Good morning, everybody. Welcome to AIA's 2019 interim results presentation. I'm Lance Burbidge, 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, Keng Hooi, 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. Keng Hooi will then come back and talk about our strategic progress and opportunities. 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 first half of 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 first half of 2019, well, our new business grew by 20% to HKD 2.3 billion. EV equity exceeded HKD 60 billion for the first time. Operating profit after tax increased by 12% to HKD 2.9 billion, driving a further 70 basis points increase in operating return on equity. Underlying free surplus generation rose 15% to HKD 2.8 billion.
The board continues to follow our prudent, sustainable, and progressive dividend policy and has declared an increase of 14% in the interim dividend to HKD 0.333 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 multi-channel distribution platforms enable us to provide much needed professional advice to millions of new and existing customers. Our proprietary agency is a 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 MDRT 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 also 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 WeDoctor 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. 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 end of June. Our premium agency strategy supported increases in both active agents and productivity in the first half, resulting in very strong VONB growth. Around 27% of our agents in Hong Kong are MDRT 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 training programs encourage agents to become lifelong trusted partners to our customers, providing tailored advice on our range of long-term savings and protection products. 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. 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, significantly higher productivity means they have contributed 30% of agency VUNB in the first half. VUNB for AIA Singapore was flat as reduced sales volume were offset by positive product mix. We maintained 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, 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 VONB 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 bank assurance. We also launched a new quality recruitment program as we transform our agency. In Asia, 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 first half of 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. Yeah. Garth, yeah.
Thanks, Keng Hooi, and good morning, everyone. AIA's financial performance in the first half of 2019 demonstrates our continuing ability to deliver strong and consistent results across all our key financial metrics. Value of new business grew by 20% to HKD 2.3 billion. EV operating profit increased by 11% to HKD 4.5 billion, 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 ROE to 17.3%, and EV equity exceeded HKD 61 billion. Operating profit after tax was up 12% to HKD 2.9 billion, helping to increase operating ROE by a further 70 basis points to 14.6%. Shareholders allocated equity increased to HKD 40 billion after the payment of the increased dividend, driven by the strong operating results and positive mark-to-market movements in our equity portfolio.
Underlying free surplus generation increased by 15% to HKD 2.8 billion, and the solvency ratio for AIA Co. was 415%. Based on this strong and broad-based performance, the board has declared an increase of 14% in the interim dividend to HKD 0.333 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 our strategic priorities and financial discipline to generate attractive returns. I'm going to 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. ANP increased by 9% to HKD 3.4 billion, with more than 90% of ANP sourced from regular premium business. VNB 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 the 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 VNB and do not target volume or margin alone. Despite an opening EV, which was impacted by last year's market fall, EV operating profit increased by 11% to HKD 4.5 billion, driven by very strong VNB growth and further improvements in operating performance. Operating variances were positive and added HKD 343 million to profit. The higher operating profit increased operating ROEV by 30 basis points to 17.3%.
The EV as at 30th June also benefited from HKD 1.6 billion 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 HKD 470 million. Overall, our EV equity increased by HKD 5.2 billion after the payment of HKD 1.4 billion of dividends to HKD 61.4 billion. Our closing EV equity is shown after a deduction of HKD 5.6 billion for additional consolidated reserving and capital requirements and the present value of group office expenses. AIA'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 HKD 2.3 billion. 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 end of 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 are 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 13th of August. This analysis included a 10-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 HKD 1.9 billion, a similar picture to operating variances. Moving on now to our IFRS results. Strong growth in new business and the proactive management of the import have delivered 12% growth in operating profit after tax to HKD 2.9 billion. 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. OPAT grew for all of our reportable market segments. Hong Kong delivered nearly HKD 1 billion of OPAT. A 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 OPAT of HKD 537 million grew by 32%, exceeding Thailand for the first time. OPAT from Thailand grew by 8%, in line with the greater scale of the business and supported by improved claims and persistency experience. Increased OPAT in Malaysia and Singapore reflects business growth with a partial offset in Singapore from lower profitability in our HealthShield-related portfolio.
