasing scale and generate superior sustainable value for our shareholders. We aim to demonstrate that our strong growth in value of new business translates over time into earnings growth, increased cash generation and shareholder dividends as shown here and on the next slide. The Board has declared an increase of 14% in the interim dividend to per share. The increase reflects the strength of our financial results across a broad range of financial metrics, our confidence in the group's prospects and the scale of the opportunities available to us.
In conclusion, the group has delivered set of excellent results in the 2019. We've delivered very strong growth in VONB as we continue to invest capital in high quality business with attractive returns. IFRS operating profit increased further and benefited from the effects of increased scale and geographic diversification. Underlying free surplus generation grew strongly enabling us to finance new business growth and a further significant increase in the shareholder dividend. Our disciplined financial management and continuing ability to build sustainable value for our shareholders are reflected in today's results.
I'll now hand back to King Hui, who will cover our strategic progress and the incredible opportunities that are available to us both now and over the longer term.
Thank you, Glass. As you can see, the structural drivers that underpin AIA's ability to deliver profitable growth remain as strong as ever. While we are not immune to external shocks, superior economic growth and urbanization will continue to drive the rapid expansion of the middle classes in Asia, creating a substantial long term need for AIA's advice and products. These structural drivers are present across all of our businesses with tremendous opportunities for growth. Here are example of just some of the emerging opportunities we have ahead of us.
First, our fastest growing market China. We are very excited about the further opening of China's life insurance market, which has been brought forward to 2020. Our 100% owned business in China has a proven model for organic expansion into new cities. At the July, our two new sales and service centers in Tianjin and Hebei province received approval to begin sales, our first geographical expansion in China in seventeen years. We are very excited about bringing our differentiated proposition to new geographies in due course and our preparations are advancing well.
Next, Indonesia, The Philippines and Vietnam. These countries have a combined population of over four sixty million, a GDP of $1,600,000,000,000 and no insurance penetration. AIA has strong businesses in all three markets with an attractive and balanced distribution mix. We will continue to expand and enhance our agencies by focusing on quality recruitment, comprehensive training and support from our innovative digital tools. In each of these countries, we also have excellent strategic partners who complement our agency and generated half of our VONB.
Finally, India, where we have a joint venture with Tata. The long term outlook for life insurance in India is exciting, exciting powered by strong economic growth and a huge young population that is rapidly urbanizing. Tata AIA distributes to both our proprietary agency and banks including our exclusive bank partnerships with Inderson and Citibank. The business is one of the leading players in pure retail protection and has been delivering strong growth. We will continue to focus on executing our premier agency strategy and strengthening our partnership so that we can take advantage of the incredible potential that India presents.
These markets offer AIA exciting growth opportunities, but as I said earlier, all of our markets offer excellent prospect to deliver sustainable growth for shareholders. AIA has a unique platform that enables us to take advantage of all these opportunities at scale. AIE's business is built on trust reinforced by our long history. Our brand promise healthier, longer, better lives is a focus of all our marketing activity and sits at the heart of what we do to help our customers. Helping millions know and improve their health is good for our customers, good for society and good for shareholders.
Our wellness programs are helping to deliver significantly improved health outcomes for our customers. More broadly, we were delighted last month to announce the extension of our partnership with Tottenham Hospital until 2027. Our continuing partnerships with Spurs and David Beckham, our global ambassador play an important role in amplifying AIA's commitment to health and wellness. Our brand promise, partnerships and wellness programs are a source of great pride for our employees and agents and they are successfully promoting AIA to a new generation of customers. In June, we were delighted to be named Asia's number one insurance brand by Campaign Asia.
Asia is already delivering on our brand promise AIA is already delivering on our brand promise and we are very proud of the leadership role we are taking to support our customers and communities across the region. We continue to shift our business towards being a lifelong partner for our customers. Our differentiated health and well-being strategic framework is focused on transforming engagement with our customers, delivering meaningful health improvements and driving repeat sales. Membership of our wellness programs including AIA Vitality has now exceeded 1,500,000, up nearly 60% over the last year. Our regional exclusive partnership with Medix leverages a global network of leading doctors with locally based personal medical case management, helping customers receive the right treatment.
