Good morning, everyone. I am very excited to be here today to present our interim results for 2026. I will start by providing you with an overview of our business achievements, and then will hand over to David Junius, our Group CFO, who will take you through the key financial highlights. FWD had a very strong start in this first full year as a listed company. Continuing growth momentum across the business is a testament to our unwavering customer focus and the agility of our business model. Starting with growth, our new business sales in the first half of 2026 grew by 7% to $1.35 billion, reflecting a notable improvement in the growth rate in the second quarter to 11%. Building on this sales momentum and supported by margin expansion from product mix shifts, our new business contractual service margin, or NBCSM, grew by 25% to $1 billion.
Value of new business, or VNB, grew by 18% to approximately $600 million. Looking at profitability, strong historical new business sales growth is now translating into earning growth. This, combined with the strength of FWD's operating model, our disciplined execution, and our continued focus on expense management, resulted in net profits for the first half of 2026 of $172 million. Growing new business metrics, coupled with improving profitability, resulted in continued growth in key value creation metrics, including contractual service margin or CSM balance, comprehensive tangible equity or CTE, and embedded value, EV. Last but not least, these results have been achieved while maintaining a group prescribed capital ratio of 203% and delivering robust cash flows. Cash upstream by operating entities exceeded $500 million for the first half of 2026.
In our home market of Hong Kong, our APE increased 6% to $679 million, despite a very strong prior year comparison. New business CSM and VNB both grew 25%. While Chinese mainland visitors, or CMV, are looking to access differentiated product features, multi-currency option, and relatively attractive interest rates are an important segment for the Hong Kong insurance market. It is only one of the many drivers of demand in this key market. Hong Kong's role as a superconductor and its global financial center status also attract international clients from across Asia and beyond, seeking legacy planning and diversification. Of course, the aging demographics in the domestic customer base is driving a greater need for healthcare, financial protections, and planning. These drivers underpin a positive view of the long-term outlook for the Hong Kong market.
At the group level, CMV business represents approximately 13% of our VNB, reflecting the diversified nature of our business across markets. More specifically, within our Hong Kong and Macau segment, the customer mix remains broad-based, with 58% of VNB generated from onshore customers and 24% come from Chinese mainland customers, with other offshore customers contributing the rest. This strong growth is supported by our diversified multi-channel distribution platform, comprising more than 290 brokers and IFA partners, 14 bancassurance partners, and an agency force that grew by double digits while achieving an 18% increase in productivity. We also maintained our position among the top five insurers in Hong Kong for MDRT membership for the seventh consecutive year. In Japan, FWD has established a competitive and sustainable franchise focused on individual protection.
Our entry into the savings market in July 2025 complements the protection franchise and has gained strong traction, supported by demand for savings and retirement solutions in a higher interest rate environment and the structural tailwind from Japan's aging population. Looking forward, we see further opportunities to broaden our product offering, to serve a wider customer base, and to drive sustainable APE, new business CSM, and VNB growth. In the first half of 2026, our Japan business delivered 29% growth in new business sales to $ 76 million, which drove our new business CSM growth by 22% and VNB growth by 43%. Japan's performance further underscores the diversified growth opportunities across our markets. Japan also continues to be a key cash contributor. Since 2023, the business has remitted more than $ 380 million to the group.
We expect the combination of our established protection business and expanding presence in savings to support both continued cash generation and future growth. The Southeast Asian life insurance market offers a compelling long-term growth opportunity, and we are well-positioned to capture it across this region. In the first half of 2026, 44% of our total new business APE came from Southeast Asia, covering our Thailand and Cambodia and our expansion market segments, which together form a core engine for our long-term growth and diversification. Thailand and Cambodia is our largest segment in Southeast Asia and remains an important contributor of growth, profitability, and cash flow for the group. While new business sales momentum has been below our long-term expectation in recent periods, actions to improve business quality and disciplined expense management have improved margins and supported strong earning performance.
In the first half of 2026, new business CSM increased 15%, supported by a 12.9 percentage point improvement in new business CSM margin, while OPAT grew by 16%, following 18% growth in 2025. Thailand and Cambodia also remitted record dividends to the group during the first half of 2026. New business sales declined 5% to $311 million in the first half, reflecting both the lower interest rate environment and our continued focus on improving quality. We appointed a new CEO for FWD Thailand in May this year. Under his leadership, the management team has focused its execution against a number of key priorities, including deepening the Siam Commercial Bank partnership and building a sustainable agency force. We expect the benefits of these actions to emerge progressively with momentum building into 2027. Evidence of this already emerging across both our bancassurance and agency channels.
