AIA Group Ltd

HKEX:1299

Earnings Call Analysis

AIA Group Reports Strong Q1 2024 Growth and New Capital Management Policy

AIA Group achieved a significant 31% growth in the value of new business (VONB) in Q1 2024, reaching $1.3 billion. This performance was bolstered by double-digit growth across all segments, with AIA China and AIA Hong Kong growing by 38% and 43%, respectively. Furthermore, a new capital management policy was introduced, including a $2 billion share buyback, increasing the total buyback program to $12 billion. The policy targets a payout ratio of 75% of annual net free surplus generation through dividends and buybacks, emphasizing strong shareholder returns.

First Quarter Triumph with Record Numbers

AIA Group announced a stellar performance in the first quarter of 2024, achieving its highest-ever quarterly value of new business (VONB) at $1.3 billion, a 31% increase year-over-year. This growth was driven by robust performances across all key regions, with significant contributions from AIA China and AIA Hong Kong, which grew by 38% and 43% respectively. The company emphasized its strength in diversification and the effectiveness of its Premier Agency model and selective bancassurance partnerships .

Enhanced Capital Management Strategy

AIA also unveiled a new capital management policy aimed at delivering higher annual capital returns to shareholders. This policy includes an annual payout ratio of 75% of net free surplus generation through dividends and share buybacks. As a testament to this commitment, the Board approved an additional $2 billion buyback, raising the total program to $12 billion. The company maintains a strong balance sheet, aiming to keep its capital resources to required capital ratio comfortably above 200% .

Strong Growth in China and Hong Kong

AIA China exhibited broad-based growth across both agency and bancassurance channels, with a VONB margin of around 40% from bancassurance. The region saw a 45% growth in new provincial licenses, underscoring the effectiveness of AIA's diversified and strategic approach . In Hong Kong, the growth was driven by an increase in the number of active agents and new recruits, contributing to a double-digit increase in VONB from Mainland Chinese visitors. This performance is expected to sustain the long-term growth trajectory of AIA Hong Kong and Macau .

New Metrics for Incentive Programs

The company will introduce the underlying free surplus generation (UFSG) as a new metric in its long-term incentive programs, alongside its continued focus on VONB. This emphasizes AIA's commitment to writing profitable new business, which supports future earnings and free surplus generation .

Outlook and Future Guidance

AIA remains optimistic about its growth prospects in Asia, reinforced by the positive momentum in VONB across all major markets. Guidance for the full year remains strong, with continued emphasis on capital returns through dividends and share buybacks. The company expects the ratio of total capital resources to required capital to gradually reduce from the current 238% as it continues to grow and return capital to shareholders .

Earnings Call Transcript 2024-Q1

[Lance Montague Burbidge, executive]

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

[Yuan Siong Lee, executive]

Good morning, everyone. Today, I'm very pleased to announce both and policy, clearly demonstrating the strength of AIA's business model and our financial discipline. Value of new business for the group grew by 31% in the first quarter of 2024. We delivered AIA's highest ever quarterly new business result building on our very strong VONB performance in 2023. Our new capital management policy provides greater clarity as to how we will deliver higher annual capital returns to shareholders. Following this new policy, the Board has approved a further $2 billion buyback, which increases our existing share buyback program to a total of $12 billion. I'm 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 group that delivers increased future earnings, free surplus generation and greater shareholder value. Let me now take you through the first quarter new business highlights. VONB was $1.3 billion, a record high for a quarter and up by 31%. We delivered double-digit growth from all our reportable segments with VONB margin increasing by 2.1 percentage points to 54.2%. AIA China was up 38%, driven by very strong double-digit growth from our Premier Agency, supplemented by growth from our highly selective bancassurance partners, where VONB margin increased to around 40%.

Growth was broad-based across our established operations and new branches and the VONB margin for AIA China increased further from the second half of 2023 to 54.6%. AIA Hong Kong grew by 43% with double-digit growth from both the domestic and Mainland Chinese visitor customer segments. New business from Mainland Chinese visitors continue to build momentum with VONB in the first quarter higher than in the fourth quarter of 2023. Our 3 largest ASEAN markets, Thailand, Singapore and Malaysia all grew by double digits, with combined VONB growth of 16%, and our Other Markets segment was up by 10% with excellent growth from Tata AIA Life in India and strong performances from Australia, the Philippines and South Korea.

Today's announcement clearly demonstrates the strength and diversification of AIA's businesses, which enables us to capture the significant growth opportunities across Asia and deliver capital returns to shareholders. I will now hand over to Garth.