In China, we have launched our own medical network and personal claims manager and our partnership with vDoctor helps our customer access diagnosis, treatment and medication. AIA also helps with recovery, providing ongoing support to our customer to help them back to work and improve their quality of life. As customer demand more, our framework enables us to be their partner throughout their health journey healthcare journey. This shows how we are future proving AIA and ensuring that we can capture the significant opportunities across our markets. In conclusion, our continued focus on executing our strategic priorities has enabled AIA to deliver today's excellent results with double digit growth across all of our key financial metrics.
I'm confident that our teams will continue to deliver long term value for our shareholders and help our millions of customers live healthier, longer, better lives. With that, I invite the RCEs to join us on the stage for your questions. You will notice we have an additional RCE, Tan Hag Lei, who I appointed on May 1. Hag Leh was previously a CEO of AIA Thailand and before that AIA Singapore. He has responsibility for Singapore, Malaysia, Cambodia and Myanmar and the market responsibility for the other RCE otherwise remain unchanged.
Adding a fourth RCE reflects the group's increasing size and enables enhanced support for each of our businesses. Now, you know, I'm going to open up, you know, and pass it over to you for question. Can you please state your name and company? Yeah. Jenny, yeah.
Thanks, Kengkuei. First of congratulations on the solid set of results in this volatile global region environment. So the first question is about Hong Kong. I guess a lot of people want to ask this. So what's your view on Hong Kong situation?
Has it had any impact on the business? Are you going to reposition either here or other operations to mitigate if there's any impact? Second question is probably easier about China. You just mentioned that China brought forward this opening up schedule. So is that going to next year?
We still want to hear your view on how you're going to expand in China. Maybe more specifically, have you started any conversation with regulators to interpret how this opening up with new for AIA because directly it's regarding ownership and we're already 100% owned. Any update there will be very, helpful for us. Thank you.
Yep. Thanks, Jenny. You know, first, what I wanna say about the Hong Kong situation, you know, AIA Group is headquarter in Hong Kong and listed on the Hong Kong Stock Exchange, you know. EIA has a long established relationship with Hong Kong over the past eighty eight years and we are committed to supporting the Hong Kong economy for the long term. We are concerned about recent events and we condemn we condemn the use of violence, you know.
We support the rule of law because it is fundamental to the future of Hong Kong. Yeah. We look forward to a peaceful, you know, resolution through, you know, mutual dialogue. Yeah. And as to, you know, the the the impact on the business, I would say this, the fundamentals underpinning our businesses business in Hong Kong remain very strong.
As you saw in the first half, we actually went up by 19% for our Hong Kong business. We don't provide any explicit forecast. But as I said in my speech, we have seen some softening in sales from the Hong Kong IFA markets in recent weeks. We have been through many, many different cycles across all of our markets over our long history in the region. This long history has provided us with a secure and trusted brand advantage And we are confident that the long term structural drivers of growth remain resilient in Hong Kong and for all our markets.
Will pause there and before I answer the question on China, let me pass over to Jacky just to share a bit in terms of our performance in our Hong Kong business.
Thank you, Keng Hoy. First of all, I want to recap that AI Hong Kong deliver consistent strong growth over the years since the IPO of AI Group in 2010. And in the 2019, AI Hong Kong delivered 19% growth in RMB across a broad base of customer segments including both domestic Hong Kong and the Mainland Chinese visitor segment and also across both agency and partnership distribution channel. We mentioned about the recent softening of the IFA channel since the June. As you know IFA channel is a non propriety channel and we have to expect that the business there may be a bit more volatile and we believe we have differentiated proposition for our customer to engage with all our channel including our healthier, longer, better life and our end to end healthcare journey.
And I want to emphasize that agency channel remain the largest channel of A. A. Hong Kong and we execute our premier agency strategy in Hong Kong and the Hong Kong agency generate strong growth in the first half through double digit increase in both number of active agents and also double digit increase in the AIP academy recruit. And I have to say that a premier agency channel in Hong Kong is our differentiation and competitive advantage especially during this kind of recent event or uncertainty in Hong Kong, our premier and professional agents in Hong Kong step up the engagement and communication with customer care about the customer overall well-being explaining to them the Hong Kong situation. I have to say that we are here in Hong Kong for the long term and we are committed to support the long term economic growth in Hong Kong And we believe the strong structural driver is Hong Kong driven by wealthy and wealthy agent population with low life and medical insurance penetration and a big need for long term retirement saving provision will continue to drive the growth here and Hong Kong is well positioned to capture these opportunities.