In agency, recent results have been encouraging with actions taken gaining traction while we also maintain our number two MDRT ranking in the country, reflecting the quality of our agency force. In bancassurance, our market-leading partnership with SCB provides a strong platform for future growth, supported by initiatives such as the integration of FWD Omne within SCB EASY. The banking app that serves over 18 million SCB customers. This serves to deepen our engagement with SCB customers and broaden the access to a wider range of our product offers, resulting in a more favorable business mix and stronger margins. Our expansion market segment remains a key pillar for FWD's long-term growth. In the first half of 2026, we delivered new business sales of $282 million, an increase of 23%, reflecting continued momentum from 2025. New business CSM and VNB grew 52% and 36%, respectively.
This performance was driven by strong investment-linked product sales in Singapore's broker IFA channel, continued growth in the wealth segment in the Philippines, and the increasing contribution of digital commerce in Malaysia. This was partly offset by industry headwinds in Vietnam. Bancassurance continues to anchor the group's distribution model, supported by five exclusive partnerships across the expansion market segment. With our joint venture, BRI Life, ranking number one in Indonesia and FWD Philippines leading the market. Furthermore, our continued focus on digital enablement positions us well to unlock the next phase of growth in this segment. Delving deeper into our diversified distribution strategy, which continues to drive our growth. The result of our multi-distribution channel strategy is a strong and broad-based APE and VNB growth that we are seeing in our business.
Bancassurance remains a cornerstone of our group strategy, enabling us to achieve scale efficiently across our markets. At the same time, we have continued to strengthen our multichannel distribution platform, broadening our sources of growth and enhancing our ability to respond to changing customer preference and market dynamics. All channels delivered positive VNB growth in the first half of this year, with particularly strong momentum in the second quarter where all channels recorded higher growth rates. This diversified model ensures that we are both robust and nimble, enabling us to seize opportunities and create sustainable value for shareholders across multiple fronts. FWD is a leading bancassurance in Southeast Asia with 34 bancassurance partnerships, of which seven are exclusive, providing access to more than 350 million customers. Since 2024, we have established 10 new partnerships in Hong Kong, Macau, Indonesia, Malaysia, and Singapore, further extending our reach.
Leading banks choose FWD because of our ability to combine insurance expertise, our strong execution, and our digital-first approach that creates value for both the banks and its customers. We support our partners through integrated customers' journeys, advanced engagement tools, and capability building programs that help strengthen customer relationships and deliver relevant solutions at the point of sales. A recent example is the integration of FWD Omne into the SCB EASY application in Thailand, where customer adoption has been encouraging. This approach has resulted in strong and enduring relationships with many leading banks across Asia. The bancassurance channel delivered strong growth in the first half of 2026. This performance was led by Hong Kong and the Philippines while Thailand, Malaysia, and Indonesia delivered stable new business sales. Overall, bancassurance VNB increased by 13%, reflecting the breadth and strength of our bancassurance franchise.
Through a network of approximately 2,700 partners, the brokerage and IFA channel delivers APE growth of 8% and VNB growth of 31% in the first half of 2026, building on strong momentum from 2025. As distribution models across Asia continue to evolve, we believe we are well-positioned to benefit from the continued growth of this channel. FWD Private is a key pillar of our strategy in this channel, comprising 9% of total group APE. It supports growth in the attractive high-net-worth segment, both in Hong Kong, Singapore, and globally. Sales through international brokers more than doubled year-on-year, reflecting the fast-growing demand from global high-net-worth customers. In the first half of this year, we have strengthened our global high-net-worth team to support its next phase of growth.
This team will work to diversify our product offering across the savings and protection space and broaden our geographic reach into other global markets where there is significant demand for high-net-worth product solutions. With over 40,000 agents, agencies is the third core pillar of our long-term growth strategy. We continue to build a higher quality, more productive, and scalable agency force, reflected in both sales growth and productivity improvement. VNB from the agency channel grew by 2% year-on-year in the first half against a high comparative base in Q1, with growth accelerating to 15% in the second quarter. Momentum in new business sales were particularly robust in Hong Kong, while overall agency productivity improved by more than 30%. We also maintained strong MDRT rankings across our key markets.
