© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning from Hong Kong, and welcome to our 2022 interim results Q&A. I'm Lance Burbidge, Chief Investor Relations Officer of AIA Group. Together with me in Hong Kong are Lee Yuan Siong, our Group CEO and President; and Garth Jones, our Group CFO. We also have our regional chief executives and other members of our group executive committee with us in the room or on the Zoom webinar.
I hope you have had a chance to watch the video presentation, which we posted to the website earlier today. In particular, Yuan Siong introduced our new integrated health strategy.
Before we start our Q&A, Yuan Siong will make some opening remarks.
Thank you, Lance. Good afternoon, everyone. AIA has delivered a resilient performance despite the Omicron wave affecting sales activity and consumer demand and extreme volatility in global capital markets. VONB exceeded $1.5 billion in the first half, and we saw strong momentum in the second quarter. VONB grew for the group in June, and AIA China returned to growth in July.
Our large and growing in-force portfolio supported increased operating profit after tax and underlying free surplus generation. The group's capital position remained very strong despite significant capital market stress. Free surplus was substantially higher at $20.6 billion, an increase of $3.6 billion in the first half. And this is after we paid $3 billion to shareholders through dividends and the share buyback.
Shareholders' allocated equity was broadly stable, and EV Equity of $72 billion was up 3% before payments to shareholders. The Board has declared an increase of 6% in the interim dividend, reflecting their confidence in the group's future prospects while retaining the financial flexibility to invest capital in the significant growth opportunities available to us in Asia.
In summary, today's results demonstrate the power of AIA's substantial competitive advantages, continued focus on executing our growth strategy and the benefits of our scale and diversity in the world's most attractive region for life and health insurance.
Now over to you for your questions.
[Operator Instructions] Let's proceed. And our first question comes from Jenny Jiang of Morgan Stanley.
Can you hear me?
Yes.
Okay. And I have 2 questions today. But it's more like a long term.
I think first one is about China. We know that there's a lot of regulatory changes lately, but one -- a key one will be on the retirement space. Given China's aging population, this is a very, very long-term theme. We just want to get a little bit more update on your latest thinking about our strategy in this area, how we're going to position in the asset management segment and also retirement insurance product segment. We learned that AIA is also piloting some new model in China, combining some of the retirement services with our annuity products. We also want to know a little bit how we did in this segment in the first half and how big this opportunity are going to be over the long run?
The second question is about the health strategy. Thank you so much for putting a lot of information about the health strategy in the presentation today. We note that you had a new JV with Discovery, the Amplify Health. We just wonder that whether we have launched it. And how -- can you give us a little bit more color on this new initiative, how this venture going to develop? Are they going to be a new revenue pillar for us in the long run?
Okay. Thanks. Maybe I hand over to Jacky Chan, who's our CE for China. Jacky?
Thank you, Yuan Siong. Yes. Jenny, you know the retirement, which is a long-term theme for Mainland China, and we are very excited with this opportunity. AIA China has a differentiated agency force, which is a high-quality agency force, and we are able to capture this long-term strategy. And in fact, first of all, I have to say that protection is still contributing a major -- a real contributor for AIA China. In Mainland China, there is still a big, big demand on protection and long-term saving.
And why on this coming retirement theme and in fact, we also know that Mainland China also has a big aging population. And AIA China offer differentiated proposition to tackle this retirement theme. And our product and proposition and ecosystem facilitate the customer to retire at his own home. So this is a differentiated proposition.
Besides an annuity product, we also develop ecosystem and services, including nursing care, et cetera, to facilitate the insured to retire at home with the support of AIA China. And I have to say that very happy that in the first half of this year, we are able to really diversify our products, which do cover both long-term protection and long-term saving including the retirement saving proposition.
Yes. Thank you, Jacky. Jenny, your question on -- about the health care strategy. Yes, we are very excited about the prospects and opportunities in the health care space in Asia. We believe that our strategy will significantly enhance our core business and will create greater value for our customers, distributors and shareholders.
We have the capabilities and very unique assets that can help us to capture this vast opportunity. Obviously, the capabilities and assets that we have that we'll be building up with Amplify Health is a crucial enabler to help us implement, empower our health care -- integrated health care strategy.
I'll hand over to Stuart to talk a bit about Amplify Health.
Jenny, thank you for the question. And thank you for the lead-in, Yuan Siong. Jenny, we really do believe that now is the time to address what we see as increasing consumer demands for better access, better integration, better affordability, better experience and better health outcomes within our health systems while delivering more solutions to meet customer needs, producing greater growth and, of course, profitability for AIA.
