AIA Group Ltd

HKEX:1299

Earnings Call Analysis

AIA Group Reports Strong VONB Growth

AIA Group achieved its highest-ever value of new business (VONB) for the third quarter at $994 million, up 35%, underpinned by strong demand across Asia. VONB growth was led by key markets including Mainland China, Hong Kong, ASEAN, and India. Agency VONB rose by 27%, bolstered by increased agent activity and productivity. VONB from partnerships soared 62%, benefiting all segments. The favorable product mix shift lifted VONB margin to 51.2%. AIA China improved its VONB margin through product mix and repricing, garnered regulatory approvals for expansions, and saw rising sales from new customers. Meanwhile, AIA Hong Kong maintained robust growth with Mainland Chinese visitors contributing to half of the VONB. The company expects to continue leveraging its strategic priorities to exploit the vast Asian life and health insurance market for sustainable long-term value.

A Purposeful Third Quarter: AIA Posts Highest-Ever Numbers with Strategic Focus

At the heart of AIA's third-quarter story is exceptional growth, propelled by its deep-rooted presence in Asia and strategic expansions. AIA celebrated its highest-ever VONB of $994 million for the third quarter, up by a staggering 35%, due to robust agency and partnership channel performance. The company's strategic initiatives are clearly bearing fruit, and expansions are not just within but also beyond traditional strongholds like China and Hong Kong, fostering a 27% VONB growth in the agency sector alone.

The Distinctive Edge: Premier Agency Leverage and Provincial Expansions in Mainland China

AIA's competitive moat lies in its differentiated Premier Agency model, particularly in Mainland China, where robust VONB margins sustain their health despite industry-wide pressure. AIA's growth in China, coupled with product repricing and targeted recruitment in expanding provinces, underlines a strategic edge over competitors. Moreover, the company's internal rate of return remains above 20%, with speedy payback periods showcasing extraordinary business economics.

Synergistic Channel Dynamics: Margin Improvements and Productivity

AIA's fiscal prudence and strategic product mix have resulted in improved bancassurance margins and a consistent agency channel margin. Q3's growth was partially fueled by increased bank channel activity prior to product repricing, illustrating successful navigation of competitive waters in the bancassurance seaway and signaling a commendable balance between growth and financial discipline.

The Seeker of Opportunities: Embracing the Digital Shift and Regulatory Tailwinds in India

With high expectations for India's potential, AIA Banks on regulatory tailwinds and a burgeoning digital environment, positioning India as a market with strategic significance for the future. Already ranking as the third-largest in India's private life insurance sector, AIA leverages a comprehensive multi-distribution model to capitalize on the expansive market opportunity, showcasing significant enthusiasm for the long-term vitality of this venture.

Financial Stewardship and Customer Focus: Holding Ground in Hong Kong and Macau

Hong Kong and Macau continue to present robust business prospects, especially with Mainland Chinese visitors. Despite fluctuations, AIA maintains a compelling product offering and customer service proposition. Noteworthy is the increased average case size for critical illness (CI) products, signifying the persistent need among affluent customer segments -- a strong indicator of AIA's enduring appeal in these markets.

Earnings Call Transcript 2023-Q3

[Lance Montague Burbidge, executive]

Good afternoon from AIA Central in Hong Kong, and welcome to our third quarter 2023 Q&A. 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 with us in the room or joining us from Singapore on Zoom.

Today, this morning, we published our third quarter new business highlights on the Hong Kong Stock Exchange and our corporate website. I'm sure you've had a chance to go through the document. Given the current environment, we thought it would be helpful to host the call. But before we start our Q&A, Yuan Siong will make some opening remarks on the third quarter performance.

[Yuan Siong Lee, executive]

Good afternoon, everyone. Let me start with some highlights from another excellent quarter for AIA. VONB was up 35% to $994 million. This is the group's highest-ever third quarter and reflects the strong demand for our products and services across Asia. We have built on our very strong first half performance with further double-digit increases from our key growth engines of Mainland China, Hong Kong, ASEAN and India. Both our agency and partnership distribution channels delivered excellent VONB growth.

Agency VONB grew by 27%, supported by higher agent activity and a very strong increase in agent productivity. We also saw a quarter-on-quarter increase in high-quality recruitment for the group and in each of our 5 largest markets. Working with our unrivaled network, our partnership channel delivered a 62% increase, with growth in all of our reportable segments. A favorable product shift -- a favorable product mix shift helped the group's VONB margin increase from the first half to 51.2% in the third quarter.

AIA China's VONB margin improved through the third quarter, driven by product mix and repricing. As recruitment momentum has increased quarter-on-quarter during the year, we have seen an increased proportion of sales coming from customers new to AIA.

