AIA Group Limited (1299) Earnings Call Transcript & Summary

Good morning. Welcome to AIA 2022 Annual Results Q&A. I am Feon Lee, Director of Investor Relations for AIA Group. Today with me in Hong Kong are Lee Yuan Siong, our Group Chief Executive Officer and President; and Garth Jones, our Group Chief Financial Officer. We also have our regional chief executives and other members of our group executive committee with us in the room. I hope you have had a chance to watch the video presentation, which we post to our corporate website earlier this morning. Before we start our Q&A, Lee Yuan Siong will make some opening remarks. Lee Yuan Siong, please.

Thank you, Feon. Good morning from Hong Kong, and welcome. AIA has delivered a resilient performance with new business momentum improving strongly in the second half of 2022 as the effects of the initial Omicron wave subsided and normal activities resume. VONB for the group was up by 6% in the second half with positive growth in all our 5 largest markets. VONB exceeded $3 billion for the full year and EV Equity was $77 billion before returning more than $5.8 billion to shareholders through dividends and our share buyback. Our large and growing in-force portfolio supported increased operating profit after tax and the group's capital position remained very strong despite significant capital market volatility. Free surplus was substantially higher at $23.7 billion before dividends and buyback. The Board has declared an increase of 5% in the final dividend bringing a total dividend for the year to [ HKD 153.68 cents ] per share, up 5.3%. In Mainland China, we saw a return of double-digit VONB growth in the second half of 2022 before COVID-19 restrictions -- infections affected sales in December. As cases subsided, we have seen new business recover and a return to positive VONB growth in the first 2 months of 2023. In Hong Kong, VONB was up compared with 2021. We achieved growth across all distribution channels and Mainland Chinese visitor business more than in 2022, and strong momentum has continued into the first 2 months of 2023. ASEAN is a major driver of growth for the group, and in 2022, accounted for 44% of total VONB. Our markets returned to strong growth in the second half with broad-based performances across Thailand, Singapore, Malaysia and the Philippines. And our joint venture with TATA AIA in India continued its excellent track record with VONB up by 52% in 2022. In summary, AIA's multiple engines of growth compare -- combined with our unmatched financial flexibility has resulted in a strong recovery and ensures AIA is exceptionally well placed as Asia rapidly opens up for further growth. Now over to you for questions. Thank you.

Thank you, Yuan Siong. We now begin our Q&A session. Over to you, operator.

[Operator Instructions] And our first question comes from MW Kim of JPMorgan Securities.

Can you hear me?

Yes, loud and clear, MW.

This is MW Kim from JPMorgan. I have 2 questions. The first 1 is about -- it's more the conceptual question how to value your company moving forward. Thank you for sharing the CSM from USD 55 billion as of January '22. As the financial numbers look clear to the economic capital on the IFRS 17 would it fair to say that AIA is comprehensive the equity, which was USD 101 billion as of January '22 is better proxy measuring the corporate value of the [ import score ] compared to the embedded buyer. So that's my first question. The second 1 is about the India. So it seems that the company is successfully building the big franchise in India, and post the recent tax regulation change, we are observing the low valuation multiple for private insurance compared to the year ago. So at this stage, I'm just wondering what was the most challenging part to the increase that ownership in India.

Thank, MW. Yes, clearly, the IFRS 17 accounts are an improvement on the IFRS 4 accounts. The IFRS 4 accounts are non-economic as you know. And the IFRS 17 accounts are more economic. We continue to believe that the embedded value provides a better basis for looking at the valuation of the company as it clearly reflects free surplus and the margins we have in our risk discount rates and so on for risk. So that's where I'd point you in terms of valuation. I think on the India question, we had good strong growth in India, 52% growth in VONB. We've seen that business go from strength to strength and is now #3, in the market. It's the leader in retail protection by a long way. And we've seen actually in terms of the regulations, progressive regulations and I've just come back from India certainly, the mood on the ground there is very positive. Clearly, there are some tax changes, but we believe fundamentally the basis for going forward in India is very bright. We have a growing middle class population and we'll seek to do what we can to improve the penetration, which is low in the market at present.