So we're very confident in our new integrated health strategy, which we believe really does meet customer demands, delivering personalized health insurance, better integration with provision and, of course, more advanced health care administration and management. And this is where Amplify Health comes in. We see Amplify Health as absolutely the key enabler of our integrated health strategy and a key competitive advantage, bringing over 30 years of proven IP to the table.
So we see Amplify Health as incredibly complementary to AIA's health insurance business, playing a both transformational as well as an integrating role through the provision of state-of-the-art health tech solutions and services. So think of it this way, think of our taking the leading Pan-Asian health insurer and adding on and creating the leading Pan-Asian integrated health tech solutions and services capability at the same time. So we believe this is a very powerful combination.
And at its core, Amplify Health is super rich, deep and scalable as a health tech platform that supports what we believe all the essential value-generating processes in today's private health insurance business with key capabilities across the health insurance value chain, essentially bringing tremendous integration to a space full of fragmentation, be it digital health platforms and solutions, could be medical cost optimization, benefits and policy management, data analytics and intelligence, core platforms that really deal with health tech solutions in today's marketplace.
And I have to tell you, I'm really pleased with progress since announcing the venture in February. We are really building momentum, gaining operationalization. We have more than 200 FTEs on board. I've got a super leadership team, a tremendous leadership team that's up and running, collaborating principally right now is our core focus, supporting priority initiatives with our own AIA businesses driving deployments that will emerge over the next few months, building out capabilities and solutions relevant to AI businesses across Asia for now, but we will expand and diversify to focus on serving other payers, whether they're private or governmental. And we're very excited about bringing this sophisticated capability to Asia. Thank you.
The next question comes from Charles Zhou of Crédit Suisse.
Okay, can you hear me? Hello?
Yes.
So I have 3 questions and probably more difficult than Jenny's question. The first question is that we see the net loss for the first time, I think, since your IPO. Clearly, I think the loss is not sustainable for any company, so will put some pressures on capital and shareholder equity. And on Page 12 of your interim report, I looked at the IFRS nonoperating movement, I see 2 items. The first one is other nonoperating investment return and other items negative $1.9 billion. So what's this? Can you maybe elaborate about this one?
And also the other one is the negative $1.8 billion short-term fluctuation in investments. So are you concerned about this one? In the second half today, I think that the macro environment is still quite challenging. So what measures will you take to improve your investment capability and sail through this difficulty? So this is my first question.
Second and third question is related to China. My second question is that I think you said the agent headcount is largely flat prepandemic level and value of new business down 24%. So mathematically, so this probably will translate into lower agency productivity. So I'm wondering about the agency income right now. So my question is, how can we retain the agents? Or do we see some pressure of retaining agents and ensure the premium agency strategy if their income is going down? And what about your agency retention rate in China at the moment?
And my last question is also related to China. So we are very glad to see that you deliver positive value of new business growth in July. And I think you have a low base in the second half of this year, possibly no more disruption lockdown as we see in Shanghai as well. So can we say that the worst is over in China and also probably anticipate gradual recovery in China with maybe mid- to high single-digit growth or value of new business in the second half and even to double digit next year and beyond?
Thanks, Charles. Maybe I hand over to Garth on your questions on the financial statements.
Yes. Thanks, Charles. I think the key thing to understand is our IFRS accounting basis. As I said, this is a resilient set of results.
The net profit you see there is a result of our accounting treatment under IFRS 4 accounting treatment, whereby the liabilities are fixed, and then we have a mark-to-market movement on the asset side. It's clearly noneconomic. And that will be dealt with through -- when we move to IFRS 17, we'll move to a much more economic basis from the 1st of January.
As you quite rightly say, we focus on capital. And you've seen an increase of $3.6 billion in the free surplus to $20.6 billion over the half. So clearly, a strong increase in the capital position there in the free surplus position.
In terms of the 2 numbers you mentioned, the first one, the $1.9 billion, is really down to the equity movements in the fair value movement of the equities. So that's predominantly in the participating funds. And that represents our share of that as it goes through. Clearly, those equities will be held for the long term, and we'll see over a longer period, they'll go through bonuses and so on. So that's a short-term fluctuation.
And similarly, the other number you mentioned is really to do with the interest rate derivatives. We got a mark-to-market loss on interest rate derivatives as interest rates rise. And those interest rate rises, then that's in there to, again, in the participating fund to protect our participating policyholders, and we've seen a mark-to-market on that.
But we'll let those derivatives run their cost. They're there for a purpose. They're there for our risk management. But it's a noneconomic loss effectively through the IFRS accounts. That's what you're seeing.