As agency models continue to professionalize across Asia, technology is becoming an even more important enabler for productivity and customer engagement. Through tools such as FWD Cube, an agent AI assistant, FWD Group is helping agents manage their pipelines more effectively, deliver more relevant propositions, and enhance the experience of our customers. Combined with our disciplined approach to agency development, these capabilities support a more productive and scalable agency platform. As we have highlighted previously, a key enabler of our progress has been the investment we have made in our data and technology foundations. We now operate an integrated data environment that provides a single source of truth across our markets. Together with our standardized modular system architecture, this allows us to automate processes more effectively and improve efficiency and scale capabilities consistently across the group. These investments are now translating into tangible benefits across the business.
AI is helping us automate processes, improve productivity, and reduce turnaround times. For example, in Japan, AI-powered underwriting has reduced medical underwriting times by 40% while improving automated document processing accuracy to 97%. We also see good results from several operational and technology aspects of our business. Within certain AI-enabled software development teams, productivity has improved by 45%, demonstrating the potential for AI to accelerate delivery and boost efficiency. As an example, a recent customer communication solution was built and deployed in just four hours, compared with an estimated 17 days using traditional development approaches. Beyond operational efficiency, these capabilities are also enhancing customer and distributor experiences. In Thailand, AI voice assistants now handle 66% of customer calls, resolving around two-thirds of these without human intervention, significantly improving service efficiency.
In Japan, our Agent Guru tool is supporting IFA partners with AI-enabled training and sales support, with users achieving more than double sales productivity. Overall, we continue to approach technology deployment with discipline and clear business objectives. By building scalable AI capabilities on a common data foundation, we are improving efficiency, increasing productivity, and creating a platform that can support sustainable growth and long-term value creation over time. With that, I will pass to David to delve deeper into our financial results.
Thank you, Phong. Let me start by going through our financials. We have delivered record results across most financial metrics, reflecting a disciplined balance between growth, profitability, and capital generation, reinforcing our commitment to sustainable long-term value creation for shareholders. Starting with growth, we delivered 7% year-on-year new business sales growth for the first half of 2026, with growth accelerating from the first quarter to the second quarter. Importantly, this performance was achieved despite heightened market volatility and geopolitical tensions during the second quarter, particularly across global energy markets, which creates economic uncertainty for customers across many of our markets that are net oil importers. New business CSM grew by 25% to $996 million, and VNB grew by 18% to $602 million, reflecting the group's continued focus on higher-quality new business.
This drove an improved product mix, with new business CSM margin improving 10.6 percentage points and VNB margin rising 4.1 percentage points in the first half of 2026. Looking ahead, new business CSM and VNB margins for full year 2026 are expected to improve relative to 2025, although margins are expected to moderate in the second half compared with the first half due to seasonality, particularly in Hong Kong. Moving to profitability, our continued focus on profitability is evident as all four segments delivered positive operating profit after tax, or OPAT, in the first half of 2026. Strong new business sales translate into profitability through a higher CSM balance. Our OPAT was up 20% year-on-year to $298 million, and we achieved a record net profit after tax, or NPAT, of $172 million. FWD Group is relentlessly working towards creating value for shareholders.
Return on tangible equity was 19.4%, and the contractual service margin, or CSM, balance grew by 13% to $7.2 billion from year-end 2025. We remain committed to the view that growth in CSM is the leading indicator of future growth in profitability and cash flows. Comprehensive tangible equity, or CTE, and embedded value both increased by 5% in the first half of 2026. Adjusting for macroeconomic factors and regulatory changes, mainly the implementation of ESR in Japan in the case of EV, underlying CTE and EV growth were 11% and 12% respectively. Finally, addressing cash and capital. Excluding opening adjustments, net UFSG grew double digits year on year. We have already completed our annual remittance cycle for 2026, receiving $512 million from subsidiaries during the first half. This has been achieved while maintaining a group prescribed capital requirements, or GPCR, based solvency ratio of 203% as at 30 June 2026.
I would now like to walk you through some of our business financial highlights, starting with our largest market, Hong Kong and Macau. Hong Kong and Macau delivered a robust performance in the first half of 2026 through its diversified distribution strategy, despite a high comparative base, and focused on improving new business profitability through reduced sales of lower-margin endowment products. New business sales accelerated from the first quarter into the second quarter, contributing to overall APE growth of 6% to $679 million in the first half of 2026. Growth was driven by continuing momentum in onshore sales, which represent more than half our total Hong Kong sales. New business CSM and VNB growth outpaced the growth of APE for the first half of 2026, as both grew by 25%, driven by margin improvement in this segment from favorable product mix shift.