I'm also delighted that we recently received regulatory approval to upgrade our Shijiazhuang license to cover the whole of Hebei province. In September, we also received the approval for a new city in Hubei province, Xiangyang, where we expect to open in the first quarter of 2024. Just yesterday, we received another approval for setting up a new operation in Luzhou, in Sichuan province. AIA Hong Kong delivered another quarter of excellent growth, with sales to Mainland Chinese visitors continuing to represent about half the total VONB.

In Thailand, strong momentum has continued in the third quarter with similar growth to the first half. AIA Singapore and AIA Malaysia grew across our agency and partnership channels. Finally, Other Markets was up, excluding Vietnam, with strong double-digit growth from India and the Philippines. Our business in India continue to generate strong double-digit VONB growth driven by excellent performance of its proprietary agency. Tata AIA Life is now the largest contributor to VONB in the Other Markets segment and rank #3 in Indian private life insurance.

In summary, these new business results again reinforce the strength, quality and diversification of AIA's businesses. We are confident that the continued execution of our strategic priorities uniquely positions AIA to capture the enormous long-term opportunities in the Asian life and health insurance market and deliver long-term sustainable value for all our stakeholders.

Now over to you for questions.

[Lance Montague Burbidge, executive]

Thanks, Yuan Siong. And we're ready for your questions. So over to you, Kelly. Thanks.

[Operator]

[Operator Instructions] And our first question comes from Charles Zhou of UBS.

[Cheng Zhou, analyst]

Okay, great. I think this is another very strong quarter. And I think the value of new business also beat the market expectations. So I have 2 question. The first one, I do want to ask about the MCV business in Hong Kong. My understanding is that the value of new business from the MCV in Hong Kong declined Q-on-Q. So could you maybe just talk a little bit about this one? And also I believe both the sell-side or maybe the buy-side people also expect that the recovery rate compared with 2018 will just probably keep increasing. So how do you see this one?

Because when we track the individual MCV arrival in Hong Kong, I think, in terms of the number of MCV arrival of -- compared with the same period in 2018 actually peaked in August and then we see the recovery ratio actually decline in September and also in October. So do you feel this will probably be the new normal? Or do you think that the MCV business could also recover going forward, maybe even exceed the 2018 level? So how -- overall, I just want to hear your thoughts about the MCV business going forward. And perhaps also, in October, shall we expect better growth going forward? And with the normal -- or the recovery for the MCV business. So this is my first question.

Second question, let's talk about margin. I know this is probably a little bit boring, but I do receive the question from investor asking me about the margin. So we're glad to see the Q-on-Q margin improve by 2 percentage points, but I also want to talk about the margin in China. So can you -- we noticed that your margin actually progressively improved throughout the quarter, so shall we expect this trend to continue? And do you still see the margin as maybe one of the key focus for you guys? And maybe -- can you maybe give us the margin split between the agency and bancassurance, helping us to better understand? And lastly, maybe this is -- this is also the question for Yuan Siong. So what do you see, like what is the real moat of AIA China compared with domestic peers? Do you see higher margin is one? Or do you feel the Premier Agency is the key?

[Yuan Siong Lee, executive]

Okay. Thank you for your -- I think, you have 3 questions instead of 2. But anyway, first question, I think, I'll hand over to Jacky to talk more about MCV business. But I -- as I've emphasized often in the past, the demand for Hong Kong insurance products amongst million Chinese consumers is very strong and robust. As I said before, I think it is even higher than it was pre pandemic and for the reasons which I have elaborated many times before. So Jacky?

[Jacky Chan, executive]

Yes. Thank you for the questions. So first of all, I'm very pleased that AIA Hong Kong and Macau delivered another excellent increase in VONB in the third quarter of 2022. And it is really driven by our strong Premier Agency of a double-digit increase in number of active agent and also a very strong increase in the productivity in terms of ANP per active agent. In fact, in the so-called quarter-to-quarter -- but as you understand, we always emphasize that we manage our business on a whole year basis. On a quarter-to-quarter, there could be fluctuation or seasonal change. In fact, our domestic business in third quarter remained very strong. We have quarter-to-quarter growth in the domestic business. On the MCV segment, I also want to mention that in fact, we continue to track the MCV business versus the arrival of mainland tourists. It is still broadly in close correlation with visitors number.

And in terms of the average case size, as we said in the first half result, we observed a big increase in the average case size from the MCV customer compared to the pre-pandemic level. And that big increase is still -- there is still a big increase in the average case size. But in the third quarter, we observed a slight reduction in the average case size for the saving plan. It is just less than 10% kind of reduction, but compared to the pre-pandemic level, it is still a big increase.

