Aia Group Ltd S/Adr

Good morning from AIA Central in Hong Kong. Welcome to our first quarter 2024 update Q&A session. I'm Lance Burbage, Chief Investor Relations Officer for AIA Group. Together with me today are Li Yuanxiong, our Group CEO and President, and Garth Jones, our Group CFO. We also have other members of the Group Executive Committee either with us in the room or joining us remotely. Before we start the Q&A, Jens-Elmer Garth will take you through a short presentation on our first quarter new business performance and our new capital management policy.

Jens-Elmer. Good morning, everyone. Today, I am very pleased to announce both policies, clearly demonstrating the strength of AIA's business model and our financial discipline. Value of new business for the group grew by 31% in the first quarter of 2024. We delivered AIA's highest-ever quarterly new business result, building on our very strong VOMV performance in 2023. Our new capital management policy provides greater clarity as to how we will deliver higher annual capital returns to shareholders. Following this new policy, the Board has approved a further $2 billion buyback, which increases our existing share buyback programme to a total of $12 billion. I am confident that AIA is exceptionally well positioned to capture the highly attractive opportunities available to us across the region. We continue to focus on driving high-quality, profitable new business growth that delivers increased future earnings, free surplus generation, and greater shareholder value. Let me now take you through the first quarter new business highlights. VOMD was $1.3 billion, a record high for a quarter, and up by 31%. We delivered double-digit growth from all our reportable segments, with VOMB margin increasing by 2.1 percentage points to 54.2%. AIA China was up 38%, driven by very strong double-digit growth from our premier agency, supplemented by growth from our highly selective bank assurance partners, where VOMB margin increased to around 40%. Growth was broad-based across our established operations and new branches, and the VOMD margin for AIA China increased further from the second half of 2023 to 54.6%. AIA Hong Kong grew by 43%, with double-digit growth from both the domestic and mainland Chinese visitor customer segments. New business from mainland Chinese visitors continued to build momentum, with VOMB in the first quarter higher than in the fourth quarter of 2023. Our three largest ASEAN markets, Thailand, Singapore and Malaysia, all grew by double digits, with combined VOMB growth of 16%. and our other market segment was up by 10%, with excellent growth from Tata AIA Life in India and strong performances from Australia, the Philippines, and South Korea. Today's announcement clearly demonstrates the strength and diversification of AIA's businesses, which enables us to capture the significant growth opportunities across Asia and deliver capital returns to shareholders. I will now hand over to Garth.