Looking ahead, we currently expect full year 2026 new business sales growth in Hong Kong and Macau to be broadly in line with that of the first half. Finally, OPAT for the segment grew 32% year-on-year to $164 million as a result of higher CSM release from new business growth and higher in-force. Turning to Japan, in the first half of 2026, this segment delivered significant growth in new business sales of 29% to $76 million as it continues its momentum from last year. The growth was driven by sales of individual savings products. An aging population, a higher interest rate environment, and our focused distribution strategy through the IFA channel continued to generate attractive growth opportunities in both savings and protection. As a result, Japan is expected to remain a key growth driver for FWD in the coming years.
The momentum in new business sales contributed in new business CSM and VNB growth of 22% and 43% respectively. New business sales were strong in the first half of 2026, driven by savings products, and we expect this momentum to continue into the second half of the year. OPAT in Japan declined by 3% year-on-year to $85 million, mainly attributable to an adverse persistency variance in a run-off portfolio. Thailand and Cambodia is our second largest segment and is an important contributor to the group results. APE in Thailand was $311 million in the first half of 2026, down 5% year-on-year, reflecting both the lower interest rate environment and our continued focus on improving the quality of new business. Encouragingly, growth rates improved in the second quarter relative to the first quarter. Our focus on improving business quality is evident in the segment's profitability metrics.
New business CSM increased 15% in the first half, significantly outpacing APE growth. VNB margin increased 0.8 percentage points to 44.8% despite the lower interest rate environment. Adjusting for the impact of lower rates, VNB increased by 15%. Looking ahead, VNB margins for full year 2026 are expected to be broadly consistent with the levels achieved in the first half. OPAT increased 16% year-on-year to $98 million, supported by growing CSM release and improved claims variances. This reflects our continued focus on the quality of new business written. Moving to expansion markets, the strong growth momentum from 2025 continued into the first half of 2026 as the expansion markets segment grew new business 23% to $282 million.
This was driven by strong investment-linked product sales in Singapore's broker and IFA channel, continued growth in the wealth segment in the Philippines, and the increasing contribution of digital commerce in Malaysia. This was partially offset by continued industry headwinds in Vietnam. New business CSM grew 52%, while VNB grew 36%, both outpacing the growth in new business sales. With the trends seen in 2025 and the first half of 2026, we remain confident around continued momentum in new business sales for the full year in the expansion markets. Lastly, OPAT grew by 14% to $43 million for the first half of 2026 from higher CSM release and persistency improvement. OPAT for the first half of 2026 was $298 million, up 20% year-on-year.
The largest contributor to OPAT is the net insurance service results that grew by 34% to $475 million, primarily driven by higher CSM release as well as favorable claims variances and disciplined expense management. Our operating expenses grew by 2% versus total written premium growth of 11%, reflecting continued expense discipline. As a result, operating expenses as a percentage of total written premiums declined from 13.6% in the first half of 2025 to 12.4% in the first half of 2026. Our growing CSM balance, a leading indicator of future operating profit, is expected to grow in line with our mid-teens guidance, which will translate to a similar growth rate for OPAT. Moving to net profit after tax or NPAT. NPAT grew by 269% from $47 million to a record $172 million for the first half.
This improvement was mainly driven by OPAT growth and a reduction in financing costs and improvement in market-related impacts. More importantly, our results demonstrate that growth delivered across the business over recent years is pulling through to meaningful bottom-line earnings. Turning to CSM. The CSM balance is one of the key indicators of value creation for shareholders at FWD Group. We are pleased to report strong growth of this key metric of 13% to $7.2 billion for the first six months of 2026. The operating contribution to CSM was $764 million, a strong increase from $607 million in the same period in 2025, primarily due to a higher contribution from new business. Non-operating factors were negative $106 million, largely related to the depreciation of the Thai baht and Japanese yen against the U.S. dollars. Embedded value grew 5% to $6.9 billion in the first half of 2026 compared to year-end 2025.