We observed in the third quarter the agency MCV business, in fact, remained relatively stable in terms of the business momentum, number of case. In the IFA brokers channel, we observed a slight reduction in the number of cases through our IFA broker channel. And there could be various reason causing that. Maybe I think many of our analysts are also aware, in the IFA broker channel in Hong Kong market, it is under very fierce competition in terms of giving our -- the, yes, broker compensation. But AIA Hong Kong, we always remain financially disciplined in this area. So we will continue to sharpen our proposition and ecosystem service, et cetera, for the MCV business across all the channels, instead of competition on price or compensation. But as a whole, I just want to draw your attention that, in fact, the strong growth of AIA Hong Kong in third quarter, they are supported by very strong fundamental in our business underlying drivers.

[Yuan Siong Lee, executive]

Your second question around the margin specifically or about the China margin, again, I'll ask Jacky to talk about it more in detail. But first of all, as you know, we are always focused on VONB growth, right? So this is what we always focus on. We don't target any particular level of VONB margin. That said, I think, as we have explained before, the economics of the new business that we run in China or in other markets remain very, very attractive. The new business that we write attract an internal rate of return well in excess of 20%, with very short payback periods. The VONB margin that we write in Mainland China is -- remains very, very healthy, yes.

[Jacky Chan, executive]

Yes. Thank you for this question. So once again, I want to start by saying that it is -- very pleased to see that AIA China's growth actually accelerated from the first half 2023 to third quarter, actually with VONB growth of over 20% in the third quarter. And this underlying growth is driven by a very strong agency fundamental because agency channel is our core channel in China. It is driven by double-digit increase in number of active agents and also enhance the productivity of our Premier Agency in Mainland China. And in terms of growth from a different kind of product, in fact, we have growth from both protection and savings business. And protection product, yes, remain the largest in terms of number of new business in the third quarter.

So I just want to give a little bit color on the margin, as Yuan Siong already mentioned. Actually we quote the whole VONB volume, not just focusing on margin or ANP volume alone. Now by channel and channel, in fact, our margin increased or improved from second quarter to third quarter; agency margin, broadly stable but a little bit increased compared to the second quarter. And for the bancassurance channel, the margin also increased in the third quarter compared to the second quarter. As you know, in China, there is a product repricing. Actually that has more impact on the bancassurance product. And we saw the margin from bancassurance also, yes, improved from third quarter to -- from second quarter to third quarter.

As a whole, the overall margin in China in third quarter is also affected by the changes in the channel mix. As in our first half result, we already mentioned about this. For the third quarter in AIA China, according to channel mix, bancassurance China actually make up a slightly higher proportion of the business compared to second quarter. As a result of the repricing, especially on the bancassurance product side, there are more sales of the bancassurance product before the new repriced product in the bank channel kick in, so yes.

[Yuan Siong Lee, executive]

And then on your third question directed at me. I think it is clear to me that what you refer to as AIA China's moat, which is our -- what differentiates us from the market is clearly our Premier Agency model which is highly differentiated and very different from the agency model that we see amongst some of the local or the other international players in Mainland China. We have the most productive agency channel, full time and very focused on selling protection business. I think another very unique point about AIA China is the fact that our ability to expand into new provinces, which gives us access to even much greater numbers of middle class and affluent customers in the future. So this, I think, is really what differentiates AIA China from the rest of the market. And I continue to be very optimistic about the prospects of AIA China going forward, yes.

[Operator]

The next question comes from Kailesh Mistry of HSBC.

[Kailesh Mistry, analyst]

It's Kailesh here from HSBC. I guess my questions are just coming back to China, I just wanted to understand a little bit about -- if you could just provide a little bit more color on the product mix, in particular in savings. Is it mainly [ per business ] that you're selling? Or has there been a material sort of pickup in pensions business? And if you can make any comments on margin, that would be helpful. And ditto on the critical illness side. Has there been any major product changes there to make it more attractive? I guess my second question is around how the new business value translates into new business CSM.

[Yuan Siong Lee, executive]

Kailesh, you have to be -- speak louder.

[Kailesh Mistry, analyst]

Yes. Is that better, Yuan Siong?

[Yuan Siong Lee, executive]

Yes, yes.

[Kailesh Mistry, analyst]

Yes. My second question is around how the new business value translates into new business CSM. If I understood correctly, at the half year, that ratio fell, partly driven by business mix. In this quarter, we're seeing better business mix. So should we infer that, that ratio starts to move back up again, which is obviously important for our CSM forecasts? And just one last one, if I can just squeeze it in. There's a lot of noise in China about the institute of actuaries recommending lower investment returns, which obviously leads to lower risk discount rates. I don't want you to comment on whether you would do that because obviously, you will let us know at the full year. But just wanted to understand, is the sensitivities that you provide at the group level, is it the same for China? Or should we be thinking there's something materially different, for example, a 50 basis points decrease in interest rates overall?

[Jacky Chan, executive]

So thank you, Kailesh. So let me take the first question about the product mix of AIA China. So I continue to emphasize our Premier Agency. And our Premier Agency, their DNA actually is to sell, right, a very balanced product and also protection forecast. So I want to reiterate, in terms of the new business cases from -- in third quarter, again, more than half of it, their protection business. And their critical illness product make up continue, something like 70% of our protection business.