Finally, other markets delivered 11% growth, driven by Vietnam and Australia, including the addition of the acquired business in New Zealand. As a result, the movement in 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 540 basis points since IPO, even as our EV equity has nearly tripled. The same increasing trend can be seen for OPAT 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. Moving to capital and dividends. Underlying free surplus generation increased by 15% to HKD 2.8 billion, reflecting growth in the business and our prudent management of the in-force. New business investment of HKD 750 million 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 HKD 848 million 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 HKD 1.4 billion payment to shareholder dividends, the closing free surplus was HKD 16.1 billion. The Australian part of the CBA acquisition remains outstanding pending regulatory approvals.
On completion, we expect a net reduction of around HKD 1 billion 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, 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 HKIO 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 changing 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&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 HKD 0.333 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 a set of excellent results in the first half of 2019. We've delivered very strong growth in VNB 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 shareholders' dividend. Our disciplined financial management and continuing the ability to build sustainable value for our shareholders are reflected in today's results. I'll now hand back to Keng Hooi, who'll cover our strategic progress and the incredible opportunities that are available to us both now and over the longer term. Thanks.
Thank you, Garth. 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 end of 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 17 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 460 million, a GDP of $1.6 trillion and low 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, powered by strong economic growth and a huge young population that is rapidly urbanizing. Tata AIA distributes through both our proprietary agency and banks, including our exclusive bank partnerships with IndusInd 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. AIA'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 Hotspur 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. 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 wellbeing 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 1.5 million, up nearly 60% over the last year. Our original 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.
Our partnership with WeDoctor helps our customer assess 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 healthcare journey. This shows how we are future-proofing 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 Hak Leh, who I appointed on the 1st of May. Hak Leh was previously a CEO of AIA Thailand and before that, AIA Singapore. He has responsibility for Singapore, Malaysia, Cambodia, and Myanmar, 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. I'm going to open up and pass it over to you for questions. Can you please state your name and company? Yeah. Jenny, yeah.
Thanks, Keng Hooi. First of all, congratulations on the very solid set of results amid this volatile global environment. The first question is about Hong Kong. I guess a lot of people want to ask this.
Yep.
What's your view on Hong Kong's situation? Has it had any impact on your business? How 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. Secondly, 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 would mean 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. First, what I want to say about the Hong Kong situation. AIA Group is headquartered in Hong Kong and listed on the Hong Kong Stock Exchange. AIA has a long-established relationship with Hong Kong over the past 88 years. We are committed to supporting the Hong Kong economy for the long term. We are concerned about recent events. We condemn the use of violence. We support the rule of law because it is fundamental to the future of Hong Kong, yeah. We look forward to a peaceful resolution through mutual dialogue, yeah. As to the impact on the business, I would say this, the fundamentals underpinning our 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. 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 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. We are confident that the long-term structural drivers of growth remain resilient in Hong Kong and for all our markets. I will pause there and before I answer the question on China, let me pass over to Jacky just to share a bit in term of our performance in the Hong Kong business.
Thank you, Keng Hooi. First of all, I want to recap that AIA Hong Kong deliver consistent, strong growth over the years since the IPO of AIA Group in 2010. In the first half of 2019, AIA 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 end of June. As you know, IFA channel is a non-proprietary channel, and we have to expect that the business there may be a bit more volatile. 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.
I want to emphasize that agency channel remain the largest channel of AIA Hong Kong, and we execute our premier agency strategy in Hong Kong. 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 AIA Academy recruit. 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 their engagement and communication with customer, care about the customers' overall wellbeing, 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.
We believe there are strong structural drivers in Hong Kong, driven by wealthy and rapidly aging population with low life and medical insurance penetration and a big need for long-term retirement saving provision. We'll continue to drive the growth here, and AIA Hong Kong is well-positioned to capture these opportunities.
Yeah. Thanks, Jacky. On China, I mentioned earlier, we received approval to operate in both Tianjin and Shijiazhuang in Hebei. The team in China were able to 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. This is the first time we have a new geography in 17 years. I mentioned that in my speech, yeah. 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 want to open up the financial markets." 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. We will continue to work on the, what do you call, our preparation the moment there is clarity in term of the announcement with regards to the details. Let me perhaps pass over to John to give you a bit more color in term of the preparations that we are making in China, yeah.
Thank you, Keng Hooi. We are very excited on the accelerated opening up for China. As you know, it's really beneficial for China economy as well as for Chinese consumers. I think it's very good opportunity for us. As you know, we are the only 100% owned foreign company, we can really focus on how we can get ready once the opportunity come. In the meantime, we have proven success in China, highly scalable back office operation. Also, premier agency strategies in China. This is all the things enable us to quickly expand into the new territories, which is proven by the Tianjin and Shijiazhuang's preparation. Right now, the only things we are continuing to focusing on once the China open is preparing for.