[Garth Jones, executive]

Thank you, Yuan Siong. There are 2 key components to our enhanced capital management policy announced today. The first component is an annual payout target rate 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 access to our needs at least annually. As a result of this, we are adding $2 billion to our existing share buyback program. We expect this to commence as soon as practical and to complete in our own 12 months.

Let me now explain how this policy works in practice and how we assess our capital position from a shareholder's perspective. While the group LCSM surplus is our principal regulatory solvency measure, we've always said that pre-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 [indiscernible].

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 program, together with the additional $2 billion buyback announced today are 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 announcement. Net free surplus generation is calculated before investment return variances. While investment return variances, foreign exchange and other nonoperating 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 2 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 come in the form of an additional share buyback. We will announce this year's net FSG, final dividend and additional share buyback at our 2024 annual results.

Under the second component of the policy, the regular review of our capital position, we have today added $2 billion to our existing share buyback program. This is in addition to the $2.8 billion we will return in 2024 and the annual dividend payment. Together, these amount to roughly 10% of our recent market capitalization.

In conclusion, you can see that overall, our new capital management policy provides both greater clarity and higher capital returns to shareholders. I'll now hand back to you, Yuan Siong.

[Yuan Siong Lee, executive]

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

Over to you, Lance.

[Lance Montague Burbidge, executive]

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

[Operator]

[Operator Instructions]

And our first question comes from Charles Zhou of UBS Security.

[Cheng Zhou, analyst]

So congratulations. I think it's a very strong set of results. And also finally, we got more clarity about. 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 2 questions for management. First, some of your peers have provided a long-term target for the underlying for 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 were key consideration in thinking about the net free surplus generation will be very helpful because I guess, we need to do some projection here? And second, after the recent regulatory inspection on the MCV focused brokers in Hong Kong, I would like to hear from management what do you think about the outlook for this channel in second quarter and also beyond? And also AIA Hong Kong growth prospects as a whole. Do you think this is an individual event? Or does it indicate a wider climb down such as capital control on the MCV business?

[Garth Jones, executive]

Yes. 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, there are successive layers that we put on a profitable new business. translate into underlying free surplus generation. So as we explained, I think, at the full year, as you add further new business layers those add to earnings. They improved the ROE and then also the add-on to the free surplus generation going forward. This layering comes through. .

I suggest in terms of forecasting, it's probably better to talk to our IRR 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, and that will obviously impact net free service generation. but that will indicate that we are growing the business very strongly and creating greater value for shareholders.

[Yuan Siong Lee, executive]

I would just add that the underlying free plus generation is a very key metric that the management is very focused on. It is 1 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 Charles.

[Jacky Chan, executive]

Thank you for the question on the MCV booker. 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 will be opened in last year, the Hong Kong life insurance industry has been in discussion with the Hong Kong Insurance Authority to keep review and investigate the sales package of certain sales intermediates to ensure full compliance of the MCV business and to ensure the long-term sustainability of the MCV business. And in the case of AIA, you all you know that AIA holds a very high standard on compliance, on MCV policies. We require the MCV customer to be passed in Hong Kong or Macau and our staff at the WalletSafe Center will meet with the customer, we will ensure all the proper documentation, et cetera. And also we carry out welcome call 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 concern broker, AIA Hong Kong already suspend new business coming from this broker. First of all, I really want to reiterate that the MCV business is a business in the Hong Kong insurance industry for almost more than 2 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 AIA Hong Kong and the rest is coming from our diversified bank assurance partnership and more than 100 brokers. So we see that the so-called short-term impact from this broker to Hong Kong to AIA actually is very, very minimal. And in fact, this will really help the long-term sustainability of the MCV business through the broker channel.

[Yuan Siong Lee, executive]

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

[Lance Montague Burbidge, executive]

Next question, please.

[Operator]

The next question comes from Thomas Wang of Goldman Sachs. .

[Thomas Wang, analyst]

A couple of questions. Firstly, I just wanted a little bit more detail on our total capital target of comfortably above 200%. Can you share a little bit more color on that? And how you think about free service and eligible debt mix within the resources how about comfortable you -- how much sort of are you comfortable raising that use of eligible debt to capital resources? Sorry, the other thing is Mainland China. Can you talk about the bancassurance and agency mix in terms of sales of VNB in the first quarter? And then have you kind of completed with the rollout of bancassurance is the sort of the major rollout of bancassurance channel? And how do you see that mix evolve for the rest of the year and into next year?

[Garth Jones, executive]

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 and looking at the capital that is in excess of our needs that also includes optimizing our overall capital structure, depending on debt market capacity and conditions. Clearly, the group retains additional financial flexibility from its debt capacity. And from a ratio perspective, our current credit ratings, our Moody's leverage ratio could go up from the current around 15% 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 nonlife 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.