Yes. Thanks, Jackie. On China, I mentioned earlier, we received approval to operate in both Tianjin and Xijiazhuang in Hebei. And the team in China were able to bring the start the business within six months on approval. It shows the strength of our China business, the ability to execute when given approval to go into a new geography.
And this is, the first time we have a new geography, in seventeen years. I mean, I mentioned that in my speech. Yeah. So we are very excited with the opening up. On your question, 2020, the government is very clear.
The government has said that they are opening up and all the conversation that we had with them has always been, we are opening up, we are opening up, we want to open up the financial markets. And with regards to AIA in China, we are very pleased that we have a very good relationship with the regulators. They are very supportive of AIA and we will continue to work on the what do you call our preparation. The moment there is clarity in terms of the announcement with regards to the details. But let me perhaps pass over to John to give you a bit more color in terms of the preparations that we are making in China.
Thank you, Ken Hui. We are very excited on the accelerated open up for China. As you know, it's really beneficial for China economy as well as for Chinese consumers. So I think it's very, very good opportunity for us. As you know, we are the only 100% owned foreign company.
So we can really focus on how we can get ready once the opportunity come. In the meantime, have proven success in China, highly scalable back office operation, also premium agency strategies in China. So this is all of the things enable us to quickly expand into new territories, which is proven by the Tianjin and Shijiazhuang's preparation. So right now, the only things we are continuing to focusing on, once
the
China opened is preparing for the talent both for internal staffs as well as for our agency force. So far we are progressing well. Thank you.
Yes. Thanks, John. And I just want to add, with the opening of Tianjin and Xijiazhuang, I was there, okay? I was there to do the opening and met up with the Mayor for Xijiazhuang and Vice Mayor of Tianjin, they're very excited and they welcome AIA. So that gives you a sense of our relationship on the ground.
They are like, we want you to hear you. We want you to invest our province and all that. So that's positive.
Yes, go ahead. Okay. Sorry, it's Michael Chang at CJSCI. I just got two questions. First one for Jackie.
Just trying to get some additional I think a couple of years back, it was mentioned that the Chinese customer base comprised about half of the Hong Kong Can you share with us right now some more characteristics about the customer base, roughly the proportion of Hong Kong VONB that is right now? How widespread is it across or how diversified is the customer base across Mainland China? Is it primarily from Guangdong or is it very evenly distributed? And maybe related to that as well, I think, King Kong mentioned earlier on the retail IFA softness in recent weeks. I think in the results presentation, it was mentioned since June.
I know there's a slight disparity, but maybe it seems one of your peers said that July sales doesn't seem to be much impacted. And some of my channel checks indicate that the softness was probably more in August than July. Maybe you can give some indications. Do you
think it's worsening in recent weeks versus say July if possible that is? Sorry, we are not going to be
able Okay, I understand. Right. Get So maybe just the characteristics on the Mainland Chinese customer base. Second question on Singapore for Hak Lei, congrats on the new role. Just want to clarify for Singapore in the first quarter, think it was down year on year for RMB first half and the flat.
Maybe what has changed in the second quarter year on year in terms of initiatives, in terms of delivery and execution? Thanks.
Let me say something about the Mainland business. I think the Mainland business has been around for more than a decade. Obviously, does fluctuate over time just like all businesses. We are confident that it will continue into the future. With that maybe I can pass it over to Jacky and then later Hagli can respond to the Singapore question.
Thank you, Keng Hoy. And I have said in the 2019, the Hong Kong growth 19% is a strong growth across a broad base of customer segments both Hong Kong domestic and MCV. And therefore both the Hong Kong domestic and MCV customer segment deliver strong double digit growth. So I don't see any material shift in the percentage of mix and as everyone of you here, you will know that the insurance authority will release their quarterly insurance statistics on a quarterly basis. So every one of us will see that result.
And I want to reiterate what Keng Ho just mentioned. We believe the strong demand from MCV customers and also Hong Kong domestic customers on the Hong Kong insurance product remain strong because of the strong underlying drivers.
Han Lei, yes. Thank you for the question. Singapore achieved a flat year on year growth first half this year. With our focus on quality business, we saw a positive shift in product mix in first half, but that was offset by the slowdown in single premium business, both single premium from unit linked as a result of record key changes as well as Singapore premium from the high net worth segment. AIA Singapore maintained our leading agency position in Singapore with increasing number of active agents in the first half.