Thank you, Yunxiong. There are two key components to our enhanced capital management policy announced today. The first component is an annual payout target ratio target that supplements our progressive dividend policy with annual share buybacks. The second component is a commitment to regularly review our capital position and return capital that is excess to our needs at least annually. As a result of this, we are adding $2 billion to our existing share buyback programme. We expect this to commence as soon as practicable and to complete in around 12 months. Let me now explain how this policy works in practice and how we assess our capital position from a shareholder's perspective. While the Group LCSM surplus is our principal regulatory solvency measure, we have always said that free surplus provides a more representative view of the capital position for shareholders. Since the introduction of the LCSM framework, we've shown a reconciliation of the group LCSM surplus and free surplus consistently in our interim and annual results. Free surplus removes items included in the LCSM that are not available for distribution to shareholders, for example, the surplus within PAR funds. We calculate the group's total capital resources by adding free surplus to eligible Tier 2 debt and required capital. On this basis, the ratio of total capital resources to required capital was 269% at the end of 2023. The first priority within our capital management framework is to maintain a strong and resilient balance sheet. While required capital includes the prescribed capital levels for our various businesses set by our regulators, we hold additional capital that allows us to withstand a range of extreme but plausible stress scenarios. whilst also ensuring we do not constrain organic new business growth. For example, we include a repeat of the GFC, pandemics, persistent high and low interest rate scenarios. We also allow for combinations of these scenarios at the same time. Based on our assessment of our current capital needs, including these scenarios, we target for shareholder total capital resources to comfortably exceed 200% of required capital. On completion of the remaining $2.8 billion from the existing share buyback programme, together with the additional $2 billion buyback announced today, our free surplus on a pro forma basis, as at the end of 2023, reduces to $11.5 billion. The pro forma ratio of shareholder total capital resources to required capital reduces to 238%. Our new enhanced capital management policy provides greater clarity and will deliver higher annual capital returns to shareholders. Starting from our 2024 annual results, we will target a payout ratio of 75% of annual net free surplus generation through dividends and share buybacks. Net free surplus generation is calculated as shown using figures that we have consistently included in our results announcements. Net free surplus generation is calculated before investment return variances. While investment return variances, foreign exchange and other non-operating items create free surplus volatility from year to year, they have averaged under $80 million a year since our IPO. This formulaic approach automatically adjusts for further organic investment in profitable new business. As we grow the business, the balance sheet and required capital will increase, driving the need to retain some net free surplus generated. However, with a 75% payout ratio, we expect the total capital resources to required capital ratio to fall over time from 238% as we grow and regularly return capital to shareholders. For clarity and completeness, our policy of delivering prudent, sustainable and progressive dividends remains unchanged. The balance of the payout above dividends with a target 75% aggregate payout ratio will be provided by way of share buybacks announced at the annual results each year. Let me now illustrate how our capital management policy will work in practice based on our 2023 annual results. As I said, there are two components to the policy and it is important to consider these together. Net free surplus generation was $3.9 billion after new business investment of $1.3 billion. Under the first component of the policy, based on the 75% payout ratio target, $2.9 billion would have been returned to shareholders. The 2023 interim and final dividends totaled $2.3 billion. The $0.6 billion balance would therefore have come in the form of an additional share buyback. we will announce this year's net FSG, final dividend and additional share buyback at our 2024 annual results. Under the second component of the policy, the regular review of our capital position, we have today added $2 billion to our existing share buyback programme. This is in addition to the $2.8 billion we will return in 2024 and the annual dividend payment. Together, these amount to roughly 10% of our recent market capitalisation. In conclusion, you can see that overall our new capital management policy provides both greater clarity and higher capital returns to shareholders. I'll now hand back to Yun Xiong.

Thank you, Garth. In closing, today's very strong new business growth, combined with the clarity from our new capital management policy, clearly demonstrate the strength of AIA's significant competitive advantages, operational delivery and financial discipline. We have the right strategic priorities and our consistent execution gives me great confidence that we can continue to deliver significant value creation for our shareholders. Over to you, Helens.

Thanks, Yunxiong. With that, we will now begin the Q&A session. So over to you, operator. Thanks.

Ladies and gentlemen, we will now begin our Q&A session. If you wish to ask a question, you need to make sure that you're logged into the Zoom webinar. Please click the hand-raising button and wait for your name to be announced. After I call your name, please press the unmute button shown on your screen and ask your question. If at any time you need to cancel your request, please unclick the hand-raising button. Let's proceed. And our first question comes from Charles Zhou of UBS Security. Charles, please press the unmute button on your screen and ask your question.

Good morning, everyone. Congratulations. I think it's a very strong set of results. And also, finally, we're glad to see some clarity about the enhanced capital management plan. So I've got two questions for management. First, you know, some of your peers have provided a long term target for the underlying free surplus or maybe some free surplus. So can you maybe, does AIA have any targets or can you talk about any targets for the long term? Otherwise, any colors or key consideration And thinking about the net free surplus generation will be very helpful because, you know, we need to do some protection here. And second, after the recent regulatory inspection on the MCV focused brokers in Hong Kong, I would like to hear from management. What do you think about the outlook for this channel in second quarter and also beyond? and also AIA Hong Kong growth prospects as a whole. Do you think this is an individual event or does it indicate a wider clampdown such as capital control on the MCV business? Thank you.