Just a supplement on India. I think India is an exciting long-term opportunity for us. We have an outstanding partner in TATA, and we are fully aligned with our partners take advantage of the opportunities that India presents to us together. Our joint venture, TATA AIA has continued its excellent track record with VONB up by 52%. In fact, we are very happy with our ability to execute in this very highly attractive market. VONB has grown consistently and very strong growth over the last 5 years in each and every 1 of the last 5 years, increasing by 3.5x over this 5-year period. That demonstrates our ability to execute, and we have the highest persistency in terms of the quality of business in India. I personally, I've visited India twice last year, and I'm quite excited by what I see on the ground.

The next question comes from Charles Zhou of Credit Suisse.

Can you hear me?

Yes, Charles.

Okay. I have 2 questions. I think we're very happy to see that you mentioned the MCV delivered positive -- strong momentum in Hong Kong in the first 2 months. So could you please maybe give us a little bit more color on how strong it is. And also, I want to understand about the sustainability of your MCV business maybe from 3 perspectives. First is about the deposit rate. As you know, the expected return for insurance product is about maybe 5%, 6%. So when deposit rate is about 1% to 2%, I think it's quite competitive. But in the current environment, where a bank already offers 3% to 4%. So how do you see the competitiveness? And secondly, we also know that the overall capital market was quite challenging last year and also probably will continue to do so. So on the asset side, it probably will be difficult for insurance company to generate a decent return. So how do you see going forward from a fulfillment ratio that you see to make sure that your product remain to be very competitive and your customer is satisfied. And the third perspective is we talk about the capital control for the MCV. So how do you see this? And also, I would have to understand maybe like how much is from the general size policy and how much they below USD 5,000 for the MCV so far that you observe? And my second question is about Mainland China. I think you received the regulatory approval to establish branch in May, I think, last year. So can you maybe share with us like how is the progress so far for Henan branch? And what's your plan going forward to open a new branch in China? So is this still like 1 branch per year?

Okay. I hand over to Jacky to answer the questions on MCV, maybe [ Garth ] can take the question about the asset performances and Jacky, then to circle back on the China.

Yes. Thank you, Lee Siong. Thank you, Charles. Let me give you some more highlights on the MCV momentum in Hong Kong and Macau. As you have seen in last year 2022, our MCV business mainly from Macau tripled compared to 2021. And this momentum continues strongly in the first 2 months across Hong Kong and Macau. And in terms of your sustainability question about fee front, let me give you highlight because here in AIA Hong Kong and Macau, we focus on selling life and health insurance and long-term savings. And in our recent customer survey for Mainland Chinese Visitors, the interest remains very strong to come to Hong Kong to consider buying long-term life insurance, health insurance and long-term saving. The soft trend is deposit rate, we don't see any impact on this purchase of long-term protection and long-term saving in Hong Kong and Macau. As to the fulfillment rate or, I will leave it to Garth, I give you a slight highlight. You can see that we enhanced our fulfillment ratio year-by-year. And in fact, I will also recommend you to look at our total cash flow ratio. In fact, in the majority of our participating products, total cash flow ratio is over 90% in the past number of years. In terms of the capital control, after that, I will pass it to Garth on the asset side. You know that Mainland Chinese resets has been a business in Hong Kong and Macau for almost 2 decades. And AIA Hong Kong and Macau, we are very clear in our requirement in accepting the business. The Mainland Chinese Visitors has to come to Hong Kong, Macau in person. And we see that majority, 95% of the MCV business, their regular premium paying business and the average premium size is roughly USD 1,000 per month. So this remains unchanged. And we continue to apply a very stringent compliance requirement on all these MCV business, and we have control in place, and we are confident in the quality of our MCV business in Hong Kong and Macau. So let me pass Garth on the asset side.