And as we already mentioned in the first half result, we do see a stronger interest for long-term saving product in Mainland China, especially our Premier Agency, they are reaching to the affluent and above customer segment. In fact, one of the key product in the third quarter remained the tax-favored or tax-deductible personal pension benefit product. That remained our top-selling product in the agency channel. And our other saving product are also long-term saving.

So just to give you a little bit color, we also continue to see that the tax-deductible private pension product drive more acquisition of new customer. And many of our new agent, they also seize this opportunity to make use of this long-term saving plan to acquire new customer. In fact, roughly 40% of those private pension benefit customer, they were new to AIA. And we start to see the repurchase of this customer for our AIA agency. So far, we see that at least the repurchase rate from this private pension customer was above 10%. So I will say that, AIA, with the Premier Agency, we are able to capture all these long-term saving opportunity in China.

[Garth Jones, executive]

Yes, yes. Thanks, Kailesh. And glad you got your question in this time. The -- firstly, on the new business CSM, just to maybe help you with -- it does vary by product and by market and so on. But to give you some help with your forecast, the multiple in the third quarter was similar to the first half. So that should help you with your forecasting. In terms of the China interest rate, for the embedded value, we've said the sensitivities are small and you'll see that. And China is no different in that regard. For VONB, yes, there is a negative, as it is for the rest of the group when you look at it overall. But again, as we've seen, we can reprice. And that has a positive impact, so you have to look at the pricing as well, the repricing that we've already done this quarter, yes.

[Operator]

The next question comes from Thomas Wang of Goldman Sachs.

[Thomas Wang, analyst]

Just a couple one. First one, a quick one, on -- in terms of the number of policy -- CI policies in the MCV sales. I think we talked about first quarter, second quarter being, I think, 35% to 38%. Can you just give us an update of what's the CI number of policy mix in MCV sales in the third quarter? And then secondly, staying on MCV, I think Jacky talked about it. Sales is broadly -- still broadly tracking the number of visitors, but obviously number of visitors was actually quite a lot -- up a lot, 27% in the third quarter versus second, but sales was actually lower. I'm just thinking, looking ahead, fourth quarter number of visitor -- I mean I understand there was a lot of tourism, but thinking about fourth quarter, if we think about normalizing, is it -- will [ glide ] into a second quarter type of visitor number and the sort of sales tracking that? Is that something we should think about? Just that, yes.

[Jacky Chan, executive]

Thomas, your first question, on MCV, you say 35%, 38%? What is it? I think the...

[Yuan Siong Lee, executive]

CI mix of MCV business.

[Jacky Chan, executive]

CI, yes. The CI mix -- no. So yes, the CI, yes, mix remain largely unchanged. In fact, we see a little bit increase in the average case size of CI in the third quarter, just to let you now. So the CI mix remain, yes, largely. So it still account for 38% of the number of policy in the third quarter. So the CI, the need for CI from mainland Chinese customer remain very high. So in fact, our MCV business, we always emphasize that the MCV business in Hong Kong and Macau has been there for more than a decade. And they continue to have the fundamental attractiveness of the kind of product and services available, yes, in Hong Kong and Macau that continue to attract the mainland Chinese customer, especially the more affluent and above segment who are interested for more flexible product, for diversification of wealth management, et cetera and long-term saving. So we see that, yes, this -- that this need, yes, this fundamental driver of those need remain very, very strong. So we continue to have a very strong confidence in the MCV business in Hong Kong and Macau.

[Lance Montague Burbidge, executive]

I was just going to add on the tracking of visitor numbers. I think, when you look at it even at an industry level, you'll see it's less than 1% of visitors that buy insurance policies. So I think having too much reliance on visitor numbers, especially from a quarter-to-quarter perspective -- and you mentioned seasonality, that I think it's something that I would steer you away from.

[Operator]

The next question comes from Andrea Crean (sic) [ Andrew Crean ] of Autonomous.

[Andrew Crean, analyst]

A couple of questions actually. Firstly, I wanted to get a bit more detail around this issue about agency recruitment growth in China, which you say is very strong double digit, that having had a flatlined agency numbers through the lockdown. As you grow that number, can you give us a sense as to how fast it's growing and how fast new recruits come through into active agents? So that we can get a sense of the power in the engine in '24. And then secondly, a very simple question. How long do you think the malaise in Vietnam is going to hang over your company and the industry generally?

[Yuan Siong Lee, executive]

Okay. I think I'll ask Jacky to talk about agency recruitment trends in Mainland China, but I'd like to also emphasize that at AIA, we are very focused on quality. So we ensure that the people that we recruit and put on maintain high standards of quality, yes.