Yeah, firstly, thanks, Charles. I understand the need to try to project this in some way forward. I think the important thing to remember is that, as with our metrics on earnings, similarly, the successive layers that we put on of profitable new business translate into underlying free surplus generation. So as we explained, I think, at the full year, as you add further new business layers, those add to earnings. They improve the ROE. and then also they add on to the free surplus generation going forward. This layering comes through. I'd suggest in terms of forecasting, it's probably better to talk to our IR team and get technical support. There are a few elements to put in there. Why we thought of net free surplus generation was that then clearly the best way we can create value for shareholders is by growing the business organically, and then the higher... the new business strain, then that will obviously impact net free surplus generation. But that will indicate that we are growing the business very strongly and creating greater value for shareholders.

I would just add that the underlying free surplus generation is a very key metric that the management is very focused on. It is one of the key metrics in our short-term incentive program, and we intend to introduce this as another metric in our long-term incentive program as well. So it is a very important metric that the management is very focused on.

Hi, Charles. Thank you for the question on the MCV broker. First of all, the investigation by the Hong Kong Insurance Authority and ICAC, it is still under investigation, and the identity of the broker has not been disclosed. First of all, I want to let you know that, in fact, since the border reopened last year, the Hong Kong life insurance industry has been in discussion with the Hong Kong Insurance Authority to keep review and investigate the sales practice of certain sales intermediaries to ensure full compliance of MCV business and to ensure the long-term sustainability of the MCV business. And in the case of AIA, you all know that AIA holds a very high standard on compliance on MCV policies. We require the MCV customer to be present in Hong Kong or Macau, and our staff at the Wealth Select Centre will meet with the customer, will ensure all the proper documentation, et cetera. And also, we carry out welcome calls. to check the MCV customer on the sales process, et cetera. So in fact, AIA very welcome the initiative taken by Hong Kong Insurance Authority in this case. And as I said, this is still under investigation, but in view of the heightened risk of this concerned broker, AIA Hong Kong already suspend a new business coming from this broker. First of all, I really want to reiterate that the MCV business is a business in the Hong Kong insurance industry for almost more than two decades. And the MCV customer flow coming to Hong Kong remain very strong. And in the case of AIA, we have a diversified distribution channels and our core agency channel actually took up more than 60% of the MCV business of AI Hong Kong, and the rest is coming from our diversified bank-as-run partnership and more than 100 brokers. So we see that the so-called short-term impact from this broker to Hong Kong, to AI actually is very minimal. And in fact, this will really help the long-term sustainability of the MCV business through the broker channel.

Yeah, I agree with Jackie, and I really welcome the actions taken by the Hong Kong IA because I believe it will support the long-term sustainability of MCV business in the Hong Kong market.

Thanks, Charles. Next question, please.

The next question comes from Thomas Wong of Goldman Sachs. Thomas, please press the unmute button on your screen and ask your question.

So thank you, Madam Chair, for this opportunity. A couple of questions. Firstly, just wanted a little bit more detail on that total capital target of comfortably about 200%. Can you sort of share a little bit more color on that and how you think about free surplus and eligible debt mix within that resources category? how much sort of comfortable raising that use of eligible debt to capital resources. Sorry, the other thing is mainland China. Can you talk about the bank assurance and agency mix in terms of sales and VOMB? in the first quarter, and then have you kind of completed with the role of bank assurance, at least the major role of bank assurance channel, and how do you see that mix evolve for the rest of the year and into next year? Thank you.

Yeah. Thanks, Thomas. As we showed earlier, we're targeting this shareholder capital ratio that comfortably exceeds 200%. And when we look at reviewing our capital position regularly, I'm looking at the capital that is in excess of our needs. That also includes optimizing our overall capital structure, depending on debt market capacity and conditions. Clearly, the group retains additional financial flexibility from its debt capacity. And from a ratio perspective, our current credit ratings, our Moody's leverage ratio could go up from the current 15% to around 20%. But we're comfortable with our current financial ratings. Clearly, our business is a life insurance business. It's retail. It's not as sensitive to credit ratings as, say, commercial non-life insurance. But we do look at both the amount of capital we need and the structure of that capital on an ongoing basis in order to optimize both. Yeah.