Yes. Thanks, Charles. I think the important thing to remember with our long-term savings products is their long term -- often policyholders will be with us for a 15 years and more. And the objective of our participating products, in particular, is to revise stable returns over the long run through a combination of dividends and [ similar ] bonuses -- those obviously depend on a number of factors. Clearly, the market movements will be the greatest impact over time, and they will shape bonuses. But we smooth those tough that our policyholders don't need to worry about stock markets this week or next week. We're invested for the long term. And as people continue to pay their premiums each month, then we'll continue to invest those assets and take a long-term view and smooth the returns to policyholders. We believe the returns are very attractive. And we aim to meet the reasonable expectations of our policyholders over time.

Yes. Let me take the second question on the Mainland China expansion. As we have said in the past, we are aimed at opening 1 to 2 new branch per year. In fact, in 2022, we are able to open our Hubei branch and that was in January. And at the same time, in 2022, we are able to upgrade our Tianjin and Shijiazhuang branch. And we are also able to open our Hankou SSE in the Hubei. And in fact, as to Henan on last November, we just submitted opening application to the Henan CBLC Bureau. We see that we are, in fact, making good progress in our expansion in the new provinces and cities in Mainland China.

The next question comes from Thomas Wang of Goldman Sachs.

Thomas Wang from Goldman Sachs. A couple of questions. Firstly, focusing on MCV. We're seeing some of the banks talking about a very strong return of the Mainland Chinese residents coming to Hong Kong opening a bank account, putting deposits. I'm sorry [indiscernible] you talked about strong momentum carrying into January and February. Just a little bit more color on how are you thinking versus what the bank is talking about versus 2018, 2019 levels? How do we think about that? Just on Jacky's comment there, total average premium of USD 1,000 per month. That's what translates about USD 12,000 per annum. I remember a few years back, we were talking about average ticket size from Mainland Chinese Visitors was 5000 is as per annum. Has there been an increase in the average ticket size there? And then the second question is on the asset side. We've seen -- so we have a large BBB corporate bond portfolio. Can you give a little bit of color in terms of which industry that -- I'm assuming that's mostly U.S. dollar bond a little bit more color on which industry or industry distribution for that portfolio. And then we talked about $100 million or so impairment since IPO just which industry -- is there any sort of -- which industry will start impairment in.

Okay. Thank you. Again, I'll ask Jacky to answer this very popular question on MCV. And Mark, to take the question on the -- on our bond portfolio. Yes.

Yes. Thank you, Lee Siong. On the average ticket size of MCV business, perhaps that 5,000 is the number before their pandemic -- before the pandemic is almost a few years ago. And you may also emerge and as I just mentioned that in our survey on the MCV customer, they are really interested to come to Hong Kong to buy long-term life and health and long-term saving product and perhaps the demand is also [indiscernible] a while. But we still observe this kind of premium is still well within the capital control in. Now in terms of the MCV momentum, I want to give you some more highlights about our Hong Kong account readiness. And in fact, we are fully ready. We have a robust plan and as you see, once the border open, you already see a big, big billboard across the [ MTR ] station across the border because Hong Kong and Macau well prepared for all this opening of the border. And in terms of our agency force, we have about 6,800 MCV focused data, and this number is largely intact compared to 2018 and almost 75% of them that have been with us before the pandemic, and we are able to recruit the new MCV focused agent during the last 3 years. And I'll give you more color. In fact, almost 67% of this 6,800 MCV-focused agent, they are active in last year, making use of our Macau branch for referral business or MCV as well as doing domestic business and almost 50% of this 6,800 MCV-focused agent, they were at least qualified has MDRT once in the last 5 years. So we are really fully ready and able to capture the full potential of the return of the MCV business in Hong Kong and Macau.

Thomas, it's Mark Konyn here. Thank you for the question. Our bond portfolio is high quality, it's well diversified, and we tend to invest across all sectors. We have a slight bias historically for sectors that issue long-dated bonds given our liability structure. And over the last several years and going forward, probably, we are underweight those sectors that are more carbon-intensive given our ESG and climate objectives.

The next question comes from Kailesh Mistry of HSBC.