[Jacky Chan, executive]

Yes. Actually we are also very pleased that the new agent recruitment momentum continue to build the traction in the third quarter of this year. And it is a very good growth of number of new agents recruit across both our existing province and also the new province or the new cities. So we have a broad-based growth in the number of new recruit. And as Yuan Siong mentioned, we continue to emphasize on quality new agent. So the new recruit has to go through at least something like 4 times of a selection. So we continue to maintain a strong focus to grow quality new agent. And I also want to let you know that, in fact, we also see that our new agent active ratio, as Yuan Siong talk about, the activation of new recruit. New agent active ratio was also uplifted very strongly, especially with our good proposition of the private pension product. So this really support the new agents activation and onboarding.

[Yuan Siong Lee, executive]

Okay. Can I ask Hak-Leh to talk about Vietnam?

[Hak Leh Tan, executive]

Thanks, Yuan Siong. Thanks, Andrew, for the question. As we mentioned before, the life insurance industry in Vietnam was adversely affected by the negative sentiment that affects the whole industry because of adverse excellent environment. At AIA, we remain focused on building the strong foundation for agency force, yes, particularly to transform our agency force to the prem agency, premier full-time agency model as well, we have successfully implemented in many markets.

And for the bancassurance business that we have in Vietnam, we have stepped up the effort to further strengthen the customer proposition to differentiate products for each segment within the bank. And really, the -- as you know, life insurance is a long-term business. We remained very optimistic about long-term opportunities of life insurance in Vietnam given the size of the economy and the underlying drivers.

[Operator]

Our next question comes from Michelle Ma of Citi.

[Michelle Ma, analyst]

This is Michelle Ma from Citi. I also have 2 questions, both on China. So the first thing is I noticed there is an extra disclosure on the investment portfolio of AIA China's policyholder and shareholder investment portfolio. So I appreciate this, but I also noticed the allocation looks quite conservative with like 85% of the portfolio was allocated to fixed income-type products. And also, mostly that's government and customer agency bonds, with equity just 11%. So just I wonder, with the ever-declining interest rate in China, what will be your investment strategy going forward? And how will you manage your cost of your insurance contracts? So this is first question.

And the second one is also for Jacky. I think you must be super busy recently given the Chinese regulator has been rolling out so many potential new regulations such as what already happened, the renegotiation of the bancassurance contract commission, and also potentially, that's also going to happen in the agency channel, the alignment of logistics, loading with actual practice, the policy employee. And also, starting from March next year, we will have the new management rules for agents. So with so many changes, could you share with us what -- have you prepared for these changes? And how it will going to impact Mainland China's business momentum for next year.

[Yuan Siong Lee, executive]

Okay. Thank you, Michelle. I think maybe we'll let Jacky talk about the regulatory issues before we ask our Chief Investment Officer, Mark, to talk about the investment -- China's investment strategy.

[Jacky Chan, executive]

Yes. Michelle, thank you for the question. In fact, at AIA, we see that there is opportunity for a better bancassurance market with all these kind of changes. So the bank commissions changes. For AIA in China, bank channel is not a major channel, it is relative small channel. Our core channel is still agency. But with this commission rationalization rule in Mainland China, that actually provide us with opportunity to grow a more profitable, sustainable bancassurance business. And for AIA in China, that is really our advantage because we don't have that legacy. And we can grow, right, from a small base of bancassurance to a more complementary kind of bancassurance business, which will be a win-win-win for customers, for bank and for the insurance company.

So there'll be negotiation, et cetera. They are largely in good progress. And many of the banks are already able to sign up, and we will continue to sign up the rest for the renegotiated commission rate for our bank partner in Mainland China. And as to the so-called extension of the fee and commission loading for the other channel in AIA China, you know we are always very emphasized on our financial discipline. So we don't overpay. So in fact, we will continue to observe closely the development of all this. And we believe AIA will be very able to fulfill the requirement very well.

In terms of the coming or the other coming regulation in terms of the right product, yes, for the agent. So there will be more complicated product, probably need agent to have some more experience or even kind of training requirement. In fact, we see that, the regulation coming out that will be effective in March next year, actually they are broadly in line with the draft that came out in July this year. So, so far, the association, the industry association, continue to work closely with the regulator on the details of implementation, but as I always emphasize, AIA China's key differentiation is our premier professional agency force. And we believe all this regulation actually, to AIA, yes, shouldn't be a problem, but for the whole industry, it is a good direction to go towards a more professional, well-trained qualified intermediary market is good for the whole industry development.

[Yuan Siong Lee, executive]

Yes. So in summary, I think we are very supportive of the new regulatory initiatives. I think it will put the industry on a much more healthy footing. AIA, we are well prepared. And we're able to make any necessary adjustments to our operating -- our operations here. Mark?