Hi, Thomas. Let me take you through our very strong A China result in the first quarter. We are very pleased that the growth is block-based across both agency and also bank assurance channel. Furthermore, our protection VOMB also grew a double digit in the first quarter this year. Our agency remains our core channel, and the agency growth is driven by growth in number of active agents and more than 20% growth in number of new recruits and number of new active agents. And this is very broad-based, and the AMP per active agent also grows strongly in first quarter. So our agency really continues to perform very well in both protection and long-term savings products. As our differentiated bank assurance, we continue to focus on our strategic partners' banks, including China Postal Group, Bank of East Asia, Shanghai Pudong Development Bank, and Bank of China. We continue to focus on the F1 and above customer segment and the average case size speed for itself. It is a very, very strong average case size. Our bank assurance profitability actually also improved in first quarter. From last year, first quarter, to this year, first quarter, that was almost a real NB margin of 40%. So we are very pleased with this differentiated bank concern channel. And in first quarter, the bank concern channel contributed roughly 15% of our total real NB of A China. We continue to be very bullish about the outlook of our A China business in mainland China. Thanks, Jackie.

The next question comes from M.W. Kim of J.P. Morgan. M.W., please press the unmute button on your screen and ask your question.

Thank you so much for taking my question and really appreciate your quarterly management call. Following this announcement, as previously mentioned, the underlying pre-surplus generation perhaps become more important figure to the shareholders and broad stakeholder. So my first question is about the management KPI. Currently, the new business value has a larger weight in the management KPI. Would we expect potentially higher weight on underlying free surplus generation in short-term incentive scheme moving forward? And next question is about India. As the company commented in the report, India joint venture seem to enjoy excellent journey with bigger scale. Would we expect more detailed number in India business in foreseeable future? Thank you.

Thank you, Kim. Now, in terms of the nature of our business, it's a long-term business. And as you know, writing profitable new business is key to supporting our future earnings and future growth. free surplus generation. So we will continue to be very focused on our VOMB and it will continue to be the most important metric in our incentive programs. I've mentioned just now that we are very focused on operating profit, we are focused on EV, we are very focused on underlying free surplus generation. And as a result, we are introducing the underlying free surplus generation as a new metric to the LTI program. And this will allow us to have additional focus on the UFRSGE number going forward.

Thanks, NW. Just to add, we've always said that VMB is a leading indicator And as I just mentioned, that leading indicator of BNB then translates into a stream of earnings, a stream of free surplus going forward. And so that leading indicator will continue to be important. What you'll then see is that the earnings and the free surplus will come through. And it's important then that we look at those. And that reflects then the ongoing operating performance and management of the in-force sector. Clearly, we'll look at managing the capital. So we're managing the E as well as the R in order to further improve our ROE over time. On India, as you say, excellent growth in India. We're very excited about that business. It continues to perform very, very well. And I think you'll see increasingly more information coming from that. Clearly, there's a lot of information in the local market that's available. in addition to what we provide. And, you know, we'll look to keep people well informed of our developments there because we think it's a key growth engine for the future. Thanks, Garth.

The next question comes from Kailash Mistry of HSBC. Kailash, please press the unmute button on your screen and ask your question.

Morning, everyone. Thank you for the incremental disclosure today on capital management and new business. However, I've got three questions. The first set of questions are on capital management and the modeling of that. I guess one of the key assumptions is required capital. That grew by about 10% per annum over the last five years. Is this a reasonable assumption going forward or should it be higher given the new business growth? On eligible debt, just to follow up on the previous answer, I think Garth mentioned you had additional capacity of five percentage points on the Moody's calculation. Just to clarify, is that all eligible for an LCSM basis, which I think is the number that's included in this calculation? Secondly, just on China, What was the product mix in the first quarter versus 2023? I guess split between pensions protection and the other savings business. And on Hong Kong offshore, again, what was the product mix? Did we see a bounce back in protection? And did the savings case sizes hold up? Thank you.