Our exclusive partnership with Citibank also delivered strong VONB growth in first half, particularly in the upfront segment. AIS Singapore remain focused on innovation, both products as well as digital platform and also on increasing the productivity across all channels. With substantial protection gap that still exists
in Singapore as well as the need for long term
saving as Singaporeans live longer, we remain confident about the long term prospect for growth in Singapore.
Thanks, Hungry. Kailesh? Hi, thank you.
Kailesh from HSBC. A few questions. Just come back to Hong Kong unfortunately again. Just to try and cover it off, I guess in Jackie's comments, you highlighted obviously softness in IFA, but quite a lot of confidence around the agency channel. So is the correct assumption that the combination of the stronger active agent growth and it's greater waiting will just offset any weakness in the IFA channel?
Secondly, on China, talk about competition around protection, etcetera. You've upgraded your protection policies. I appreciate there might be some impact around margins, but has it materially lowered your risk adjusted returns? Because from what I understand, quite a lot of the competitors are increasing, for instance, the number of diseases covered as well. Thirdly, just on Thailand, new sort of financial advisors still remain around 15% of agents.
I feel that's the same as the full year within the decline in agency force. So just trying to understand if the strategy is still on track effectively in terms of the development of that full time agency. And lastly, Garth, just on that slide about the sensitivity to the 1.65% U. S. Treasury.
Just wanted to understand on Slide, I think it's 17, what would that imply for the red line? Because what's the assumption, the weighted average assumption going into that sensitivity? And maybe I missed it, but does it imply a reversion to the long term average? Or does it stay at that level for the entire sensitivity? Thank you.
Yes, think let me just say something on Hong Kong and then I'll pass it to Jacky. You're talking about the risk adjusted return on the China business? Perhaps that's something that Garth Yes.
Mean our risk adjusted returns on our business in China remain high and we said for the portfolio as a whole, in fact, IRR is in excess of 20%. So our risk adjusted returns are not materially changed by any of that. Perhaps I should do with the interest rate point one here. Just to be clear, what we're seeing is obviously interest rates have fallen in recent weeks and so we wanted to provide additional context around the sensitivities. What we've done is used the spot market rates for all our countries and that included the U.
S. Treasury yield of 1.65. But within that, we then took those rates and said we'll use those rates throughout spot rates throughout rather than use translation to a long term assumed rate. And with all of that, then you see the sensitivity was about 1%. So you can see the resilience of our EV there.
That was the critical point.
Well, let me let Jackie take a break first and get Bill to respond to the Thailand question.
Thank you for the question. And let me just reiterate that the FAA agency transformation for Thailand absolutely remains on track. And as we've communicated many times before, this is a multiyear journey, very much focused on quality of recruitment, not quantity of recruitment. As you saw from the slides from Kenya, Thailand grew 5% VONB, 11% ANP, and that's well ahead of the market. Again, this was predominantly driven by the ESA.
And as Kenyrie shared, we've now got 15% of the agents in the agency force, which are FA, but contributing 30% of the VONV in H1. And obviously, the growth was also contributed by accelerating our partnership our long term partnership with Bangkok Bank, which is still in the very early days. So again, in summary, the FA channel is very much focused on quality and not quantity, but remains absolutely on track, Again, multi year June.
Yes. Before I pass it over to Jacky, as I've always say, we are very proud of our Hong Kong agency. 27% of the agents are NDRT qualifiers, yes. And Hong Kong has got one of the highest qualification requirement. So it is the agency is the best, one of the best not only in AIA probably in the whole world, but let me pass over to Jacky to talk a bit more on that.
Thank you, Keng Hoy. And first of all, as we have said, we don't provide estimate or forecast and we should look at our business on a whole year basis rather than quarter by quarter. But here I would like to give a little bit more color about the softening of IFA channel. Recently our competitors become more aggressive in IFA channel, stepping up compensation aggressive product etcetera. But AIA remains financially disciplined in managing our business and we believe we have differentiated proposition for our customers and we work closely with those partners that align with the AIA in this differentiated customer proposition.
And just like what Ken Hoi mentioned, we believe the majority of the business coming from agency channel, while our agency is a pre major channel. This is our competitive advantage and we see double digit increase in the number of active agent and also the number of new recruit for our Premier Academy. And we believe that we have a very good agent channel and this will help us to capture the long term growth opportunity here in Hong Kong. Yes, thanks.