Talent, both for internal staffs as well as for our agency force. So far, we are progressing well. Thank you.
Yeah. Thanks, John. I just want to add, with the opening of Tianjin and Shijiazhuang, I was there. Okay? I was there to do the opening and met up with the mayor for Shijiazhuang and vice mayor of Tianjin. They're very excited, and they welcome AIA. That gives you a sense of our relationship on the ground. They're like, "We want you here. We want you to invest in our province," and all that. That's positive, yeah. Yep. Kailesh, yeah. Yep. Go ahead.
Okay. Sorry. It's Michael Cheng at CICC. I just got two questions. First one for Jacky. Just trying to get some additional light. I think a couple of years back, it was mentioned that the mainland Chinese customer base, comprised about half of the Hong Kong VONB. Can you share with us right now some more characteristics about the customer base, perhaps 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? Maybe related to that as well, I think Keng Hooi mentioned earlier on the retail IFA softness in recent weeks. I think in the results presentation, it was mentioned since end of June.
I know there's a slight disparity, but maybe what 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 worsened in recent weeks, or let's just say July, if possible, that is.
Sorry. We are not going to.
Okay. I understand. All right.
Yes.
Okay. Just the characteristics on the mainland Chinese customer base. Second question, on Singapore, for Hak Leh. Congrats on the new role. Just want to clarify for Singapore. In the first quarter, I think it was down year-on-year for VONB. First half ended 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, it 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 Hak Leh can respond to the Singapore question.
Yeah. Thank you, Keng Hooi. As I have said, in the first half of 2019, the Hong Kong growth, 19%, is a strong growth across a broad base of customer segments, both Hong Kong domestic and MCV. Therefore, both the Hong Kong domestic and MCV customer segment deliver a strong double-digit growth. I don't see any material shift in the percentage of mix. As every one of you here, you will know that the Insurance Authority will release their quarterly insurance statistic on a quarterly basis. Every one of us will see that result. I want to reiterate what Keng Hooi just mentioned. We believe the strong demand from MCV customers and also Hong Kong domestic customers on the Hong Kong insurance products remain strong because of the strong underlying drivers.
Yeah. Hak Leh. Yeah.
Thank you for the question. Singapore achieved a flat VONB growth first half this year. With a focus on quality business, we saw a positive shift in product mix in first half, that was offset by the slowdown in single premium business, both single premium from unit link as a result of regulatory changes, as well as single premium from the high net worth segment. AIA Singapore maintain our leading agency position in Singapore with increase in number of active agents in the first half. Our exclusive partnership with Citibank also deliver strong VONB growth in first half, particularly in the affluent segment. AIA Singapore remain focused on innovation, both products as well as digital platform, also on increasing the productivity across all our 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, Hak Leh. Kailesh?
Hi. Thank you. Kailesh from HSBC. Few questions. Just come back to Hong Kong, unfortunately, again, just to try and cover it off. I guess in Jacky's comments, you highlighted obviously softness in IFA, quite a lot of confidence around the agency channel. Is the correct assumption that combination of the stronger active agent growth, and its greater weighting will just offset any weakness in the IFA channel? On China, there's talk about competition around protection, et cetera. You've upgraded your protection policies. I appreciate there might be some impact around margins, has it materially lowered your risk-adjusted returns? From what I understand, quite a lot of the competitors are increasing, for instance, the number of diseases covered as well. On Thailand. The new sort of financial advisors still remain around 15% of agents.
I think that's the same as the full year within a declining agency force. Just trying to understand if the strategy is still on track effectively in terms of the development of that full-time agency. Lastly, Garth, just on that slide about the sensitivity to the 1.65% U.S. Treasury, just wanted to understand on slide 17, what would that imply for the red line? Because what's the weighted average assumption going into that sensitivity? 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.
Yeah. I think, let me just say something on Hong Kong and then, I'll pass it to Jacky. You are talking about the risk-adjusted return on the China business. Perhaps, that is something that, Garth.