Yeah, thanks, Curtis. In terms of the required capital, you'd expect that to grow in line with the business. I think the important thing to look at is the free surplus overall rather than just being fixated on a ratio. Clearly, the free surplus will continue to grow. I think the key thing will be to sort of have a broad model of the business and maybe, again, the best thing to do will be to talk to the IR team to work through how that might be best done. but as we said, we expect that ratio of free surplus to require capital to continue to fall over time based on the 75% payout ratio of net free surplus generation, and we'll continue to review that on an annual basis at least and see where we are. In terms of the eligible debt, clearly the room we have in terms of the ratings does vary by rating agency. We've quoted the Moody's number here. It does provide us with important financial flexibility for whatever purpose. And clearly, you also have to consider the capacity of debt markets and structuring and so on at the same time as well. So a number of things to think about. In terms of the LCSM, the LCSM clearly includes regulatory issues. eligible debt. There are different conditions for that and for ratings agency eligible debt. They are broadly similar. And each rating agency, as you know, has different criteria. So we look to have debt that covers all of those different requirements and be eligible for both ratings and for solvency, but there are differences between each basis.

Hi, Kinesh. On product mix, China. So there are really some difference because A, China always innovate a product and keep in place in the competitive market. So last year, first quarter, we didn't have the tax deferred personal pension benefit. Last year, first quarter, we only saw very small portion of participating business. And also last year, first quarter, we were the first in the market, the so-called simplified issue CI. So it is quite different in the agency channel. So this year, first quarter in the agency channel, the tax deferred personal pension plan actually is one of our top selling product in the agency channel. And they also help our new agent and also our agents in general to acquire new customers. And secondly, we continue to focus on CI, our flagship, as you wish. Could you use your next product? has growth in the first quarter this year compared to last year's first quarter. And overall, our total protection view NB has strong double-digit growth as we also focus on a lot of those renewable medical insurance business in the agency channel. And lastly, in the agency channel, in this year, we roll out participating product. And in first quarter, it make up about 10% of our agency real NB. So this gives you a feel of that difference. But as a whole, the agency channel real NB margin, even though the interest rate comes down, we already adopt the China Agile Association interest rate in the real NB. And our agency real NB margin still hold up at about 60%. at a similar level compared to our first quarter last year. As to our bank assurance channel, our differential bank assurance channel, as I said, the margin increased to 40%, and the bank assurance channel continue to sell a lot of a mix of long-term saving product and long-term protection product. So that is about the product mix of A-China in the first quarter. As to Hong Kong, the MCV product mix roughly remain unchanged. The protection sales remain to contribute more than 50% by new business policies. And the average case size of the MCV business roughly hold up at about US dollar 19,000, similar level as last year, whole year. And our long-term saving product continues to be very welcome by the MCV customers. So basically, I would say in the case of AI Hong Kong account, the MCV product mix roughly is similar to the last year level.

Thanks, Jackie. Any follow-up questions, Kailash?

No follow-up questions, but just a sort of request. I guess some of your peers do allow us to model that required capital a little bit more clearly, so that additional level of disclosure might be helpful. And similarly, on the undiscounted VIF profit emergence, which I think you currently put in five-year buckets. But yeah, those would be two requests for disclosure, I guess. Thank you. Robert Hopkinson Understood. Yeah. Thank you.

Okay. Next question, please.

The next question comes from Richard Xu of Morgan Stanley. Richard, please press the unmute button on your screen and ask your question.

Richard Xu Sure. Thank you for the opportunity. Again, very congrats on a very solid first quarter. Two questions for me. One is obviously some of these strong numbers was still probably helped by the low base, you know, for Hong Kong going forward, you know, for example, for second quarter was high base last year and then going forward for the full year. Based on the current trends, what are some of the guided expectations for growth for, you know, first half? And then maybe, you know, any guidance for, a little bit further for that. Second question is on China. Obviously, China is going through some transition. Certainly, we are seeing a more balancing of the economic development in China. Are you seeing any differential in growth from different regions? For example, first tier cities versus some of the new locations, particularly any early indicators of growth in some of the new offices? like Kunan province, et cetera. Thank you very much.