[Mark Konyn, executive]

Thanks, Yuan Siong. Thanks, Michelle, for the question. I think the way we operate the investment portfolio and the program in China is consistent with the way we operate across the entire group. And the starting point really is our ALM approach. And given the long-dated nature of our liabilities, that will lead to a domination of fixed income within the portfolio, as that is very common. So in China, over 80% of the allocation is in fixed income, of which 90% or over 90% is in government and government agency bonds.

I think as we go forward, what we're likely to see is more reflective pricing in the credit market, so we've been building up our credit team and applying the same underwriting standards that we've developed over many years across the entire group. So we would expect to see some more diversification over time. And as the credit market develops alongside that, we do expect to see more diversification more generally in the program.

[Operator]

The next question comes from Edwin Liu of CLSA.

[Edwin Liu, analyst]

I have 2 questions. Firstly, still on China, given that you have expanded to new regions, I just want to ask if there's any difference in terms of product mix or distribution mix between your new and existing regions. In particular, have you seen perhaps more or less protection product sales in your new region? My second question is in terms of interest rate. So in general, life insurer should benefit from high interest rate environment. In particular, we have seen perhaps we used to be in the inverted new curve environment, now we are getting to more normal environment. So how does that affect your business? And in particular, from a financial reporting perspective, how do we see the benefit from rising interest rate to be reflected in your either EV or new accounting financial numbers?

[Jacky Chan, executive]

Yes. Thank you for the question. In fact, as I always emphasize, protection product actually is the DNA of the AIA agency because, from the time new agent being recruited and joined AIA China, the first thing we train them to sell is the critical illness product. Because of this whole life critical illness product nature, long premium payment term, the commission rate with the relative policy size, we'll be able to make the agent make a good living and survive. So we do track and also start the so-called product mix by the tenure of agent.

And interestingly, I want to let you know, we see that this kind of emphasize in protection product mix actually continue to carry forward for different tenure of the agency force. So we don't see a big difference in the product mix of the new province compared to existing one because the new province, of course, obviously has more new agent. But over time, as I also mentioned, because AIA, we are able to ride on those new tax-deductible pension benefit plan. So when that was available in a certain city, we also observe that our agents are able to capture all these opportunities. So as a whole in general, we don't see a significant difference in terms of product mix between new cities, new province and existing one.

Now in terms of channel mix, I will say largely, agency channel continue to dominate in the new province and new cities. Especially, yes, we're emphasizing the recruitment of quality agent in the new province and new cities that we are in. So generally speaking, especially for new province, new city, in order to support the bank channel, you also -- well, we also need to mobilize, also develop resources. And you can imagine, if we are just a new setup in a city or new province, the POS that we can support will also be delivered. So in terms of channel mix, actually, I will say that, yes, agency obviously dominate in general, in all those new province and new cities. And I think that is good because agency, we believe, remain a core distribution channel for AIA China.

[Yuan Siong Lee, executive]

Yes. I just want to add that I'm quite pleased with the fact that we were able to receive approval to upgrade the Shijiazhuang city license to a Hebei province license, provincial license, because this is quite significant. It means that all the new territories that we expanded into, including Tianjin, including now Hebei, Hubei, Sichuan and Henan, all full provincial or municipality licenses. Now as we explained to you all before, whenever we enter a new province, we actually go and start in the provincial capital. So we started in Chengdu in Sichuan. We started in Wuhan in Hubei. In Hebei now, we have Shijiazhuang, which is the provincial capital. And subsequently, we will expand, within each province into the other cities within the province. And many of these provinces would have many, many cities with large population base.

For example, Sichuan itself has something like 17 cities within Sichuan province. We are only now in Chengdu, so I'm also quite pleased that we are also able to take the next step in Sichuan and in Hubei, whereby in Hubei we are now able to prepare for the launch of the next city, which is in Xiangyang, also a prosperous city with a good population base. And in Sichuan, we can go to Luzhou, which is also another major city within Sichuan province. So what I've explained to you all before is we are -- step by step, we are seeing it happen, expanding to new provinces. And then within each province, we start with the provincial capital, then we go to the next cities and subsequent cities, yes. So I'm quite pleased with that. Garth?

[Garth Jones, executive]

Yes. On interest rates, we've got disclosed sensitivities. And you'll see that rates up as for the group overall is a small negative to EV and a positive for VONB. The small negative for EV is largely because of U.S. interest rates and our free surplus and capital that we hold at the corporate center being largely denominated in U.S. dollars. So the bonds that we hold would go down in value slightly because of that. On the VONB side, higher rates are overall generally positive for VONB. And I think the other point to note is that higher rates also tend to stimulate demand for savings products and particularly in, and that's what we've seen over the last 12 months, yes.

[Lance Montague Burbidge, executive]

Okay, thanks. And next question, hopefully, it may even not be on China.