A few questions. The first 1 is on the expected return on the EV. This was lower than I've been expecting. And reading through the comments, one of the reasons mentioned is higher unallocated expenses. Could you tell me what the dollar value of this is? And what activities it relates to? And as you -- because it's in the operating number, should I assume this is recurring going forward? So that's the first one. The second 1 is on China. So on Slide 9 -- sorry, Slide 6, if you put together January and February 2023, would the VONB growth be double digit? And also, can you make a comment on whether the business mix is now reverting back to pre-pandemic levels now face-to-face meetings are resuming, et cetera, et cetera. And then -- no, that was it. Sorry.

Okay. Thanks. I think the EV question goes to Garth and the China question goes to Jacky.

Yes. Thanks, Kailesh. In terms of the unwind, there are 3 items that you should think about there. The first is the Hong Kong RBC, we obviously had an improvement in the embedded value because of the Hong Kong RBC accelerating the recognition of future profits into free surplus as we discussed at the half year. And then that has a lower unwind on the value of in-force as a result. Also in the second half, there will be a lot of unwind because of the capital mark-to-market movements in the first half. So if you look at the closing embedded value at the end of the first half, that would have given you some indication. The third is this increase in capitalized and allocated expenses. One thing about our embedded value is that it accounts for every dollar of expense in the business and fully reflects the present value of all unallocated expenses. We think this is a very prudent approach. We think it's conservative, not that everybody does this. And what you'll see is that the value in the accounts is about [ $500,000 ], but that's capitalized. It's a one-off capitalization in that sense and represents operating expenses that are expected to continue in the future but are unallocated to the business. Most of those are related to our TDA, our technology, digital and analytics, additional headcount that we've put on.

Yes. As to the China result in January and February, I think I need to bring you to the understanding that especially last year in 2022 since December there is a redefinition of COVID-19 into a Class B, Category B infectious disease. And the country is under, I think, widely spread of this Category B infectious disease. And this impact, in fact, continue from December to January, well before Chinese New Year or during Chinese New Year. So you can imagine with this impact many of the agent or customers, they are sick. And therefore, you see that in January, which is a very important month, which is a biggest month of AIA China, it was down because of that. But you can see that our February really has a very, very strong momentum because the Category B infectious disease really went through the whole country quickly and people also quickly recover and business momentum resumed to normal strongly. And we can see that our agents predominantly doing a lot of face-to-face meeting with the customers. And the customers' intention and the need to have long-term life and health insurance and also long-term saving model actually come back very strongly. So we can see that February really has a strong momentum and as a result, February plus -- January plus February combined, we returned to positive growth. I will say this is a quite unprecedented kind of results showing the strength of our premium agency. And I want to add a color about the product mix, as you also talked about. You also saw strong in focusing on the potential sales. I have to be very proud to tell you that AIA China launched innovative whole life critical illness product launched in the fourth quarter of last year, and that come up with a strong protection product growth in the fourth quarter, and that continued in our [ jump-start ] in January and February. And in fact, protection product in 2022 remained our largest contributor to VONB. So I want to give you this favor about our continued focus on the protection mix product. But of course, you also know that as we already talked to you a few times ago, the attractiveness of long-term saving continue to come up strongly. And therefore, as a result, we are now seeing a more balanced mix of protection and long-term saving product.

Just supplement, I think over the last 3 years of the pandemic, I have made it a point to visit China twice a year, for which I've had to spend many days in quarantine by [indiscernible] just to say that in the first 2 months of this year, I've really been back to Mainland China twice. And from what I see on the ground, there's a strong recovery in economic activity in China.

The next question comes from Jenny Jiang of Morgan Stanley.

Jenny, we can't hear you.

Jenny, you're unmute. You can speak now. I think we need to go to the next one, Jenny, please. Hope you can come back to later.

The next question comes from Edwin Liu of CLSA.

Can you hear me?

Yes, Edwin.