Yeah, thank you, Richard. Yeah, I'm very happy to also continue to talk about Hong Kong and mainland China. Firstly, although you say, oh, last year, first quarter, it was a low base for Hong Kong. But if you look at our Hong Kong VNB in the first quarter this year, I want to say that the total first quarter VNB of Hong Kong actually surpassed the fourth quarter. last year of Hong Kong. And within the MCV segment, actually it has... a double-digit growth. The MCV VNB of first quarter this year in Hong Kong and Macau has a double-digit growth over fourth quarter last year end. So I would say this is really a strong, yeah, it's growing strong from strength from strength. And if you look at the Air Hong Kong VNB for the month of March, it was the highest ever monthly VNB since the border reopened last year. So I want to give you this kind of color to see that, right, our Hong Kong and Macau business really is going from strength to strength. And very importantly is the underlying drivers. I keep talking about the underlying driver. So the growth of first quarter of Hong Kong and Macau in this year is driven by increase in number of active agents and very strong double-digit growth in number of new recruits and number of active new agents. And in respect to the MCV-focused new recruit in first quarter this year, actually the number doubled. compared to the MCV focus new record number in first quarter last year. So this shows the underlying driver and the strength of the Hong Kong business. So, you know, we don't give out focus, but I want to say that with all this strong driver, we have strong confidence about the long-term growth and sustainability of the Hong Kong business. Now, in the case of mainland China, I also want to say that, yeah, continue to reiterate, our growth in China in the mainland is broad-based. So it is growth from both the so-called old geographies and the new geographies. And we have five new provincial licenses. since we got the subsidization in 2020. And those new provinces grow by 45% in the first quarter this year. And the growth is driven by, as I'm going to say, it is a strong double-digit growth of number of new recruits and number of active new agents across both the old geographies and the new geographies. And as I keep talking about giving some color on the A-China issue, a differentiated agency model, we really continue to see a good case size, average case size, from our AI China agency channel, as well as our differentiated bank assurance channel, because we're really focusing on the middle income and above, our customer segment. And those customer segments are more resilient in the current economic situation. So this is what I want to say about Mainland China.

Thanks, Jackie. Any other questions, Richard?

Just one follow-up question. I know the crackdown on some of the licensed brokers in Hong Kong is long-term positive. Any potential near-term impact in the second quarter? Are we expecting or we see no impact at all?

As I said, the so-called Hong Kong broker issue actually for the long term is beneficial for the whole Hong Kong insurance industry and also for the broker channel for sustainable quality growth of MCV business. And in the case of Air Hong Kong, you see our major MCV channel is still the agency, which is generating more than 60% of the MCV VNB. So as a whole, we really don't see any significant impact to the Air Hong Kong and Macau business.

Thank you very much. Thanks, Richard. Next question, please.

The next question comes from Michael Chang of CGS International Securities. Michael, please press the unmute button on your screen and ask your question.

Okay, hi, thanks. I've got two questions. So first question was on the MCD recruits. So Jackie actually mentioned that it's doubling year on year. And I recall last year, you had a chart in the full year presentation, queue on queue increasing every quarter. So I'm assuming that means that it's still increasing queue on queue in the first quarter. but specifically on the MCV new recruits. Can I just check, how long do they take to become productive? So maybe how long do they take to reach average age and productivity levels for the new MCV recruits? Then secondly, on the capital growth, Garth has now mentioned the leverage ratio rising from 15 to 20%. Is there any timeframe for that? And then maybe how much tolerance do you have, say, in the event of doing any M&A in the future? Are you willing to go above that 20%? And then one just final comment. Absolutely love the transparency in terms of the numerical FOMB growth rates you gave for some of the markets, especially Hong Kong, China. Can we get a commitment that given all this concern from investors about Hong Kong, China growth rates, that we can expect such transparency on a quarterly basis going forward for Hong Kong, China?

Thanks. Hi, Michael.