One thing that has happened on the investment side is that with the Hong Kong RBC coming in, we've seen that, that has also helped us with our investment side of the business. It's given us greater freedom and flexibility, in particular, to invest a bit more in the private equity space that we have historically as well.
And Jacky, on the 2 China questions?
Yes. Thank you, Charles. On AIA China, I have to say that it is a very challenging situation in Mainland China in the first half. In the first quarter of this year, we compared to a first quarter last year, which was a very high base due to the big sales of the critical illness product. And in the second quarter of this year, the COVID surge in Mainland China result in a certain pause or silent mode situation in some of the major cities, which is obviously challenging to the insurance company in China. But AIA China, I have to say that we performed, I would say, a lot better than many of our peers in Mainland China.
Now as to your calculation, I also want to mention that in first half this year, as I just talked about the retirement savings product, the AIA China product suite actually diversified to include a long-term saving and retirement saving. And therefore, the margin will be a bit lower than the prior ones. And as a result, yes, the [indiscernible] dropped. But in terms of the agents' productivity, I have to tell you that, in fact, our agents' productivity in the first half of this year has a single-digit increase over first half last year.
So we are very mindful about our Premier Agency force in Mainland China. And in fact, I would say that the Premier Agency force in Mainland China is really a differentiator for AIA in this challenging environment.
And as you see that in our presentation, you can see that has the movement restriction is being eased in some of those cities, which we have shown. Our AIA China business momentum actually has a strong rebound. And as a result, overall speaking, in July, we have an overall AIA China growth in VONB in the month of July.
Going forward, we don't provide our forecast or estimate, but I will draw your attention to the fact that AIA China really has a strong agency force, and they can really rebound strongly once those COVID movement restriction are being eased, notwithstanding the fact that, yes, it is still remaining a challenging environment in Mainland China. But our agency force with the skill set and our differentiated proposition, I'm sure that we are able to capture the opportunity especially the long-term opportunity in Mainland China.
Yes. I'll just add that our agents continue to earn very good incomes compared with what somebody would earn doing a full-time job in any industry in the cities that they operate in. And we are -- as you know, the employment environment in Mainland China is [ not that -- is a ] big challenge now. So we've been seeing very good recruitment activity as well because of the fact that our agents are able to demonstrate that it can earn a very good income being an agent of AIA. And second?
The next question comes from Thomas Wang of Goldman Sachs.
So congrats on our good numbers, especially on Mainland China. A couple of questions from me. I think the first one, I just want to get a little bit of color. When we look at the product mix disclosure, the other segment is now 22% of first half '22 VONB. Can you just give me a little bit of color what that is and how should we think about margin, also growth outlook on that segment or on that type of business? What is more sensitive to interest rate or protection, which country it is? Just a little bit more color on that segment, please?
And then the second question related to China Post Life. It's good to see that VONB growth is very strong in that business. The core business -- the core solvency ratio for that company is 100%, 110%, below 120%. Just wanted to get your thought, do you think the product mix shift in that business have sort of -- how far are we progressing that, that we already moved away from the capital consumption -- high capital consumption products, do we see risk in the volatile market environment that maybe more capital needs for that business?
Okay. I'll let Garth take your question on product mix, and Jacky will talk about how we are helping China Post Life in terms of improving the capital efficiency and the product design and distribution. Thanks.
Yes. Thanks, Thomas. Yes, the others mix there that you mentioned is the nonparticipating business in -- it's predominantly in China. And that is a business that we matched out well with the suitable given bonds and so on. As you've seen, the business remains predominantly traditional protection business.
Yes. I mean I think I'll just add that our definition of traditional protection is very strict. So some products that sort of are between those 2 categories do sit in other.
Thomas, as to your question on the China Post Life, I'm very happy that the investment in China Post Life was completed in January this year. And in fact, we immediately have a team of technical experts on the ground supporting, providing advice to the China Post Life, especially in terms of strengthening the financial management, the asset liability matching and also strengthening product shift towards long-term protection and long-term saving.
And as a result, you already see that the VONB of China Post Life in the first half of this year is 2.8x of the whole year of 2020, which they disclosed that in year 2020. And in terms of the comprehensive solvency ratio, which was shown has 182% as first half of this year. This is excluding the investment portion of AIA. So it shows that they are on the track, on the right track, of really strengthening the financial performance and results. And I have to say that there is still a lot of work to be done. But China Post Life is really eager to deliver quality growth in accordance with the 14th 5-year plan of Mainland China.