[Jacky Chan, executive]

Thomas, let me take you through our very strong China result in the first quarter. We are very pleased that the growth is broad-based across both agency and also bancassurance channel. Furthermore, our protection VNB also grew double digit in the first quarter this year. Our agency remains our core channel and the agency growth is driven by growth in a number of active agents and more than 20% growth in a number of new vehicles and a number of new active agents. And this is a broad-based and the ANP per active agent also grew strongly in first quarter. So our agency really continued to perform very well in both protection and long-term savings products. .

As our differentiated bancassurance, we continue to focus on our partner, our strategic partners, banks, including China Postal Group, Bank of East Asia, Shanghai Pudong Development Bank and Bank of China. We've continued to focus on the affluent and above customer segment and the average case size speed for itself. It is a very, very strong average case size.

Our bancassurance profitability actually also improved in the first quarter from last year, first quarter to this year, first quarter, that was almost a VONB margin of 40%. So we are very pleased with this differentiated bancassurance channel. And in the first quarter, the bancassurance channel contributed roughly 15% of our total VONB of China. We continue to be very bullish about the outlook of our China business in Mainland China.

[Lance Montague Burbidge, executive]

Next question, please.

[Operator]

The next question comes from MW Kim of JPMorgan.

[M.W. Kim, analyst]

And really appreciate your quarterly management call. Following this announcement, as previously mentioned, the underlying pre-surplus generation, perhaps become more important, the 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 you 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 [indiscernible], would you expect a more detailed number in the India business in the foreseeable future?

[Yuan Siong Lee, executive]

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

[Garth Jones, executive]

We -- just to add, we've always said that VONB is a leading indicator. And as I just mentioned, that leading indicator of VONB then translates into a stream of earnings, a stream of free surplus going forward. And so that leading indicator will be -- continue to be important. What you'll then see is that the earnings and the free service will come through, and it's important then we look at those, and that reflects then the ongoing operating performance and management of the in-force Clearly, we'll look at managing the capital.

So we're managing the E as well as the R in order to further improve our ROE over time. On India, as you say, excellent growth in India. We're very excited about that business. It continues to perform very, very well. 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 we'll look to keep people well informed of our developments there because we think it's a key growth engine for the future.

[Operator]

The next question comes from Kailesh Mistry of HSBC.

[Kailesh Mistry, analyst]

Thank you for the incremental disclosure today on capital management and new business. However, I've got 3 questions. The first set of questions are on capital management and the modeling of that. I guess 1 of the key assumptions is required capital. That grew by about 10% per annum over the last 5 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 5 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 the savings case sizes held up?

[Garth Jones, executive]

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 fueled 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 IRR 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 a rating agency. We've cut the Moody's number here. It does provide us with important financial flexibility for whatever purpose. And clearly, you also have to consider the capacity of debt markets and structuring and so on at the same time as well. So a number of things to think about.

In terms of the LCSM. The LCSM clearly includes regulatory eligible debt. There are different conditions for that M4 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.

[Jacky Chan, executive]

As, on product mix, China. So there are really some difference because China always innovate our 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, very small peronell participating business. And also last year, first quarter, we have -- we roll the first in the market, the so-called simplified use of CI. So it is quite different in the agency channel. So this year, first quarter in the agency channel, the tax deferred personal pension time 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 then secondly, we continue to focus on our flagship, as you wish [indiscernible] product has growth in the first quarter this year compared to last year first quarter. And overall, our total potential UMB has strong double-digit growth as we also focused on a lot of those renewable medical use business in the agency channel.

And lastly, in the Asian channel. In this year, we roll out participating products. And in first quarter, it made up about 10% of our agency VONB. So this gives you a feel of that difference. But as a whole, the agency channel VONB margin even though the interest rate comes down, we already adopt the China association, interest rate in the VONB and our agency VONB margins still hold up at about 60% at a similar level compared to our first quarter last year.

As to our bancassurance channel, our differentiated bancassurance channel, as I said, the margin increased to 40%. And the bancassurance channel continue to sell a lot of a mix of long-term saving product and long-term protection products. So that is about the product mix of a China in the first quarter.

As to Hong Kong, the MCV product mix roughly remain 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 USD 19,000 similar level as last year, whole year. And our long-term saving product continue to be very welcome by the MCV customer. So basically, I would say, in the case of AIA Hong Kong Macau, the MCV product mix roughly is similar to the last year level.

[Lance Montague Burbidge, executive]

Any follow-up questions, Kailesh?