This outcome reflects strong operating performance with EV operating profit increasing by 15% year-on-year to $1.0 billion due to strong new business growth and favorable operating variances and assumption changes. This was partially offset by macroeconomic headwinds, including higher interest rates and foreign exchange impacts from the weakening Thai baht and Japanese yen from year-end 2025. Embedded value in the first half of 2026 also reflected the ESR drag from Japan. Excluding these impacts, Embedded value grew by 12% compared with year-end 2025, which is above our mid-teens EV growth guidance over the cycle and highlighting the continued strength of the underlying business. Ultimately, higher new business growth, a strong earnings profile, and value creation feed into free surplus generation and cash remittances that cover the cost of debt and holding company expenses and enhance financial flexibility.
Net UFSG as at 30 June 2026 was $381 million, decreasing 11% compared with the same period in 2025. Again, driven by the implementation of ESR in Japan. Excluding opening adjustments, net UFSG grew double digits year-on-year, reflecting strong earnings emergence. Robust business trends support the growth in net UFSG. Consequently, we expect UFSG for the second half to be broadly in line with the first half. We completed our annual remittance cycle for 2026 during the first half of the year, receiving debt remittances from subsidiaries of $512 million. Since the IPO in July last year, refinancing and liability management actions have reduced annual interest costs by approximately $78 million, whilst continued expense discipline has further reduced cash drag at the holding company. Together, these actions have strengthened the holding company's cash flow profile, with operating cash flow expected to remain positive through 2026 and beyond.
The leverage ratio at the end of first half 2026 stood at 21.4%, practically unchanged from year-end 2025. This is slightly above our target range of 15%-20%, which we expect to achieve through growing retained earnings in the next few years. The group prescribed capital ratio was 203% at 30 June 2026, compared to 265% at 31 December 2025. The majority of the reduction reflects the adoption of ESR in Japan. Excluding ESR, the ratio declined by 7 percentage points from 210% to 203%. Importantly, ESR has no impact on the group's cash flows or financial flexibility, which remains strong. To sum up, the group remains focused on delivering profitable growth, increasing capital and cash generation, and improving efficiency. The continued deployment of technology and AI across the business is expected to complement these efforts, supporting sustainable free surplus generation and long-term shareholder value.
On a personal note, I am excited to join FWD at an important stage in the group's development. We are well on our way to building upon our track record of profitable growth and margin expansion across some of the world's most attractive life, retirement, and health insurance markets, while maintaining a disciplined approach to risk management. Together with my colleagues across the group, we will continue to focus on changing the way people feel about insurance. With that, let me hand it back to Phong to wrap up before we go to Q&A.
In closing, we are well positioned to deliver sustainable value for our shareholders. Our strategy is clear and focused, winning in our home markets, leveraging a balanced and scalable multi-channel distribution model, and differentiating ourselves through industry-leading digital capabilities that enhance customer distributor and underwriting outcomes. We operate in some of Asia's most attractive growth markets with a consistent record of strong growth and great potential for further expansion. Our proven execution in these exciting markets is translating into earnings and the growth of value-creating metrics like CSM, EV, and CTE. Our strategy, together with our strong financial discipline, give us strong confidence in our ability to deliver sustainable growth for our key value metrics at mid-teen levels while maintaining a robust balance sheet. Thank you once again for your time and attendance today.
Good morning, and welcome to the briefing for the FWD Group 2026 interim results announcement. My name is Evan Esterhuizen, Group Treasurer for FWD Group. We are about to begin our Q&A session. If you have questions, simply click the Raise Hand button at the bottom of your screen. When you are next in queue, you will receive an invitation to enter our Q&A breakout room. Just select Join Breakout when the notifications pop up. Please be advised that should there be a higher volume of inquiries, there may be a delay before your request is placed in the queue. Over to you, operator.
Thank you, Evan. We will now commence the Q&A session. Our lines are open now, and we are standing by for your questions. You may click the raise hand button at the bottom of your screen. We will begin with several automatic questions before the meeting. Due to the time zone difference, as they are based in the U.K., they are unable to dial in. Our first two questions come from Josephine from Autonomous. Her first question is, what kind of APE growth and VNB margin can we expect in Hong Kong for the second half? Will growth continue to accelerate over the year to your broader mid-teen target, or will it hold steady at quarter two levels? The second question is, what is the short- and medium-term growth aspirations in the Japanese business, and do you anticipate being able to maintain current margins as part of these aspirations?
Thank you for the question. Let me start on the Hong Kong growth question, and then I will ask David Junius, our CFO, to add in his view. First point I want to make on Hong Kong market is we hear it's our headquarter, of course, very important to us. We do have a very experienced management team with a very long track record of delivery. Some of our management team date back more than a decade, predate FWD. What we are excited about this market is the growth driver for this market in terms of offshore customer, onshore customer, and the global high net worth that take advantage of Hong Kong as the super connector and the world-class financial center. These factors continue to drive the business here in Hong Kong.