Let me start with the MCV question. So actually, we see the new agent recruit, in particular the MCV new recruit, actually they are growing quarter by quarter since last year, since the border reopening. So we do see continuous strong momentum in this new recruit. Now, when the new recruit will become effective, I want to let you know in AIA Hong Kong Macau, we employ a very sophisticated kind of selection interview. So we have AI-based epidural test and also AI-based interview before they come to see our in-person interview. And furthermore, in terms of the requirement on new agent, we have a so-called M3, M6, meaning that the first three months, they have to achieve something. The first six months, the new recruit has to achieve something. Otherwise, yeah, they will fail. So in the case of Aircon, I want to say that I would say I would expect on average the new recruit, they have to become active, able to contribute to a meaningful production in M3 and then continue to ramp up in M6. So this is what we are working on in managing our new agents.

Yeah. Thanks, Michael. And on the debt, clearly As I said earlier, the debt capacity we have gives us additional financial flexibility. We're comfortable with our current financial ratings, and there is some capacity within the current ratings to extend the debt capacity further. That financial flexibility is important to us, but clearly we look at the capital structure on a regular basis as well as looking at the capital levels we need. So we keep assessing it on an ongoing basis. Yeah.

Yeah. And then just on the disclosure, so I'm glad you found it useful. Really, what we wanted to do is to give you reassurance in terms of the growth that we're seeing and our confidence in that growth. We don't manage the business quarter to quarter. So, you know, we'll consider it for the future.

Sure, thanks. Sorry, can I just follow up? Yeah, on the capital management, can you just elaborate on what the considerations are for buybacks versus dividends? Under what conditions would you actually raise, say, your dividends, maybe relative to operating profits?

Yeah, I think the key thing within the framework we've set out is that, firstly, we look at the underlying free surplus generation, net free surplus generation, as being the basis that is more representative of shareholder capital. Clearly, we have earnings as well, earnings growth, but earnings represents accounting profits, and we think that the underlying free surplus generation And net free surplus generation in particular, after allowing for new business growth, is a better way to look at the shareholder capital position.

Thanks, Garth. Thanks, Michael. Next question, please.

The next question comes from Edwin Liu of CLSA. Edwin, please press the unmute button on your screen and ask your question.

Hi, good morning. Thank you for the opportunity to ask question and congratulations on a very good set of results. Just can I ask on Hong Kong, I noted that the domestic segment also grew quite nicely at double digit growth. Can you just talk about what is driving such growth given we are sitting in Hong Kong, local economy is not that great, any color would be appreciated, whether it is volume driven or marginal assumption, et cetera. And if I can follow up on previous analyst question on new recruit for MCV, We are very positive on this trend, but just noted that the Hong Kong government's Thailand visa may be slowing down a bit. Just from a longer-term perspective, would the recruitment be slowing down if we look at, say, next two or three years in terms of the MCVA focus agent recruitment? And just lastly, if I can squeeze one more question. I know you haven't disclosed it in the quarterly result in terms of the operating profit after tax. Can we get a color on the trend? Has it turned positive in the first quarter on a year-on-year basis? Yeah, thank you.

Thank you, Erin. So let me also give you some more color. I'm also very happy to say that our Hong Kong Macau business actually has broad-based growth, as you already mentioned. Domestic also growth strongly in the first quarter. And the growth is continuously supported by the underlying driver. It's the active new agent and the new recruit. Actually, we also have good growth in the active new agent and active recruit. and also the recoup in the domestic segment. And furthermore, in fact, we don't see a so-called very strong co-relation usually in the so-called economic cycle and the life insurance industry because under whatever cycle, customers still need long-term financial planning. And even in the so-called economic downturn, customers really need to assess their financial risk in terms of protection needs, et cetera. So we continue to be able to penetrate the domestic customer segment. Because of the aging population, we continue to say that the need for retirement saving is great, and also the need for health care and health insurance continue to be great. That's why AIA Group, we have our integrated health care strategy, and Hong Kong, we are also executing their health care strategy. So we do see these are the underlying drivers that will continue to drive the growth of their domestic business. And in terms of the MCV recruit and the sustainability, I think we have been keep talking about this. So if you look at the number of daily average MCV visitor to Hong Kong in first quarter, that was about 91,000. That has already increased growing from the 2023 overall whole year daily average MCV visitor. And this number hasn't, go back to the pandemic height. And as I continue to mention, the demand for quality U.S. dollar long-term saving product from the MCV customer remains strong, and Hong Kong remains, and those MCV customer, in terms of new policy sales, over 50% is protection. The critical illness policy, high-end medical insurance policy continue to attract the attention of the MCV customers. And this kind of strong, undying driver, I would say you remain very strong going forward. So I really would like to say that we see the long-term sustainability of the MCV business in Hong Kong.