[Kailesh Mistry, analyst]

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 5-year buckets. But yes, those would be 2 requests for disclosure, I guess. .

[Lance Montague Burbidge, executive]

Understood. Thank you.

[Operator]

The next question comes from Richard Xu of Morgan Stanley.

[Richard Xu, analyst]

Again, very congrats on a very solid first quarter. Two questions from me. One is, obviously, some of these strong numbers was still probably helped by low base. For Hong Kong going forward, for example, for second quarter was high base last year and then going for the full year based on the current trends, what are some of the guidance expectations for growth for first half and then maybe any guidance for -- a little bit further for that?

And 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 [indiscernible] province, et cetera?

[Jacky Chan, executive]

Yes, 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 Hong Kong VONB in the first quarter this year, I want to say that the total first quarter VONB of Hong Kong actually surpassed the fourth quarter. last year of Hong Kong. And within the MCV segment, actually, it has a double-digit growth. The MCV VONB of first quarter this year in Hong Kong, Macau has a double-digit growth over fourth quarter last year and. So I would say this is really a strong -- yes, it's growing strong from strength from strength. .

And if you look at the AIA Hong Kong VONB for the month of March, it was the highest ever monthly VONB since the border will be opened 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, it's the underlying drivers. I keep talking about the time 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 a number of new records and number of active new agents.

And in respect to the MCV forecasted new recruit in first quarter this year, actually the number up compared to the MCV focused new recruit number in first quarter last year. So this shows the underlying driver and the strength of the Hong Kong business. So we don't give our forecast, but I want to say that, yes, with all these strong drivers, 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 we continue to reiterate, our growth in AIA China in the Mainland is broad-based. So it is growth from both the so-called old geographies and new geographies. And we have a new -- we have 5 new provincial license since we got the authoization in 2020. And those new provinces grew by 45% in the first quarter this year. And the growth is driven by, as I am now going to say, it is a strong double-digit growth of number of newly [indiscernible] 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 AIA China differentiated agency model. We really continue to see a good case size, average case size from our AIA China agency channel as well as our differentiated bancassurance channel because we're really focusing on the middle income and above our customer segment. And those customer segments are more reset in the current economic situation. So this is what I want to say about Mainland China.

[Lance Montague Burbidge, executive]

Any other questions, Richard?

[Richard Xu, analyst]

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

[Jacky Chan, executive]

As I said, the so-called Hong Kong [indiscernible] 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 AIA Hong Kong, you'll see our major MCV channel is still the agency, which is generating more than 60% of the MCV VONB. So as a whole, we really don't see any significant impact to the Hong Kong and Macau business. .

[Operator]

The next question comes from Michael Chang of CGS International Securities. .

[Michael Chang, analyst]

I've got 2 questions. So first question was on the MTD recruit. So Jacky actually mentioned that it's doubling year-on-year. And I recall last year, you had a chart in the full year presentation Q-on-Q increasing every quarter. So I'm assuming that means that it's still increased in Q-on-Q in the first quarter. But specifically on the MCV new recruits. Can I just check how long do they take to become productive? So maybe how long do they take to reach average agent productivity levels for the new MTV recruits?

Then secondly, on the capital. Garth just now mentioned the leverage ratio rising from 15% to 20%. Is there any time frame for that? And then maybe how much tolerance do you have same event of doing any M&A in the future? Are you willing to go above that 20%?

And then my just final comment. Absolutely love the transparency in terms of the numerical VONB growth rates you gave for some of the markets, especially Hong Kong, China. Can we get a commitment that given all this concern about -- from investors about Hong Kong, China growth rate that we can expect such transparency on a quarterly basis going forward for Hong Kong, China?

[Jacky Chan, executive]

Yes, 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 quarter of the opening. So we do see continuous strong momentum in this new recruit. Now as the -- when the new recruit will become effective I want to let you know that in AIA Hong Kong, Macau, we employ a very sophisticated kind of selection interview. So we have AI-based epidote test and also AI-based interview before they come to see in-person interview.

And furthermore, in terms of the requirement on new agents, we have a so-called MP6, meaning that the first 3 months, they had to achieve something. The first 6 months, the new recruit had to achieve something. Otherwise, they will fail. So in the case of AIA, 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 MP and they continue to ramp up in M6. So this is what we are working on in managing our new agents.

[Garth Jones, executive]

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.

And then just on the disclosures. 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 we'll consider it for the future.

[Michael Chang, analyst]

Sorry, can I just follow-up . Yes. On the capital management, can you just elaborate on what the considerations are for buybacks versus dividends under what condition would you actually raise say your dividends maybe relative to operating profit?