If you look at our product mix, you can see that it's very well diversified with 58% of the business come from the onshore, 24% come from MCV, and 18% from other place of the world. The distribution that we built here also place us in a very strong position for growth in the future. We have a network of roughly 290 IFA brokers, and quite a number are international brokers. We can see significant growth there. We also have 14 bank partners in this market, and we have a very highly productive and a very high quality professional agency force that continue to deliver strong growth. With that, let me pass to David for some of his view on the number and the midterm outlook.
Great. Thanks, Phong. Just on the numbers and the outlook, I think, as we said in our opening remarks, we expect the margins and growth rates to be largely consistent in the second half as the first half. So expect the full year to be in line with the first half growth rates.
Great. On the second question on Japan, I think this is one of the market that, if you look back at our track record, is the first one to leave it up to the group and has been consistently deliver in the past years in Japan. This is a market where we build a very strong individual protection franchise, and that is going to continue to deliver for us. If you look at since last July, we enter into the savings space with a single premium Japanese yen product, and that gaining very strong traction in this market. We will continue to broaden out the product offering on the savings space.
This is the right time to do it because if you look at the demographic drivers in Japan with the aging population and the current increasing interest rate environment in Japan, having the comprehensive individual protection and in term of savings space is very important for us. On top of that, I think we make a lot of investment in AI and modernization of the back office operation. The example I shared with you earlier in the presentation on how we significantly increase the efficiency of our underwriting process is a very good example, where 97% accuracy when it come to document read in Japanese language is actually quite good. So these thing altogether will continue to build a very strong financial franchise. Look back the first half, I am pretty excited when we see the 29% increase in top line in Japan.
I will just mention on margins, so the growth in Japan has been driven by our savings business there. Most recently, we do expect that to have an overarching moderating impact on margins in Japan. So we do expect that to moderate down over time. But again, that is down from very high levels across the group. So while it is going to moderate, it will still be at a very high level.
Next, we have two other questions from [Daryl Guo] from Jefferies. His first question, "Is any color on MCV sales in July and August?" Second question is, "How sustainable is the 18% VNB growth? Is there any reason not to assume a similar level for the second half considering the lower prior year as a comparison?
Let me start here on the MCV. First and foremost, I think there is already quite a number of comments from regulators from both sides of the borders as well as other insurance companies. I will not repeat here, but the core message here is this is not a new regulation. This is an emphasis on the fact that as Mainland Chinese resident, the customer pays tax on the investment income from offshore sources. Therefore, there is nothing changed, and we should not be too overly interpreting these changes. From our perspective, you look at our perspective, only 13% of our VNB is from Mainland Chinese visitor. I think this reflects very well the fact that we are very diversified in terms of geographic, in terms of distribution channel. That reflects our success so far. Our view on Mainland Chinese visitor impact is quite manageable for us.
In terms of growth, VNB, we are showing 18% growth. If you look at the second quarter standalone, I think that growth is significantly higher. That just shows you the momentum of the business that we have right now.
Yeah, maybe I will just mention broadly, the margins were greatly improved across the group. VNB margin in Hong Kong in particular up 25%. We are very happy at the overall margin improvement across the group.
We will now proceed with the first caller. We have Mr. MW Kim from JPMorgan. Mr. Kim, please kindly go ahead.
Thank you for the opportunity. This is MW Kim from JP Morgan, and congratulations on the strong result. I have two questions. The first is about potential dividend. Company's large business scale now appears to be generating strong net cash and reserve growth, which should support the capital base. Upstream dividend to the holding company also appear robust. Against this backdrop, I would like to ask about the likely timing of the first dividend proposal. Second is that Japan. Japan yield have moved higher and the company is offering more longer duration focused product. I want to know, and probably get more insight about how you manage the less risk in the in-force book and also under the Japan ESR. What is approximate the contribution of this less risk out of your total required capital? Thank you.
Thank you, Mr. Kim, for the kind words, and sound like three questions. All three should go to David.
Okay, great. Sure. On dividends, as you've seen, we've had strong cash flows up to parent over the last few years, and we view ourselves as being at an inflection point in our in-force profits on an IFRS and EV basis, and that is translating into the net UFSG and cash remittances as we've talked about. So that gives us additional financial flexibility going forward. From our perspective, this gives us lots of different options to create shareholder value. But that includes accelerating organic growth in our operating entities. We can continue to invest in other asset classes in the investment portfolio, selective M&A. We can do debt de-leveraging, and then also we can look at initiating dividends as well.