Yeah. I mean, our risk-adjusted returns on our business in China remain high. We said, for the portfolio as a whole, in fact, our IRR is in excess of 20%. Our risk-adjusted returns are not materially changed by any of that. Yeah. Perhaps I should deal with the interest rate point while I'm here. Yeah, just to be clear, what we were saying was, 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%. Within that, we then took those rates and said we'll use those spot rates throughout, rather than use a translation to a long-term assumed rate. With all of that, then you see the sensitivity was about 1%.
You can see the resilience of EV there, and that was the critical point.
Well, let me let Jacky take a break first, and get Bill to respond to the Thailand question. Yeah?
Thank you for the question. Let me just reiterate that the FA agency transformation for Thailand absolutely remains on track. As we've communicated many times before, this is a multi-year journey, very much focused on quality of recruitment, not quantity of recruitment. As you saw from the slides from Keng Hooi, Thailand grew 5% VUNB, 11% ANP, that's well ahead of the market. Again, this was predominantly driven by the FA. As Keng Hooi shared, we've now got 15% of the agents in the agency force, which are FA, but contributing 30% of the VUNB in H1. Obviously, the growth was also contributed by accelerating our long-term partnership with Bangkok Bank, which is still in the very early days. In summary, the FA channel is very much focused on quality and not quantity, but remains absolutely on track. Again, multi-year journey.
Yeah. 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 MDRT qualifiers, yeah. Hong Kong has got one of the highest qualification requirement. The agency is one of the best, not only in AIA, probably in the whole world. Let me pass over to Jacky to talk a bit more on that. Yeah.
Yeah. Thank you, Keng Hooi. 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. Here, I would like to give a little bit more color about the softening of IFA channel. Recently, our competitors become more aggressive in the IFA channel, stepping up compensation, aggressive product, et cetera. 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. Just like what Keng Hooi mentioned, we believe the majority of the business coming from agency channel, while our agency is a key major channel.
This is our competitive advantage. We see double digit increase in the number of active agent and also the number of new recruits through our Premier Academy. We believe we have a very good agency channel, and this will help us to capture the long-term growth opportunity here in Hong Kong.
Yep. Next, MW. Yep.
Yep. Thanks, Keng Hooi. Leon Qi from Daiwa. Three questions from me. I'll give Jacky a break.
First one on China. Noted the tax assumption change, which I presume is a one-off. Appreciate if management could share with us the magnitude of such a one-off impact, like how much percentage impact on the MBA as a result at all, or on VNB margin. Secondly, still on China, on our underlying business growth. Congratulations on very strong delivery of the VONB growth in China again. I think in particular was noted that AIA China delivered strong double-digit growth in active agent headcount, also given the fact that one of your closest competitor who reported last week actually saw a 9% decline in agency headcount. Understand all reasons behind that, if management could share with us the fundamental reason for much better performance in the underlying business, especially agent headcount growth. Lastly, a question for our newly appointed Regional Chief Executive, Ken Hooi.
Singapore is the biggest market under all these markets from your responsibility. Appreciate if you could share with your strategic priorities for Singapore market going forward. Yeah. Thank you.
Okay. Before I pass the question on the agency one to John, maybe Garth can talk on the NDC impact. Yeah?
Yes. Let me just talk you through that. I think, firstly on the VNB, I said in my speech that the 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've got deferred acquisition costs. Commission's going to do 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&L. You'll see that the impact on our OPAT is actually very small. It would be much bigger if we took it straight through.
Yeah. John, on the agency in China. Yeah.
Sure. Just one more to add on the NDC. I think, as you know, AIA China has been the leader in selling the protections, especially the long-term regular premium business. With that change, actually that demonstrate directly to us first, that the tax authority 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 emphasized on quality recruitment for many, many years to build. That's our philosophy, our premium agency, which mainly driven by stringent selection, world-class training and development, and very tight activity management platforms. I won't call them a competitor, but with the China's entire structural reform and transformation from a low-end manufacturer moving to service-oriented industries, I think we are riding on this trend.
The opportunities for the quality agents, full-time professional agents moving to the insurance business, I think is just started. We see a lot of opportunities going forward.
Yep. Thanks, John. Adrian? Yeah.
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. 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. That's done through continuous process of active recruitment of quality individuals in our agency force, provide the best in class training, as well as continuous focus to make sure that they embrace the latest technology.
Yep.