[Garth Jones, executive]

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

[Operator]

The next question comes from Edwin Liu of CLSA.

[Edwin Liu, analyst]

And congratulations on a very good set of results. Just can I ask on Hong Kong. I noted that the domestic segment also will quite nicely at double-digit growth. Can you just talk about what is driving such growth given we are sitting in Hong Kong local economies, 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 recruits for MCV. We are very positive on this trend. But just noted that the Hong Kong government's talent visa may be slowing down a bit. Just from a longer-term perspective, would the recruitment be slowing down if we look at, say, next 2 or 3 years in terms of the MCV focused 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 color on the trend? Has it turned positive in the first quarter on a year-on-year basis?

[Jacky Chan, executive]

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 have you already mentioned, the domestic also grew strongly in the first quarter. And the growth is continuously supported by the underlying driver is the active new agent and the new recruit. Actually, we also have good growth in the active new agent and active and also to recruit in the domestic segment. And first of all, in fact, we don't see a so-called very strong solar correlation usually in the so-called economic cycle and the life insurance industry because under whatever cycle, customers still need long-term financial tending and even in the so-called economic downturn, the customer really need to assess, right, the financial risk in terms of protection this, et cetera.

So we continue to be able to penetrate the domestic customer segment because of the agent population, we continue to say that the need for retirement saving is quick and also the need for health care and health insurance continue to [indiscernible] that line 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 the domestic business.

And in terms of the MCV recruit and sustainability, I think we have been talking about this. So if you look at the number of daily average MCV visitor, to Hong Kong in the 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 right, go back to the pandemic height.

And as I continue to mention, right, the demand for quality, U.S. dollar long-term saving product from the MCV customer remains strong and Hong Kong remain -- and those MCV customers in terms of new policy sales, over 50% is protection, the critical unit policy, our high-end medical insurance policy continue to attract the attention of the MCV customer. And this kind of strong underlying driver, I would say, you remain very strong going forward. So I really would like to say that, yes, we see the long-term sustainability of the MCV business in Hong Kong.

[Lance Montague Burbidge, executive]

Any follow-ups there, Edwin?

[Edwin Liu, analyst]

Just the question on operating profit after tax?

[Lance Montague Burbidge, executive]

Can you repeat the question?

[Edwin Liu, analyst]

Just want to confirm or any color from you in terms of the operating -- OpEx trend in the first quarter?

[Garth Jones, executive]

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

[Operator]

The next question comes from Michelle Ma of Citi.

[Yuping Ma, analyst]

This is Michelle from Citi. I have 2 questions. First is on the I'm trying to understand the pace of buyback as I observed in the past 3 weeks, the pace of buyback actually slowed down quite a lot despite greater share price volatility in the past couple of weeks. So I understand that's a fully automated program. So could you shed some light on what's the key factors embedded in this automated buyback programs 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 of the capital control and the decreasing interest rates. So -- and also very limited supply of long-duration assets available in the market. So I think one concern is the potential mismatch between asset and liability. So could you shed some light on the China research and the liability duration, respectively? And also if we have 50 bps cut in the investment assumption, just for China EV, what will be the sensitivity?

[Garth Jones, executive]

Yes, on the first point, the buyback. What we do is we provide an instruction to the broker to buyback 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 buyback her many shares. In terms of China, I should say that we've continued to focus on protection business, as Jacky just outlined.

And in terms of the investment, we've been buying long-dated government bonds for many, many years now. and you see that in our asset mix. These produce healthy yields. And if you look at the investment portfolio, you'd find that the majority of it has a duration of more than 30 years. You'll also note that recently, the government in China has been indicating that it will provide a greater supply long-term bonds and indeed, they are supportive of having interest rates that are higher than the current levels. So with all of that, we remain very comfortable with the asset side as well as -- and as you know, we start with the liabilities. And when we look at the asset side, we remain comfortable with both.

[Jacky Chan, executive]

Yes. Maybe I may -- Michelle, maybe I may add that, as I said, in first quarter this year in Mainland China, we have participating product, so for agency channel, which make up about 10% of the VONB first quarter and the participating product has much lower in interest rate. So in view of, for example, you talk about decreasing interest rate, then AIA China will continue to reprice product. and continue to roll out more participating products with much lower current interest rate.

[Lance Montague Burbidge, executive]

Any more questions? .

[Operator]

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

[Lance Montague Burbidge, executive]

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

[Operator]

Ladies and gentlemen, this concludes AIA's First Quarter 2024 Update Analyst Q&A. Thank you for your participation.