We'll be, and continue to discuss these with the board and assess the capital deployment against these various returns from the various options to make disciplined decisions that create the best risk return for shareholders. On the Japan question, as you've seen, we use reinsurance in a disciplined way to help manage the risk there. I think that is gone. But the underlying market in Japan continues to be very attractive and very profitable. We'll continue to grow that business and then use a variety of options, including reinsurance, to manage that risk on a go-forward basis.
Next in line, we have Richard Shu from Morgan Stanley. Mr. Shu, you may proceed.
Thank you for the opportunity. Again, congratulations for the very healthy and solid results across the board. My question is really a bit on the margin and long-term strategy. We have seen margin improvement quite notably in the first half across the board. Just want to know what are the key drivers in terms of maybe agent training and product mix shift and stuff like that, and what are the essentially underlying efforts, right, in supporting these margin improvements. Going forward, any specific goal or target? Should we see continuing improvement in these trends? Any other drivers will continue to drive up the margin in certain markets? Thank you very much.
Thank you. Thank you, Mr. Shu. Let me start here. Number one, I think the first point I want to make is for us as a management team, we take a very balanced approach in term of top line and profitability. That is very important for us, and that reflect in the balanced scorecard for the entire team. That is the first point I want to make. The second one I want to make is, in term of product shift, product mix management, this is something that we actively manage. If you look at, for example, in the market like Thailand, where the trend now is people are moving away and less focused on what I call non-par traditional guarantee return, to a more sophisticated unit-linked, index-linked product.
This sort of trend, we manage very carefully and make sure that we meet the changing customer expectation, and at the same time can deliver a product margin enhancement. Similarly, in Hong Kong, we carefully manage the product shift to deliver the margin impact. The third thing I want to mention here is, again, back to that diversification strategy. I think this is very crucial for our long-term view, as you ask. This diversification in term of both geographic and in term of channel mix allow us to manage the various components and continuing to calibrate that mix on an ongoing basis to improve our margin mix.
Maybe I'll just add, across the board. Hong Kong margins improvement from last year. We are selling less single premium endowment product in that market, so that's helped the margin. In Thailand, that's been traditional endowment and long-term endowment, whole life products have improved. I would say, broadly, kudos to the teams in the country who've gone out and reached out to our distribution partners and have driven sales of higher margin products for us. The group, my credit goes to them in working through in sometimes a very difficult macro environment, but to help boost margins. We're very happy with the contributions that the individual countries have driven in terms of improving margins.
Moving on, we have Mr. Thomas Wang from Goldman Sachs. Mr. Wang, your line is open.
Thank you. Couple of questions from me to attend. Firstly, just so I'm thinking a little bit on the margin side. It looks like agency margin is down, so there seems to be more bancassurance and broker channel. Just wondering, again, let's just focus on what's driving that. Is it ticket size or some other factors besides product mix? Especially this is on Japan, you're writing more savings product. Did you factor in the higher yield, higher interest rates? Is that a factor in the margin expansion? A second question just on investment side, I think, the set of number, there was a few lines around weaker than expected return from private equity investment. I go back to full year 2025, that was also a comment in the full year 2025 result, the expected private equity was weaker than expected.
Can you just give me a little color, what's driving that? What's underlying asset, and is there a risk that you may need to revise that assumption, for this asset? Thank you.
Thank you, Thomas Wang, for the question. Let me take the agency question, and I pass the other question to David to answer. On agency side again, back to the point that this is a very key channel for our monthly distribution strategy. Agency now is 18% of the total. We managed to improve our productivity on this channel this year by roughly 30%, which is quite significant, and maintaining in the top 10 when it comes to MDRT globally. That is very key for us. One thing to keep in mind is agency is heavily driven by Hong Kong market. If you look at Hong Kong agency component, you can see that the focus on quality really paid off for us in the second quarter of the first half. You can see that margin and VNB pick up significantly in the second half.
I think that should show you the direction that we move forward in terms of the agency side. You want the third quarter?