Yes. Just to correct, Jacky, that 182% was after the investment.
Okay.
The next question comes from Kailesh Mistry of HSBC.
I've got a few questions here. First one is on the LCM position. Could you just help us understand if there's an internal target range for the LCM ratio? And also, you haven't provided credit spread sensitivity. I wonder if you could provide some insights on what that looks like.
Secondly, I guess, you've provided some nice charts on improving volumes as COVID restrictions have eased. You've also made comments around Mainland China that the product mix is broadening out. But in the other markets, so Hong Kong and ASEAN, as face-to-face interaction is improving, are you seeing new business sort of product mix reverting back to the pre-COVID-type mix? And also, where are you capturing new customers when that face-to-face does resume?
And then the last question for now is just on Amplify Health and the health strategy. Thank you, obviously, for the update on the strategy and what your objectives are here. But could you just talk a little bit about 2 things? Firstly, what are the main gaps in your product and service propositions? And are there sufficient partners out there to plug those gaps? Or would you have to do it organically? And how are you approaching Greater China because, obviously, you don't have the Amplify Health relationship for that region?
Yes, thanks, Kailesh. In terms of targets, our focus really is on the free surplus because that better represents the shareholder perspective. The LCSM ratio that we've shown there is really about regulatory solvency. It includes the participating funds as well as the shareholder funds. And so when we look at it from a shareholder perspective, we will tend to look at the free surplus. And again, you saw the free surplus up by $3.6 billion to $20.6 billion.
Clearly, our regulatory solvency is very strong, but it's not something that we target, particularly beyond being demonstrably very strong. We do run our own internal credit spreads, and I can confirm that we'll remain resilient through credit cycles.
I think I'm going to say the product mix question. You're right, Kailesh, that obviously, the China business, the shift in product mix is the main driver of the overall group product mix changing. If you take out China, the product mix is actually the same in terms of protection content this year as it was last year. And you'll remember that actually it went up quite significantly post pandemic in our markets. So hopefully, that gives you the answer.
Okay. Stuart, can you take the question on health care?
Yes. Kailesh, let me make sure I understand your first question. You're asking what gaps do we believe Amplify Health will fill within our existing product suite. Is that correct?
No. It was more, obviously, through acquisitions or partnerships such as Medix, Bluecoat and all those. You've built additional propositions. But what are the gaps in the service and product proposition you want to have that are currently -- that are there currently, I guess?
Well, we believe -- thanks, understood. We believe that Amplify Health actually does provide a significant gap closure across its 4 integrated platforms and augments and supplements our existing ecosystem of services that are principally focused on improving customer journeys, experience and outcomes as well as a greater concentration on prevention.
We believe, in particular, the capabilities on medical cost optimization will give us a tremendous amount of technical excellence on the back end to drive expanded margins and, ultimately, a more absolute VONB. So we see Amplify Health as complementary, but also really the greatest integrating factor of the overall ecosystem.
We've also incorporated AIA Vitality into the framework of Amplify Health so that we are really going to be able to scale up digital health platform and solutions with Vitality as really the core driver of wellness and behavioral change across the group.
Now vis-Ã -vis China, bear in mind that Amplify Health has 2 entities, one that's based in Singapore serving markets other than Greater China and Hong Kong and Macau. So we have an Amplify Health China Co. situated in Hong Kong that will be providing the same IP, the same leading IP in the Chinese market under Amplify Health China Co. And we believe that we see tremendous opportunities for the delivery of integrated health solutions in the Chinese market. We recognize that it is a very distinct market, rapidly evolving and does require very, very specific solutions. But we continue to evaluate our options and how best to strategically deploy those solutions in the China market over the next months and years. Thank you.
I'll just add. I think as we explain our strategy, we see a lot of opportunity for -- in health care, in Asia. We are talking about in excess of $4 trillion of health care spend by 2030. A lot of it will be out of pocket.
The different markets -- the situation in different markets will be different, and we'll be focusing on a few key markets. Obviously, China will be one of them because the health care spend is huge and the out of pocket spend is actually also tremendous. We set out in our strategy, our $3 billion strategy, which -- with Amplify Health being a key enabler. It's just -- if you recall, 2 years ago, when we talked about Ascend 200 strategy, we have our Ascend 200 strategy, and the TDA is the cornerstone of our Ascend 200 strategy.
In our health care strategy, Amplify Health is really a cornerstone, a key enabler, the driver of innovation supporting the 3 pillars. So I think we are going through market by market, assessing in terms of the 3 pillars where we are, what the gaps are, how do we feel, for example, in terms of personalized health insurance in Singapore, in Malaysia, in Thailand, Vietnam, et cetera. We were going to market by market, looking at it and -- look at where the gaps are and how we can better fill it.