Yes. So 2 questions from me. First question is in terms of your partnership with PSBC in China. I know it's still early days, but can you give us some early indication in terms of what kind of margin you are generating? Because I think in general, I think people expect that most likely you are mainly selling savings-type product from your channel at PSBC. So it would be helpful if you can provide some color in terms of what kind of margin in terms of VONB that you can generate from that partnership? And just second question, a bit more technical. Thanks for the CSM disclosure, very helpful. I guess I want to try to understand what kind of discount rate that you apply when you calculate your CSM. I guess the way to think about it is you would apply a liquidity premium over the risk-free rate. So I think similar to what you have provided for your risk premium. Sorry.

Edwin, just continue.

So yes, similar to what you have provided for your EV disclosure, you have provided a risk premium. So similarly for CSM, is it possible that you could provide some color in terms of what kind of liquidity premium that you use sort of a blended one for our reference?

Okay. Jacky, if you could take the question on PSBC and Garth, technical questions.

Yes. Thank you, Lee Siong. Yes, we are very happy to be able to partner with PSBC, China Postal Group, they really has a very unique distribution point of sales across Mainland China over 40,000 point of sales. And in fact, we launched a number of products with our partnership with PSBC. We have short term -- we have a midterm saving on power [ one-time ] product, and we have annuity long-term safe annuity product, and we also have a high-end medical product together with increasing [ savings ] for our whole life. You know we are always very disciplined in our product and our financial and pricing. And in fact, we see that, in fact, the bancassurance market in China is also coming back to generate more quality growth because the whole country direction is driving quality growth. So we see the bancassurance is also coming to that terms. And we are very happy to continue to work with PSBC.

Yes. Thanks. And you're quite right, Edwin. In terms of the discount rate, we've used the risk-free plus and a liquidity premium. That's considerably less than the risk premium we have in our embedded value. And I think on the slides, you'll see that there's a sort of indication of the impact of that to the difference between embedded value and CSM effectively. We used a top-down approach and blended that in. We'll come back with more details on the precise basis in June when we published the full set of accounts for 2022.

The next question comes from Sam Tan of UBS.

Can you hear me?

Yes, we can hear you.

Yes. Actually, I have 2 questions. The first 1 is on Malaysia. I noticed that there's quite big margin increase in Malaysia in the second half. So I just wonder what's kind of a driver for that. And the second question is on China. So just wondering what kind of [ expectation ] of the newly announced on the regulatory side, the new regulatory body that announced a couple of days ago? And what kind of indications on the pace of new province expansion.

Okay. Hak-Leh can you take the Malaysia question?

Thanks Lee Siong. Thanks, Tom, for the question. Malaysia achieved very strong growth in 2022, especially in the second half where the VONB grew by 26%. In fact, the growth came from both the agency and PD China with greater focus on protection for both channels. Our agency China's growth for 2022, both in terms of VONB as well as new recruits were actually substantially higher than the pre-COVID level and that's a reflection of the successful execution of our agency transformation strategy in 2022, especially in the second half into our agency successfully increased the percentage of businesses from protection business, particularly CI and Medical business compared to the same period in the prior year. Likewise, for our bancassurance partnership with the Public Bank that we achieved another year of very significant uplift in productivity, resulting in another excellent year in VONB growth. In 2022, the percentage of credit life business increased as a result of the increase in the overall banking activities. In addition to that, we also saw the non-lending book business from Public Bank increased significantly in 2022 and our success with Public Bank is a reflection of the close collaboration between the 2 organizations that enable us to put in place a very structured sales generation program supported by some enhancement in the digital tools that we roll out last year.