Yeah, sure. Happy to pick up on the Japan and the PE questions. On Japan, absolutely the higher interest rates in Japan, definitely driving demand for savings products more broadly in the market, where I think that just goes to the strength of the geographic diversification that FWD Group has in the markets. We are very happy to have that Japan franchise and be able to respond to market demand and market conditions there. We will see that continue to move forward. This goes in adding the savings product to our well-established protection franchise there, is a good mix shift for us and will continue to go. In terms of the margins, will continue to be high. Picking up on the private equity question. This is while private equity returns are kind of below our long-term expectations.
We do see our returns as kind of in line with the broad market results in this sector. There has clearly been, broadly speaking, impacts from particular vintages on valuations from 2020 and 2021 in particular. That has been a little bit of a drag on returns. Let us keep in mind that it is a relatively small part of the overall portfolio and most of that exposure was in the par segment. Overall, we feel that that is a manageable exposure, and we will continue to work on that performance.
Our fourth caller is Michael Li from Bank of America. Mr. Li, you may proceed.
Thank you. This is Michael Li calling from Bank of America, and congratulations on your solid results. I have two questions. The first question is about Hong Kong. I wonder if I can get more details about Hong Kong business. First thing is about the growth between local business and MCV business or offshore business. My impression was that in first half of this year, the local business growth was stronger than MCV or offshore business. Correct me if I am wrong. Where did the demand come from and what kind of products introduced to local clients to attract them to buy more in first half this year. Also about Hong Kong, the channel mix. I saw that in the reports that all the channels from bancassurance, brokers, and also agents, they reported double-digit growth.
Could you compare them in terms of which one is reported stronger growth in first half and why? Second question is about Thailand. Thailand business, I guess we saw some kind of turning point here after you appointing new CEO and the improvement in agency channel and also improvement in margin. Can you give us some outlook, in second half whether we will see some kind of positive growth in Thailand this year? Thank you.
Thank you. Maybe I start in Thailand and then come back to Hong Kong, because Hong Kong, I think my colleagues will have things to add in with my answer. On Thailand side, thank you for the kind words, Michael, and I think I'm very excited about this market. This is the operation where we build a very strong foundation. We have the best bank partner you can possibly get in this market with SCB. In term of agency, we're still number two when it come to MDRT in this country. I think the foundation is very strong. We have been focused on profitability and quality of the business there, and that flow out very nicely when you look at the profitability and some of the KPI that you see from that market.
I think new business CSM went up by 15%, OPAT increased by 16%, record dividends in the first half, margin improvements. So on the quality side, we are quite happy with the first half result. As you mentioned, we now have a new CEO on board with KK. High energy, driving through a lot of changes and energize the distribution channels in a great way. We are very encouraged about the changes there. On top of that, I think, as I mentioned earlier, the shift of the consumer preference from a non-par guarantee interest into more sophisticated products like unit-linked and index-linked, that has opened up a wonderful opportunity for us. The various drive on AI and technology and digital that we have invested heavily in that country starting to bear a lot of fruit.
We expect the result of all these investment and change go into the second half and go to next year, to 2027. We are quite excited about that. In terms of Hong Kong, I think back to the point that we are very diversified. We have 290 IFAs and brokers, 14 bank partners, and a very high quality agency channel. We can see business growth across all of these channels. In terms of the onshore and offshore and so on, I think the growth on, you can see the various segment that you mentioned. Onshore, we now 58% of our business is onshore. Onshore, that is including a lot of Mainland Chinese people who now live here, work here, and buy products here and continue to drive the demand. Together with the demographic, the aging population of the local population demand more protection, more health, and so on.
I think those drivers very strong for us. MCV now is 24% for us in Hong Kong. That means that is 18% of the rest, which is quite a big chunk is customer from different part of the world that come here and take advantage of the Hong Kong products and services. We can continue to see very solid growth. You want to add color in terms of how you see the upcoming and the near term?
Look, I think as we have said, we expect the sort of the second half to be generally in line with the first half across the board. I think just to pick up on Phong's comments, again, we have had very good success in the broker channel in Hong Kong, and we also have a strong agency force in Hong Kong as well. I think other than that, I think Phong covered most of that there. Thank you.
Ladies and gentlemen, that is all the time we have for questions today. If we were unable to get to your query, the FWD Group investor relations team will be pleased to follow up with you directly after the event.
This concludes our 2026 interim results analyst briefing. On behalf of FWD Group, thank you all again for your participation. Presentation materials, recording, and transcripts from today's briefing can be downloaded from the investor relations section of our corporate website. Thank you again for joining.
Thank you.
Thank you.