The second pillar in terms of how we -- our network of outpatient physical clinics and virtual clinics, how do we build up such a network that can integrate into our -- the health care journey for our customers and the professional case management and health management and services that we can partner with or build organically in each market. And obviously, everything will be powered and driven and supported by Amplify Health.
On Greater China, we will be bringing the IP, and the Amplify Health will be building. And it will be deployed in Hong Kong and the Greater China as well, yes.
The next question comes from MW Kim of JPMorgan.
I want to ask the 3 questions. Number one is about India. Compared to the 5 years ago, the India life insurance market stood at significantly bigger scale in terms of new business value. The TATA AIA Life showed 38% of your new business by your growth in first half. And also, I was pretty surprised to see the scale and growth delta on the MDRT number at TATA AIA. So I would ask the company's medium and long term, the capital allocation and then also the business strategy in India, including the distribution channel. And second question is about the follow-up question about the capital side. So under the new solvency measure, the higher interest rate [ looks ] not have a positive solvency sensitivity. So I would ask that the solvency management and target solvency ratio on the macro stress scenario. And also the group leverage ratio moved up to the 20% in first half. So any management guidance on the target leverage ratio should be appreciated.
The last about the -- again, the follow-up on the health -- the strategy, it's perhaps too early to make a comment related to the business synergy under the Amplify Health. But I would like to learn more about the business impact and the progress in detail related to the customer acquisition, underwriting and claim experience so far on the integrated health strategy and also the time line to see those positive impact into the number disclosure, please?
Okay. I think Garth, India and also the capital.
Yes. Thanks. I mean we have a fantastic business in India. In fact, I was just there a few weeks ago, and I was really impressed by the way the economy is picking up. There's a lot of activity. I think out of the current environment, I think India is extremely well placed and look set to grow strongly in terms of GDP. So I'm very positive about India. I'm also very positive about our business there. We have a fantastic business and a great management team. We've seen the business go from strength to strength. The last 3 years, it's been growing at sort of close to 40% each of the last 3 years. It's moved up now to a #4 position -- a solid #4 position and is pushing for #3 in the market.
We have a great joint venture with TATA. We work extremely well with them. And it's a business that's built on a digital platform. The margins in India are tight. And as such, we use technology to full advantage. We have a very strong agency force. We're #1 in the protection business. We have a strong bancassurance distribution through various large banks and partnerships with people like IndusInd Bank. We do a lot of business through HDFC and so on. And we sell a lot of business through the brokerage and the direct channel through the policy bazaar. People like that. So it's a very well-balanced, well-diversified business. It's a business that we'll continue to invest capital in, and we'll continue to look to grow strongly going forward.
In terms of the LCSM ratio, I think the sensitivities, I should say, first of all, are very small from a very strong position. And the negative you see in terms of interest rates up is really in respect of the free surplus. That $20.6 billion of free surplus is predominantly invested in bonds. And so you see the negative impact of that, but it's only a small variance anyway.
And in terms of the leverage, I think that goes back to the earlier question really from Charles. It's due to our accounting. The increase you see in the leverage ratio over the first 6 months is almost entirely due to the movement in the balance sheet, which is noneconomic. And if you looked at it on a more economic basis, then you probably see a better picture. That would be rectified, to a large extent, through IFRS 17 again. And our ratings are strong. We're very happy with our ratings, and they're important to us.
Okay. I will ask Leo to take the question on health care. But before that, I'll just reiterate the fact that -- the way we see our integrated health care strategy significantly enhancing our core business and, secondly, that we are really the leading health insurer with significant presence in Asia in the health insurance space already. So Leo?
Yes. Thank you, MW, for your question. I think the core of the health strategy that we've presented and -- of Amplify Health is about this aspect of integration and the synergies between the components. And so if you think about Amplify Health, it is really about generating better outcome in the 3 pillars of our health care strategy through the levers that you've described, better customer acquisition, better underwriting outcomes, better claims outcomes. And so as we deploy the capabilities of Amplify Health for our business, we expect those gains to come through.
As we do this, we expect the synergies between the 3 pillars of our strategy to come through with the integration of not just health insurance but integration with provision, with better, closer partnerships, with outpatient clinics, in particular, and then the integration of those with better health management and health administration, which give us the ability to streamline pathways and journeys for our customers. So the synergies will come through in that regard.