MW, yes. Thanks, Hin Huang. Liang Qi from Daiwa. Three questions from me. I'll keep Jacky afraid.
First one on China, noted the tax assumption change, which I presume is kind of one off. Appreciate if management could share with us the magnitude of such a one off impact, like how much percentage impact on VONB it has resulted on VONB margin? Secondly, still on China, our underlying business growth. Congratulations on very strong delivery of VONB growth in China again. And I think in particular, it was noted that AIA China delivered strong double digit growth in active agent headcount.
And also given the fact that one of your closest competitor who reported last week actually saw a 9% decline in agency headcount. Understand all the reasons behind that, but if management could share with us the fundamental reason for much better performance in the underlying business, especially agent headcount growth. And lastly, a question for our newly appointed Regional Chief Executive, Tan He. Singapore market is Singapore is the biggest market and all these markets from your responsibility. I appreciate if you could share with your strategic priorities for Singapore market going forward.
Thank you.
Okay. Before I pass the question on the agency one to John, maybe Garth can talk on the NDC impact.
Yes. Let me just talk you through that. I think firstly, on the BONV, I said in my speech that the other operating others including assumption changes is the exact wording. It was 3.9% increase in margin and about 40% of that was due to the NDC impact, that tax change. In our operating profit after tax, our OPAT, I think one thing to remember is that our IFRS accounting is different from China GAAP and we apply we've got deferred acquisition costs.
So commissions go into the deferred acquisition costs and then are spread out across the lives of the policies or whatever. Whereas in China GAAP that comes immediately through into the P and L. So you'll see that the impact on our OPAD is actually very small. It would be much bigger if we took it straight through.
Yes. John, on the agency in China. Just
one more to add on the NDC. I think as you know, AI China has been the leader in selling the protections, especially the long term regular premium business. So with that change, actually that's demonstrated the regulatory as well as the tax authorities supporting the directions towards a long term protection business, which is very, very pleased for us. In terms of the recruiting, the quality, we have been emphasizing quality recruitment for many, many years to build. That's our philosophy of premium agency, which mainly driven by stringent selection, world class training and development, very tight activity management platforms.
With I won't comment on competitor, with China's the entire structural reform and transformation from a low end manufacturer moving to service oriented industries. I think we are riding on this trend and the opportunities for the quality agents, full time professional agents moving to the insurance business, think is just started. So we see a lot of opportunities going forward.
Thanks, John. Heng Lee, yes.
Thanks for the question. First, our focus will be on further strengthening our distribution network in Singapore, both agency as well as bank insurance. We have the largest and the strongest agency force in Singapore, but we believe there's still room for us to increase the productivity of agency force. We have continued to focus on execution of our premier agency strategy in Singapore to increase both the size as well as the productivity. And that's done through continuous process of active recruitment of quality individuals, more agency force provide the best in class training as well as continuous focus to make sure that they embrace the latest technology.
And for the bank, as you can check, we have an exclusive arrangement with Citibank. We're seeing good results so far this year and it's definitely our key focus for us to further extend the success of our partnership with Citibank in Singapore. And second aspect is to enhance the overall value proposition to our customers, both in products as well as key value added services like AI vitality to help our customers live longer, healthier, longer better lives. I think on the product proposition front, we are continuously fine tuning our products. We launched an innovative product for the high net worth segment, the firm segment early this year, which has received good response from our distribution channels that we continue to review, replies and enhance on our health insurance portfolio.
And of course, our what we need AIA Vitality program has been a key differentiator for us in terms of value proposition to our customers in Singapore. And then finally, the continuous effort to build on the digital platform that we have in Singapore. As you can see, Singapore is highly digitized society. More than 90% of our business in Singapore are now submitted electronically by the iPod system. And over the years, we've been continuously enhanced and add new features to our digital platform both to support our distribution channel as well as to make it easier for customers to do business with us.
So I know Singapore is a highly competitive market, but we remain confident that there's opportunity for growth because of that production gap that still exists and because of the need for long term savings in Thanks,
Hagde. Yes, I'll take one, two more questions. Scott, Chino?
Good morning, all. Scott Russell, Macquarie. Two questions, please. Firstly, Hong Kong, slightly different tactic, something that might have been overlooked in the result. But I saw that nearly 30% of the Hong Kong VNB came from these newly launched products, and they were only launched in April.