Any follow-ups, Edwin?

Just the question on operating profit after tax.

Oh, can you repeat the question? Sorry.

Yeah, so just want to confirm any color from you in terms of the operating OPEC trend in the first quarter.

Oh, okay. Yeah, yeah, thanks. Yeah, as I mentioned a few times now, the VMB growth translates into OPEC growth and UFSG growth over time. I should say that we noted some recent volatility in the consensus forecasts on OPEC on some of the financial platforms, but the current estimates seem to be much more sensible. And, you know, you'll see that come through when we announce our results at the half year.

Okay. Thanks, Garth. Next question, please.

The next question comes from Michelle Ma of Citi. Michelle, please press the unmute button on your screen and ask your question.

Thank you, management, for taking my question. This is Michelle from Citi. I have two questions. First is I'm trying to understand the pace of buyback. As I observed in the past three weeks, the pace of buyback actually slowed down quite a lot despite a greater share price volatility in the past couple of weeks. So I understand that that's a fully automated program. So could you shed some light on what's the key factors embedded in this automated buyback program such as volatility or absolute share price level or the remaining quota left. So what's the major factors determine the buyback pace? Second is on China. So I think compared to other regions, China is quite unique because because of the capital control and the decreasing interest rate. And also very limited supply of long duration assets available in the market. So I think one concern is the potential mismatch between asset and liability. So could you shed some light on the China's asset and the liability duration respectively? And also, if we have a 50 pips cut in the investment assumption just for China EV, what will be the sensitivity?

Thank you. Yeah. Thanks very much, Michelle. Yeah. On the first point, the buyback, what we do is we provide an instruction to the broker to buy back a certain amount of shares over a certain amount of time. And with that, we then hand that to the broker to execute. That enables us to continue to buy back the shares during the blackout periods, which we otherwise wouldn't be able to do. And that then is the decision of the broker each day to buy back how many shares. In terms of China, I should say that we've continued to focus on protection business, as Jackie just outlined. And in terms of the investment, we've been buying long-dated government bonds for many, many years now. And you see that in our asset mix. These produce healthy yields. And if you look at the investment portfolio, you'd find that the majority of it has a duration of more than 30 years. You'll also note that recently the government in China has been indicating that it will provide a greater supply of long-term bonds and, indeed, that they are supportive of having interest rates that are higher than the current levels. So with all of that, we remain very comfortable with the asset side as well as, as you know, we start with the liabilities when we look at the asset side, and we remain comfortable with both.

Maybe I may add that, as I said, in first quarter this year in mainland China, we have participating product, SOFU agency channel, which make up about 10% of the VOMB of first quarter. And the participating product has much lower VOMB. but even interest rate. So in view of, for example, you talk about decreasing interest rate, then AI China will continue to reprice product and continue to roll out more participating product with much lower guaranteed interest rate.

Okay. Thank you. Any follow-ups, Michelle?

Yeah, all good.

Thank you. Any more questions?

We don't have any more questions from the participants. I will now pass it back to Lance to conclude today's session.

Great. Thank you. Thank you, everyone, for listening and participating. If you have any follow-up questions, which I think Garth has volunteered I are for quite a few, please come through to us at Investor Relations. And thanks very much, and good morning.

Ladies and gentlemen, this concludes AIA's first quarter 2024 update analyst Q&A. Thank you for your participation.