And then finally, as Yuan Siong mentioned, the health care business allows us to engage with customers at times earlier in their lifetime because of the deep need for health insurance across Asia. And so we see customer acquisition as a very powerful lever of this health care strategy for our broader life insurance strategy. And so overall, this is how we'd expect the value to come through in this health care strategy. More accessible, affordable health care for our customers, which then enables us to better support our distribution partners, which then drives better sales, higher customer lifetime value and higher VONB earnings and cash.
The next question comes from Michelle Ma of Citi.
I also have 3 questions here. So first, again, some follow-up questions primarily on the investment. So in the P&L, we noticed there's a $14 billion losses in terms of investment. So if we zoom in and we look into the details in the disclosure of the item 7, so there is a $3 billion losses from debt securities. So I'm wondering whether this loss is purely from higher interest rate environment or we noticed this is because of higher credit spread, resulting in the lower valuation of the debt securities. And for derivative $7 billion losses, I think previously, this explains that there is a mechanism -- there's a protection mechanism here. But can you give us more color on this derivative loss of $7 billion?
The second question is on other markets. So in the financial report, there are some explanation about the situation in Australia and also New Zealand and also Vietnam. So it looks like the IFA channel for Australia and New Zealand experienced some difficulties. And also something like in the second quarter of Vietnam, we have very early signs of recovery of better recruitments, but how about the [indiscernible] momentum and the recovery situation in Vietnam as well?
So the last question is about Hong Kong. So I think I noticed currently, there is a very active promotion for Hong Kong market for a variety of products. I also purchased several of them myself, but I noticed there is a very high margin for Hong Kong market in the second half last year. So how should we think about the margin trend in the Hong Kong market for the second half of this year?
Okay. I think Garth, you take the investment question. And maybe Leo, you could give some color on Australia and New Zealand. Hak-Leh on what's going on in Vietnam in terms of Hong Kong. I hope that the policies that you bought from AIA and us -- Jacky. Thank you very much. I'll ask Jacky to take that question.
Yes. On the balance sheet and so on, the question you raised about the debt securities, Michelle, that's mark-to-market through the fair value securities, and that's all to do with the movement in the market value through interest rates and credit spreads and so on changing. But it doesn't reflect actual credit losses. Those were minimal in the whole thing. The key was they're mark-to-market really.
On the derivatives, they're in the participating fund in Hong Kong predominantly. And those derivatives are really there as part of our risk management for the participating fund. With those derivatives in place, we can then have a greater investment freedom and produce greater returns for our shareholders with actually lower risk. What you see there is the proportion of the derivatives that flows through into the net profit through our current accounting basis. It's the shareholders' share of those losses. What you'll see is that we don't hedge account. And when we go to IFRS 17, this will disappear. So it's noneconomic.
Michelle, it's Leo here. On your question regarding Australia, as you noted, VONB declined in the first half of the year. And as you mentioned, it was primarily driven by our IFA channel, where as a result of the pandemic and market trends over the past few years, we've seen a decline in the protection market. And our sales have followed that decline in the market. We've also remained very disciplined with our pricing through that environment, and so that's also contributed to the decline in sales, which then resulted in an expense overrun.
At the same time, if we look at our position in New Zealand and in Australia, we're building a business for the long term in those markets. And we're very well positioned with #1 position in the market in new business sales in New Zealand as well as in Australia, with a very strong position in group in particular with our Vitality capability, differentiating us in the market and with investments in new capabilities, such as our MyWay Life digital product and AIA financial wellness, which allows us to target the underserved middle market in Australia. And so we're quite optimistic about the future of these businesses as we continue to deliver on the protection needs of currently 3.7 million Australians and more to come in the coming years.
Hak-Leh about -- on Vietnam?
Michelle, thanks for the question. As you noted, Vietnam experienced a decline in VONB first half of this year compared to first half of last year, which was a very strong first half in 2021. But obviously, first half of last year, the performance wasn't affected by the very strict COVID restriction, which came in only in the August last year.
But looking at the breakdown of the business, our partnership with VPBank the first half this year achieved a very strong VONB growth as well as ANP growth supported by the significant improvement in productivity of the bancassurance specialists throughout the entire first half.
For the agency business, which is important China for us and Vietnam, the quarter 1 was somewhat affected by the restriction that kicked in August last year, but we are seeing a very strong quarter-on-quarter growth in second quarter this year, strong momentum in recruitment. And we also see, as the Omicron wave subside the first half of this year, the overall recovery in activities across both channels.
So overall, we believe that with a strong bancassurance partnership and a strong recovery in agency momentum, we are optimistic about the future of Vietnam.