For the bank insurance segment, we have an exclusive arrangement with Citibank. We're seeing great results so far this year, and it's definitely a key focus for us to further extend the success of our partnership with Citibank in Singapore. Second aspect is to enhance the overall value proposition to our customers, both in products as well as key value-added services like AIA Vitality to help our customers live longer, healthier, 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 affluent segment early this year, which has received a good response from our distribution channels that we constantly review, reprice, and enhance on our health insurance portfolio.
Of course, our award-winning AIA Vitality program has been a key differentiator for us in terms of value proposition to our customers in Singapore. Finally, the continuous effort to build on the digital platform that we have in Singapore. As you can see, Singapore is a highly digitized society. More than 90% of our business in Singapore are now submitted electronically by the IPO system. 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 our customers to do business with us. I know Singapore is a highly competitive market, but we remain confident that there's opportunity for growth because of that protection gap that still exists and because of the need for long-term savings in Singapore.
Thanks. Thanks, Hak Leh. Yeah. I'll take one, two more questions. Scott, you.
Thanks. Morning all, Scott Russell, Macquarie. 2 questions, please. Firstly, Hong Kong. Slightly different tact here. 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. They were only launched in April, so we're talking about VHIS and some annuities, I suppose. Which means in the second quarter, it was probably over half of the VNB came from those products. Is that right? Is that-
I think you probably misinterpreted that, yeah, Scott. We say it contribute 30% to 30% sales coming from existing customer. Yeah. What we basically are saying is these new products help us in term of going back to the existing customer, yeah, and increase it to 30% of total sales coming from existing customer. It become a door opener, yeah, and helps in term of marketing. It's not big that they contribute to 30%. Yeah.
Got it. That, I suppose, would also explain the upsell and the margin rising.
Yes.
five or six percentage points. Got it.
Yep.
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 VNB, both agency and banker. I'd like to understand some of the challenges you're seeing there, please.
Let me pass to Jacky to answer the question on VHIS, and then I'll tackle the Indonesia one. Yeah.
Thank you, Keng Hooi. 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. AIA Hong Kong launch most of our tax-deductible series on the day that this tax incentive was effective in April. We received a very positive response from the customer segment in Hong Kong. In fact, we also mentioned that most of our VHIS product are AIA Vitality integrated. This has results in the driven up increase of our AIA Vitality integrated VUNB of more than 40% in the first half of this year. This gives you a sense of that kind of momentum in the VHIS. Also we have a broad base of a tax-deductible series product.
Yeah. On Indonesia, as I shared in the slide earlier, Indonesia is one of the three country in the fast emerging opportunity, Indonesia, Vietnam and Philippines. Yeah. This market, to me, the future. Yeah, we are looking at the future. Huge amount of growth opportunity. They continue to be challenging in terms of making sure that we have the right sort of distribution, which are of very high quality that can build growth into the future. Indonesia, the agency, we are transforming it completely. 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. That we can build the foundation for the future. I will say that our partnership with BCA has been very strong. Yeah. The BCA performance has been very strong.
While 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. Yeah. We want to make sure that we build it on a high-quality basis so that it's sustainable over the future. Yeah.
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. Yeah. Jacky runs the business. He will tell you, he will need to take more time. Yeah. This just to again mention that, the other markets, we don't have breakdown. You will notice that the other markets is actually number three, in term of contribution to VONB. After Hong Kong, China is already the other markets. You can see these three countries are inside there. Population of 460 million. Yeah. GDP of $1.6 trillion. Yeah. 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. I'm going to take one last question.
Thank you. Thomas from Goldman Sachs. A couple questions maybe for Garth. Since Keng, you mentioned a few changes on the capital perspective, you got a summation approach coming through RBC IFRS 17. From a 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 would be great. Secondly, on that sensitivity you gave us, I know you would have changed the participating product, some of the product you would have reduced in those scenarios, probably have reduced payment to policyholder when you calculate your EV. That's why you probably get to a 1%.
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 that impact on EV? What would be that in that range? I know it's probably unlikely, but just help us to understand a bit.
On the capital point, I said that the group wide supervisory framework is obviously important for us as a group. The Hong Kong Insurance Authority indicated that they are looking at a summation type approach, that would obviously include Hong Kong. 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 to note is that when we look at that 1%, what we are doing is not only we're changing the assumption right across the board in terms of the interest rate, we're also adjusting the risk discount rate because the risk premium has remained the same.
That's the thing that has a balancing effect on the whole thing.
Okay. With that, I thank all of you for being here. Thank you.
Yeah. Thank you.
Thank you.