On your question regarding the new regulatory changes in Mainland China, I'd like to first start by saying that we have always have a very, very good relationship with the regulators in China and in other markets that we operate in. We engage in a lot of constructive dialogue with the regulators. And I can say that AIA is a very, very well regarded by the Chinese government. Now in terms of the new regulatory agency, is it still early days because has just been announced. But based on my understanding, this new agency will take on the existing responsibilities of CBIRC and some additional responsibilities that will be transferred from PBOC and CSRC. And I think the same thing is to make this much more streamlined much more efficient in terms of the regulation of the financial services industry. Just for example, the supervision 1 of the responsibilities that will be transferred from PBOC to the new agency is the supervision of financial holding groups like Citi and [ Everbright ] and other financial services groups. Where in the past, these financial services groups were regulated by the PBOC as opposed to financial services groups like Ping An Insurance Group, which was regulated by CBIRC and this obviously creates a requirement for coordination in the old structure when it comes to regulating financial services group. So by bringing it together under 1 agency makes it much more streamlined. But like I said, it's still early days as to what the exact implications are and how this agency will be formed and what it looks like. But I think what I shared with you is based on my personal understanding. But in terms of our geographical expansion plans for AIA China and our targets going forward in terms of our expansion, I think they remain unchanged.

We will have Jenny Jiang from Morgan Stanley.

Can you hear me now?

Yes.

Okay. Great. So the 2 parts of the question. One is more on China. [indiscernible] I think I have a little bit of echo here. So 1 is on China, whether we will see more material channel mix going forward, given China has some yield curve shift, and we've done some expansion with China Post Life I think some analysts asked about the product mix part we're a little bit shifting towards savings. But it seems like banssurance is really taking off in China. Would that be some new driver for China, say, 5 years down the road? We also know that China Post Life is doing very well. How come we're expanding the relationship with China Post Saving Bank sort of helping AIA China to grow? The second question is 1 on technology. AIA seems to have made a very big breakthrough this year and whether that will change our sort of strategic planning on our tech upgrade? I know we've done a lot. But is that enough? Are we done -- fast enough and how we are going to integrate this new AIA technology into our business model or how will kind of tailor -- adjust our business model to the sort of very different future technology. Those are the 2 questions.

Thank you, Jenny. I'll let Jacky take the question on China and products in China. And then Biswa, our Chief Technology of will take AIA question.

Thank you, Lee Siong. For AIA China, our most differentiated premium agency remain the most important channel for AIA in Mainland China. As we continue to expand into new providence, new cities. We will continue to focus on building a Premier Agency force. We believe this is our clear and core differentiation in the Mainland China market and quality growth and using professional high-quality agency to give high-quality advice to the customers is the key for success in Mainland China. So we don't foresee a so-called or a big change in the material mix in China, et cetera. But we are very happy to work with PSBC. As I said, they have a unit POS outlet across Mainland China, and it is also complementary to our focus on PMA agency on those affluent and above customer sentiment. And as I said, AIA China continued to be very disciplined in our product price and financial. And we focus on long-term protection and long-term saving product. So this is what I would like to let you know. And in terms of product mix, I believe everyone also observed that nowadays, more and more Mainland Chinese customers, they really see that long-term saving product is an alternative wealth management solution. So we do see this is -- actually is good for life insurance industry in Mainland China and especially for AIA China. And as I said, we continue to drive the focus on protection. In fact, the penetration in Mainland China is still really low. And we will continue to turn up with innovative proposition, coupled with our Premier Agency force we believe we will continue to drive the very healthy, more balanced product mix across AIA China.

In terms of bancassurance, I'll just add that we will continue to be very selective in terms of our partnerships with banks and we want to find partners that are very aligned with us in terms of the values and in terms of 1 thing to work with us for long term. And we have an extensive experience working with this kind of bank partners across all our markets. And these partnerships have been very complementary to our Premier Agency strategy in all our Asian markets.

Hi. Sorry. Thank you for your question. As you would have seen on Slide 10, we have been the Digital Insurer of the Year for the second year and running. So you're right that we made fast strides in the last 3 years of our TDA program. As a part of this program 1.5 years ago, we put in AIA's artificial intelligence strategy. As a part of this strategy, we continue to take a look at emerging technologies around areas of cognitive computing, natural language processing and computer vision, including evolving technologies that become available like ChatGPT to look at the vast amounts of data that we have and further turbocharge our already maturing technology platform. So if you go back to Slide 10, you'll see that we finished about 200-odd use cases last year on artificial intelligence and data analytics. What that's doing is turbocharging different areas of our business value chain, from distribution to operations to finance to really build intelligence into these performing platforms. And as we go forward into this journey, we almost think of it as being at the base camp and as more and more artificial intelligence technologies mature, in an ethical manner, we will continue to integrate that into our base technology stack and make sure that we use it to harness the power that is out there to fast track our business propositions across the value chain. Thank you.