Yes. I was also recently in Vietnam in June. And I can say that what I saw in Hanoi and Ho Chi Minh and the economic activity recovering very strongly. And there's a lot of optimism and confidence in Vietnam, yes.
Thank you, Michelle, for being a customer of AIA Hong Kong. Firstly, I really want to say about the AIA Hong Kong's really resilient performance in the first half of this year. This is -- first half is a challenging environment in Hong Kong, the Omicron outbreak, et cetera, and the anti-social distancing requirement restriction. AIA Hong Kong delivered growth in VONB in this challenging environment and outperformed many of our peers listed insurance company with operations in Hong Kong and Macau.
You note that we saw an announcement. We mentioned that the margin of AIA Hong Kong improved especially due to the participating product margin. And in fact, in Hong Kong, we always review our product to ensure that we have the competitive product, meeting the customer need and also deliver a reasonable return to the shareholder and also right on the existing or latest situation or economic situation, including AIA Hong Kong worked very hard towards the early adoption of our risk-based capital. This helped us to uplift the product competitiveness, et cetera.
So we're very happy that you know all this. And in fact, as we see that the COVID restriction situation in Hong Kong has relieved in Hong Kong, rolled out a very comprehensive product promotion for the customer in Hong Kong and, therefore, also revitalize or motivate a lot of our agency force in Hong Kong.
As you asked about what is our outlook in the second half margin, et cetera, I have to repeatedly say that we don't provide the forecast. As I said before, AIA Hong Kong continuously to review product switch and ensure that we have the most relevant product proposition to meet today's customers' needs and also deliver a reasonable return to shareholder.
The next question comes from Edwin Liu of CLSA.
Rest assured, I won't ask any financial questions, being an accountant myself. But I do have 3 questions to follow up with questions asked by other analysts.
Firstly, on the integrated health strategy. I think apart from Amplify Health, it seems to me that the partnership with outpatient clinics is also very important to this strategy. Could you please help me compare, on this front, how you will be able to outperform other Pan-Asia peers in terms of partnership with outpatient clinics and also, in particular, in Mainland China, how this strategy will work because predominantly Mainland China is a public health care system?
Second question is in terms of management responsibility. So I understand there has been some redistribution of responsibilities among regional CEOs. Could you share more color on this and your thinking behind this redistribution?
And just finally on China Post Life. Thanks for the additional details. But to me, I'm actually more interested in terms of your bancassurance with PSBC. I understand the partnership already started. So could you share more color in terms of the progress, in terms of the bancassurance business with PSBC and, if you can, how much percentage the contribution is in terms of VONB?
I'd like to invite Stuart to explain about how we are collaborating with the provider networks across our markets, yes.
Thanks, Edwin, and thank you, Yuan Siong. We believe that being able to exert greater influence and greater control at point of care is going to be significant and instrumental in driving better customer journeys and outcomes. And today, we have networks of providers spanning Asia that are best in class, but we believe that with the application of Amplify Health tools, we can provide greater efficiencies, greater cost efficiencies but also better patient outcomes that then serve as a virtuous circle to drive better pricing and better price optimization going forward.
And we recognize the clinics constitute a key gateway into the health care system, and we need to exert greater influence. And we've said that we will selectively and discriminately assess opportunities to broaden our clinic networks and acquire as appropriate. And we believe, as I've said, that this is fundamental to being able to have greater impact on customer journeys, which we believe need to be improved across the industry today. And we think that Amplify Health data, analytics, steerage capabilities will provide us with a sophisticated edge in the market that our peers don't possess.
And regarding China, we would see the same opportunities and challenges given the marketplace there and the entrenched BMI system. But we believe that we -- that medical cost optimization and the harmony of high-quality care is by no means incompatible. And we think we can and we will align interest and incentives to have a very sustainable impact at point of care going forward. Thank you.
On your second question, I think we -- obviously, very saddened by what happened to Bill, and we'll always remember him. He was responsible for group distribution and a few markets. And since then, we have made some adjustments. So briefly, I think how we have organized it, we've put life operations and technology together under our Chief Technology Officer, Biswa, so that technology can better support our efforts in terms of improving customer experience and thereby claim -- and learn by service claim journeys and all our digitalization efforts as well.
In terms of the group distribution function, we have put it under -- put the function under Jacky. Jacky used to run group agency and corporate solutions as well. So he's very experienced and he's very knowledgeable and will provide strong leadership to the group distribution functions as well as his responsibilities for AIA China, Hong Kong, Korea and Taiwan.