So we're talking about VHIS and some annuities, I suppose, which means that in the second quarter, it was probably over half of the VNB came from those products.
Is that right?
Is that mostly And I think you probably misinterpreted that, yes, Scott, because we said 30 it contribute 30% to 30% sales coming from existing customer, yes? What we basically are saying is these new products help us in terms of going back to the existing customer and increase it to 30% of total sales coming from existing customer because it become a door opener, yes, and helps in terms of marketing. So it's not big that they contribute to 30%, yes.
Got it. And that I suppose would also explain the upsell and the margin rising five or six percentage points. Got it. Yes. Mean, I'd be interested in any other comments about the launch of VHIS.
My understanding was that it's a fairly low margin product and small ticket size. The second question was more about Indonesia, where there was a decline in VND, both agency and banker. I'd like to understand some of the challenges you're seeing there, please.
Let pass to Jacky to answer
the question on VHIS, and then I'll tackle the Indonesia one. Thank you, Keng Hai. For the VHIS and also the other tax deductible series products, which include both the VHIS medical and also deferred annuity and MPF voluntary contribution. A Hong Kong launched all our both of our tax deductible series on the day that this tax incentive was effective in April and we received a very positive response from the customer segment in Hong Kong. And in fact, we also mentioned that most of our VISTAs product are AIA Vitality Integrator and this has results in the driven up increase of our AI Vitality Integrator VuMP of more than 40% in the first half of this year.
So this gives you a sense of that kind of momentum in Vision IS and also we have a broad base of test deductible series product.
Indonesia, as I shared in the slide earlier, Indonesia is one of the three country in the fast emerging opportunity, Indonesia, Vietnam and Philippines. Market to me, the future, we are looking at the future, huge amount of growth opportunity, but they continue to be challenging in terms of getting making sure that we have the right sort of distribution, which are of very high quality that can build growth into the future. So Indonesia, the agency, we are transforming it completely. So basically, reducing some of the low productive or unproductive agents to make them into high quality differentiated strategy the same way we have done in China, so that we can build the foundation for the future. But I would say that our partnership with BCA has been very strong.
So the BCA performance has been very strong. So while the partnership continue to the bank partnership are contributing to our business, we are taking the opportunity to build the agency. There's nothing like having our own proprietary agency, yes. But we want to make sure that we build it on a high quality basis so that it's sustainable over the future, yes.
How long would you expect that transformation of the agency to take? Well, with some of this transformation,
it takes time. Not fast enough for me, yes, but Jacky runs a business. He will tell you, you will need to take more time, But this is just to again mention that the other markets we don't have breakdown, but you will notice that the other markets is actually number three in terms of contribution to UMB after Hong Kong, China is already the other markets. So you can see these three countries are inside there, population of four sixty million and then GDP of $1,600,000,000,000 To give people a sense here, people in Hong Kong, how big that is? That is as big as the Greater Bay Area in terms of GDP, the total of these three countries.
So I'm going to take one last question.
Thank you. Thomas from Goldman Sachs. A couple of questions maybe for Goss. From since then you mentioned a few changes on the capital perspective, you got a submission approach coming through RBC IFRS 17. From capital management perspective for you, which one would give you sort of most clarity or which one you want to sort of see sort of just update us a little bit on that will be great.
And secondly, on that sensitivity you gave us, I know you have changed the participating product, some of the product you would have reduced in those scenarios, probably have reduced payment to policy holding when you calculate your EV, that's why you probably get to 1%. But just to help us understand what's the really extreme scenario where if competition drives that you cannot cut your crediting rate in the near term, what would be the impact on EV? What would be that in that range? I know it's probably unlikely, but just help us to understand a little bit. Yes.
On the capital point, I mean, I said that the group wide supervisory framework is obviously important for us as a group. The Hong Kong RBA indicated that they are looking at a summation type approach and that would obviously include Hong Kong. So in some ways, the most important is to get clarity on the Hong Kong RBC, first of all, because clearly Hong Kong is a big part of the business. AIA Co. Is a big part of the business.
It's our top licensed company. On the sensitivities, I think the critical thing there, I think, note is that when we look at that 1%, what we are doing is we're changing the assumption right across the board in terms of the interest rate, but we're also adjusting the risk discount rate because the risk premium has remained the same. And that's the thing that has a balancing effect on the whole thing.
With that, I thank all of you for being here. Thank you. Yes.
Thank you.
Thank you.