Thank you. Next question, please.

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

Can you hear me right now?

Yes, Michael.

I've got 2 questions. First one, again, back to MCV. On the MCV, I noticed that the broker, the IFA channel did see quite strong growth last year. And there was specific mention of Hong Kong. Could you perhaps shed some lights on the relative VONB margin dynamics between the broker source MCV versus the agent source MCV. And then maybe related to that, the fact that you can refer from Hong Kong to Macau is a big strategic advantage. Maybe you can shed some light on the portion of the MCV business that was referred from Hong Kong last year and the portion that actually came from Macau standalone regions. And then 1 final thing on the MCV. Could you shed some light on the geographic mix. Last year, MCV rebounded back to 10% of the VONB. What part of that is from Guangdong versus the rest of China? And how does that compare to 2018? And then moving on to the China business. I think over the last couple of years, the Mainland China business has been very much maybe a bit more tilted towards increasing cross-selling or upselling into existing customers. So for the month of February, given the post-pandemic live, what portion of the business is coming from new customers versus old customers?

Yes, Jacky?

Yes. Thank you. Now firstly, on the MCV. business, I can see a lot of interests in the MCV segment and give you a bit more color. Yes, we also have a strong channel of MCVs from the brokers. And in last year, brokers in Macau is also getting quite a number of these MCV business. So that triple growth of MCV in last year actually contributed by both agency and also the broker channel in Macau. And in terms of the strong momentum coming into the first 2 months has the Hong Kong and Mainland China product we opened. We also see the same actually, the MCV momentum coming strongly from both the agency channel and the brokers channel in AIA Hong Kong and Macau. So I would say this is really coming back to normalize to the pre-pandemic level. In terms of geographic mix, I would say imagine, right, in the last few years, is the Macau product open with the Guangdong province. So we do see that roughly 40% of the business in the MCV Macau come from Guangdong, but compared to the pre-pandemic level, in fact, during the pre-pandemic time while the Hong Kong border and Mainland China are open, we see a wide spread of MCV customer from coming across north to south, east or west from Mainland China. So this is -- gives you some favor or color in terms of the geographic mix. Now in terms of the AIA China. I have to say that, as I said, the Mainland Chinese customer, they really see long-term saving has an alternative wealth management. So we see a picking up of a long-term saving product. And therefore, the product mix become more balanced. But in fact, we continue to see a strong momentum and need for potential product, especially when AIA China, we continue to innovate in our protection product proposition and protection product, we remain the largest contributor to AIA China in terms of VONB. We see that roughly 92% of customers who buy our long-term saving product. In fact, they already bought protection product. And we always keep training our agent to sell protection product as the first product to the customers. And we see that this will continue. And we continue to add new customers to -- we continue to grow our overall number of customer base in Mainland China. So the new customer growth continues, as I said, the penetration rate for insurance remained very low in Mainland China.

We have time for 1 final question.

The last question comes from Leon Qi of Daiwa.