Then we've put Australia and New Zealand and Indonesia and Philippines under the leadership of Leo, who's also in charge of group strategy.
And finally -- and fourthly, I think we have grouped a few markets, the more established markets of Singapore, Malaysia and Thailand and also Vietnam and the smaller markets of Cambodia, Myanmar and Sri Lanka under Hak-Leh's leadership. Hak-Leh has many years of experience. He's a Malaysian. He ran the Singapore business before. He ran the Thailand business before. And so he definitely will be able to guide these business units.
And TATA AIA, I've put it under Garth Jones. Garth, in addition to his vast experience as a CFO, he used to be the CEO of Citi Prudential in China many years ago and has a good experience in a fast developing emerging market environment. And he's able to -- and I'm sure he'll be able to give guidance to our management team in TATA AIA, which is a joint venture with Tata Group as well.
So far, since we made all these changes, I think it has worked very well. We support each other as a team. And so I think we've been driving all our priority -- strategic priorities, and there's no delay or slowdown in any of these initiatives.
Then on CPL -- on the banker -- with Postal Savings Bank of China, yes?
Thank you for the question on bancassurance with PSBC. With the investment in CPL, we are very happy that we developed and continued to foster good relationship with various level with [ CPG ] and also PSBC. And right now, as of now, we have already signed and executed bancassurance agreement with PSBC on certain branches in Shenzhen, Shanghai and Guangdong Province. And we are hopeful that Jiangsu Province will soon also be in. This is still early days in the bancassurance, and we are happy that we will continue to foster the relationship with various level of [ CPG ] and PSBC. And hopefully, we will continue to gain more momentum and traction into this bancassurance opportunity with PSBC.
Thanks, Jacky. I think we have time for one final quick question.
The last question comes from Leon Qi of Daiwa.
This is Leon Qi from Daiwa. I have 3 relatively quick questions.
Firstly, on China. Well, overall across the industry, the bancassurance is doing better than agency channel in Mainland China. I understood our distribution channel is relatively agency-focused. In addition to China Post Life and Bank of East Asia, both of which obviously has been running in excellent way, do we have any plans to strengthen our bancassurance distribution under this such current industry backdrop?
And secondly, I just want to ask a number -- a detailed number on your claim experiences. I understand that Thailand saw rising medical claims because of the private hospital treatments of COVID earlier in the year. But I do notice that on Page 19 of your presentation, at a group level, mortality and mobility claim experiences actually was quite a positive number. And first half of this year, it actually increased a little bit compared with last year. Wondering whether I'm right in reading these 2 numbers together. And if that is the case, where are the other markets that we are actually seeing better claim experiences given Thailand has obviously been deteriorating in that regard?
And lastly, still coming back to your Amplify Health strategy. I think overall, we've seen in many Western markets that the interaction between health management and health insurance has been very successful, and there's been overwhelming successful in the telemedicine area in particular, after COVID. But in Asia, that kind of collaboration seems to be much less exciting, at least so far. So in management view, what do you think is missing in Asia? And in other words, what Amplify Health plans to narrow this gap, plans to avoid any pitfalls that currently exist in Asia? What is Amplify Health addressing the problem?
Thanks, Leon. And just in when we're answering the questions, could we be quick because we're already running over time?
Yes. Your first question on China bancassurance. Obviously, you know that AIA aims at delivering quality growth, and we really want to deliver value to both customers and also our shareholders. You know that right now, majority of the Mainland China bancassurance is still a deposit replacement product, short-term saving. In our AIA China strategy in bancassurance, we really want to do long-term potential and long-term saving. This is why -- this is where we really work hard with our bank partner. And at the same time, besides BEA and PSBC, as you mentioned, we also work with the private bank of the Mainland China bank, and they are very well received AIA China's value proposition of legacy planning and the long-term potential. So this is where we really want to play in the bancassurance market in China.
Yes. On the claims side, very briefly, we saw, as you say, overall claims experience positive more than $200 million in the embedded value. In fact, we saw a positive claims experience overall in Thailand from all sorts of claims. And then when we look across the board, you see that other than Thailand, then we've seen good experience right across all the other segments.
And very quickly on the third question, we see a lot of opportunity to integrate the 3 pillars of health care empowered by digital, data analytics and technology.
Great. Thanks, Yuan Siong. Thanks, Leon, for the question. And thank you, everybody, for listening. Obviously, if you have any follow-ups, please do come through to us at Investor Relations, and we're always happy to help. Thank you very much.
Ladies and gentlemen, this concludes AIA's analyst briefing. Thank you for your participation.