[Operator]

The next question comes from Michael Chang of CGS-CIMB Securities.

[Poyung Chang, analyst]

Sorry, Lance. I might have to disappoint you. I do have some questions on China, but I'll ask also in relation to kind of what...

[Lance Montague Burbidge, executive]

It was worth a try.

[Poyung Chang, analyst]

Next time maybe, next time. Okay, so on the China front, given that the demand for critical illness products have accelerated to a strong double-digit VONB growth versus the mid-single digit in the first half, could maybe management shed some light on how broad-based is this demand for protection across the different customer segments and across the different geographies? So I think earlier on, it was mentioned that it seems that even in the inland regions or the new regions, the recent -- that the protection demand is very strong for CI. Is this the case across mass market as well as the more high-end segments that are -- that AIA is in? So that's just why I'm just trying to get a sense of how sustainable is this really, is this pickup of the CI growth. Secondly then, in relation to the agent numbers as well, if we strip out the new regions which are obviously seeing very strong growth rate for the agent numbers, are we also seeing very strong agent growth numbers in the existing regions?

And then lastly, in relation to Thailand, I noticed that Thailand's momentum is actually still very strong in 3Q. It continues on the first half, excellent growth rates. And in fact, I think that it's probably the strongest in the ASEAN region. Can management shed some light over there on what initiatives are being done? And how sustainable can that be going forward?

[Yuan Siong Lee, executive]

Jacky, can you quickly answer the Chinese -- the questions on China?

[Jacky Chan, executive]

Yes, yes, yes. So again, on China, this is also a favorite topic because, yes, it looks like there are rumors in the market saying that our CI product is very hard to sell. But in the case of AIA, we don't believe it. We continue to see that there should be strong demand on CI because, for people who already bought the CI policy -- in fact, the CI sum assured coverage actually is still low. Roughly, on average, it's CNY 100,000 only. And for AIA, China, our agents are working with the affluent and above customer segment. And we are able to, together with our financial needs and analysis tools, we enable our agent to do good financial planning with the customer and analyze the need. And with that, their customers see that actually they need to increase their CI sum assured. So we do see this opportunity continue to be right back there.

And in April this year, we revamped or upgrade our product to include the cancer shield kind of ecosystem. I think that this really show that in the third quarter, this will continue to work very well because customer really see that, in fact, they do need more CI or cancer coverage together with a better ecosystem and services. Now in terms of the agent number or recruitment number, in fact, I just mentioned, in fact, we see a broad-based kind of growth in terms of the agent recruitment across both existing province and also the new province and cities.

[Yuan Siong Lee, executive]

Yes. I think I -- in terms of CI demand and our interim results, we also showed, explained to the market about how we have developed a tool for our agents to do a full needs-based analysis with the customers. And as you know, our target customer segment is the middle class and affluent customers, whereby the demand for CI protection is -- remains strong. And using -- after a full needs-based analysis, we've seen like the sum assured of CI grow 3x from before the -- doing the needs-based analysis, yes. So the demand for CI remains really strong. You need to have the right agents, you need to have the products and you need to have the right customers, plus you have to provide them with the right training and support and tools to help them service the protection needs of the customers. We are very happy with the performance in Thailand.

I'll hand over to Hak-Leh to talk about Thailand.

[Hak Leh Tan, executive]

Thank you, Yuan Siong. Thanks for the question, Michael. As noted, AIA Thailand continue our strong first half momentum into third quarter and delivered excellent VONB growth across both our agency and PD channel. And that's very much supported by higher sales volume, enhanced productivity and overall more favorable product mix. In Thailand, we remain very much focused on growing protection and unit-linked business, while the overall market's growth so far this year was driven mostly by sales in endowment policies. Our agency channel delivered very strong VONB growth in third quarter, with growth in both the number of active agents as well as the overall agency productivity.

And for agency quality recruitment, that's our key priority. We've seen very significant growth in number of new recruits, especially full-time financial advisers, in third quarter this year. And for the PD partners, particularly our partnership with Bangkok Bank, we've seen strong VONB growth driven by very favorable shift in product mix to more protection riders. And we continue to drive an increase in the overall productivity of our insurance specialists supporting the Bangkok Bank partnership. So overall, we are very pleased with the continued strong momentum of our business in Thailand.

[Operator]

The next question comes from Leon Qi of Daiwa Securities.

[Leon Qi, analyst]

I have 3 questions again today. Firstly, still on China, just I appreciate you actually mentioned very strong double-digit VONB. I want to understand that whether this is the sales to new customers or mostly coming from the upsells from existing customers. Because indeed I noticed that 3 months ago, in your interim results, you mentioned that the need-based analysis has been proven very effective to increase the sum of assured of your existing customers. So just wondering, in the third quarter, we're seeing more results coming from upsells that has led to this very strong VONB growth in critical illness. So that's the first one.