Thanks for having me to wrap up the questions again. This is Leon Qi from Daiwa. I have 3 questions today. First, there's a technical question on solvency capital. And then on Thailand, finally, it's winning back to Hong Kong again. Firstly, on your LCSM cover ratio. I appreciate it's still very steady. It went up excluding the buyback, even in very challenging capital markets. Just wondering, given our product mix is actually having a little bit of diversification towards savings both in Mainland China and Hong Kong, where we actually enjoy more diversification benefit under the calculation of LCSM ratios under the PCR message. And also, I do notice that in the past few years in the legislative console documents, related to PCR ratio, there has been mentioning about switching from standardized approach to internal approach. Just wondering if we have any process on that front, which could actually potentially help us save a little bit more capital. And -- well, sorry, a subquestion under that is that do we have a comfortable level of PCR ratio given we mentioned our capital management framework last year at this time. Just wondering from a buyback perspective, if we have a comfortable ratio on LCSM PCR-based ratio for our reference. And secondly, on Thailand, Basically, we've seen a quite strong rebound of our VONB margin in the second half of last year. Just wondering what was the reason behind was the margin of our unit-linked protection riders even higher because we do understand that has been a major driver for the margin in Thailand a few years ago. If they're coming back or it's driven by other types of products? And lastly, on Hong Kong MCV, I appreciate if management can give us any color in terms of our agents, the number of agents who used to be specialized in MTV customers. What was the number by the end of last year, which was effectively right before the full border reopening of Hong Kong -- and what has the momentum so far this year being to give us a sense of the pace of recovery. So thanks a lot.

Thanks, Garth, you take the LCSM question. Wing-Shing, the Thailand margin question and Jacky, the MCV. Thanks.

Yes. Thanks, Leon. The LCSM ratio is high, as you say, it's close to 300%. And I think that reflects the resilience, the strength the financial flexibility that we have a very strong balance sheet. And you can see that, as you quite really point out, that it's remained very stable and, in fact, increased before the buyback. When you look at the PCRs of each of the businesses that we operate in, they're all very strong. We meet all the requirements clearly. And obviously, we look at stresses and strains to make sure that, that will continue to be the case. The LCSM is then a summation of all of those different PCR requirements. And it does not allow for any diversification between countries, for example. Obviously, within country, there may be some diversification between products and so on. But I think the critical point to note is that it's stable. You look at the sensitivities that they're very small and that enables us to take all the opportunities that are available to us. We have the capital to do that. We have the financial flexibility to do it. And it enables us to continue our $10 billion buyback program.

Thanks, Leon for the questions. Our business in Thailand recovered very strongly in second half with 19% VONB growth from both agency and bancassurance China in Thailand. The agency business grew in both productivity and margin in the second half, supported by very strong sales momentum as well as a highly successful launch of our new multi-pay CI rider in addition to the continued success of our unit-linked business. And in second half of last year, we also achieved a very strong increase in number of new recruits compared to the prior year. And on the bancassurance front, our bancassurance channel grew strongly in both credit life business as well as the new regular premium unit-linked products that were distributed by our bank partners. So as you can see, the margin increase. In fact, the growth in second half wasn't just in margin, but also in overall production and the margin was very much supported by CI, unit-linked mostly from an agency force and also some from the bancassurance channel. Thank you.

Yes. Again, interest on the MCV. I want to add that a very simple direct answer is that our MCV agency's capability remains intact. This is what I really want to say, across that 6,800 as I described before. And AIA Hong Kong, Macau has the #1 agency in the market in Hong Kong and Macau. And I also want to add that, as you see Hong Kong reopen and the government has the camping Hong Kong is back, et cetera, everything is coming back to normal and the mass is now in no longer require. I also wanted to add a color that while MCV momentum grows strongly, continue in the first 2 months, the domestic sales also rebounded strongly. So it's not just MCV, our domestic customer segment with our high-quality agency across Hong Kong and Macau is supporting a very strong rebar. Thank you for your questions. And I think in closing, I'd just like to say that the last 3 years, the operating environment has been challenging and volatile, especially in 2020, especially in 2022. But AIA is a proven operating model and execution has helped us to deliver a very resilient set of results. I think as operating conditions improved in the second half, we saw a very strong rebound in momentum, recovery momentum. And we believe that AIA is multiple engines of growth combined with our unmatched financial flexibility ensures that AIA is exceptionally well placed as Asia rapidly opens up for further growth in 2023. Thank you very much.

Thanks, Yuan Siong. Thanks, everyone, for listening. If you have any follow-up questions, please come through to us at AIA Investor Relations. Thank you very much.

Ladies and gentlemen, this concludes AIA's analyst briefing. Thank you for your participation.