And secondly, in bancassurance channel, very glad to see that VONB margin has been recovering on a sequential basis. But just looking at long term on the China market, in particular, features very fierce competition in terms of bancassurance channel. There are a certain level of VONB margin, below which we will actually not go down. So is there are a minimum threshold of VONB margin for us in our bancassurance channel?

And lastly, on Thailand, I appreciate the color just now, but I have a more specific question on FA channel. What is the VONB margin in FA channel? Because I do understand the FA channel reform has been moving from strength to further strength. And it is a key factor driving our margin uplift in Thailand, so I just want to understand the margin within that particular channel.

[Yuan Siong Lee, executive]

Okay. Jacky, on CI?

[Jacky Chan, executive]

Yes. Again on CI. In fact, right now I think we don't have a so-called detailed analysis of the CI coming from new and existing. However, from what I already described, I will say this would come from both new and existing because our existing customer, our agent, we will continue to do the -- to have the needs-based analysis with them. As I said, we do observe this kind of increase in the CI sum assured with those needs-based analysis tools on, of course, the existing customer. And again, we'll continue to expand in new province, recruit new agent. And we train the new agent to sell CI product. So I do believe the growth of CI come from both new and existing customers.

And in terms of the bank channel margin, I just want to say that we emphasize, at AIA, we always emphasize a very strong financial discipline. So we do have a kind of risk and return kind of will when we go into a new channel, develop product, et cetera. So in this sense, we do have a certain discipline in working with the bank in the bank channel, although, as I said, we start from almost nothing of bancassurance. But now it is really a much improved opportunity for AIA to go into this bancassurance channel due to the product repricing and a more reasonable kind of commission fee income to the bank.

[Yuan Siong Lee, executive]

Okay. Thailand?

[Hak Leh Tan, executive]

Thanks for the question. The FA channel refers to a group of -- a subchannel within our agency force. FA stands for full-time professional agents. It's a strategic initiative that I've been working on for last several years. The -- it is -- as you correctly pointed out, it's a channel that's been growing, that's been contributing to our growth. And because of the selection process, the FA agents, our agents, they are committed full time to Thailand. A large majority of them qualified to sell not just traditional policy but also the investment-linked products. They are more productive than the non-FA agents. They are selling more investment-linked products with more protection riders.

[Operator]

The last question comes from Charles Zhou of UBS.

[Cheng Zhou, analyst]

I mean I just have a very last, a very quick question. As you may know, one of your key regional peers see India as a strategically important market in their strategy update. So I would like to understand, how do -- like what's your view for India in an AIA Group perspective for the next 5 years or 10 years?

[Yuan Siong Lee, executive]

Well, I think India is a very exciting long-term opportunity for AIA. It's a massive market. I think in this market it's very important to have a very good partner. And we -- in India, we have a very, very good partner. In my opinion, it's the best partner that you can have in India. The working -- the relationship that we have is very strong. Personally I know Chairman Chandra very well. And I've been to India 4 times in the last 2 years, so the business is performing very well, growing very, very strongly. As we reported during the interim results and this time now, we are already the #3 player in private life insurance market in India. I think India is also experiencing the regulatory tailwinds.

The new Chairman of the IRDAI is much more focused on developing a healthy life insurance market in India, and he's been working vigorously to come up with new policies to support healthy development of the life insurance market in India. India obviously has all the right factors for a strong, a healthy life insurance market. The demographics is working in his favor, increasingly high levels of digitalization, the very large protection gap. And as we've demonstrated and explained in the past, we have a multi-distribution channel model that's highly digitalized and working very well. And we also have a very -- we have also the best-in-class agency channel in India. Garth is looking up India, so he's very keen to say a few words.

[Garth Jones, executive]

Yes. Thanks, Yuan Siong. I think you can tell, Charles, that particularly Yuan Siong and I are very enthusiastic about India. I was there again last week. And you can feel the energy and momentum in the -- both in the country and in the business. We had excellent growth in the agency channel in particular, and that agency is going from strength to strength. We really see, in terms of productivity, #1; persistency, #1; and in terms of things like new agent growth, #1; as well as retail sum assured. I think with something like 92% of LICs, retail sum assured aggregates, retail sum assured in the first half in India, their first half is [3 months off ]. So really excited about that business. And we see it just going from strength to strength, really fantastic business.

[Lance Montague Burbidge, executive]

Thanks, Garth. Thanks, Yuan Siong. And thanks, Charles, for the question and for everybody else on the call, especially on a Friday evening for those of us in Hong Kong. If you've got any follow-up questions, obviously, please come through to the Investor Relations department, and have a good weekend. Thank you.

[Yuan Siong Lee, executive]

Thank you.

[Operator]

Ladies and gentlemen, this concludes AIA's third quarter 2023 Q&A. Thank you for your participation.