AIA Group Limited — Interim / Quarterly Report 2018

Sep 14, 2018

AIA Group Limited 友邦保險控股有限公司 Interim Report 2018

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Stock code: 1299

The Board is pleased to announce the Group’s unaudited consolidated results for the seven months ended 30 June 2018.

In February 2018, the Board resolved to change the Company’s financial year-end date from 30 November to 31 December. Accordingly, the current financial period-end date of the Company is 31 December 2018. The 2018 interim condensed consolidated financial statements adopting the new year-end date is for the seven months ended 30 June 2018 with the comparative figures prepared based on the six months ended 31 May 2017.

In conjunction with the financial year-end date change and for the purpose of enhancing the comparability of financial information, the Company has voluntarily presented the Group’s unaudited consolidated results for the six months ended 30 June 2018 and the comparative financial information covering the six-month period ended 30 June 2017. Results highlights, financial summary, financial and operating review and supplementary embedded value information relating to the Group’s unaudited consolidated results for the six months ended 30 June 2018, as compared with the corresponding six-month period ended 30 June 2017, have also been set out in this Interim Report to facilitate a meaningful comparison of the Group’s performance in the first half of 2018 and 2017.

AIA DELIVERS STRONG GROWTH IN THE FIRST HALF OF 2018

VALUE OF NEW BUSINESS INCREASED BY 17 PER CENT OPERATING PROFIT UP 14 PER CENT; INTERIM DIVIDEND UP 14 PER CENT

AIA Group Limited delivered double-digit growth across our main financial metrics for the six months ended 30 June 2018, including very strong growth in value of new business (VONB) of 17 per cent on a constant exchange rate basis and 22 per cent on an actual exchange rate basis, compared with the corresponding six-month period ended 30 June 2017.

Highlights are shown on a constant exchange rate basis below:

Very strong growth in value of new business

• 17 per cent growth in VONB to US$1,954 million

• 24 per cent growth in VONB, excluding the retail IFA channel in our Hong Kong business which had an exceptional performance in the first half of 2017

• Annualised new premiums (ANP) increased by 9 per cent to US$3,252 million

• VONB margin up 4.4 pps to 59.5 per cent

Continued growth in operating profit

• IFRS operating profit after tax (OPAT) up by 14 per cent to US$2,653 million

• Embedded value (EV) operating profit increased by 19 per cent to US$4,152 million

• Operating return on EV (operating ROEV) up by 70 bps to 17.0 per cent

Robust cash flow and resilient capital position

• EV Equity of US$53.6 billion; EV of US$52.0 billion, up US$1.2 billion from 31 December 2017

• Underlying free surplus generation of US$2,497 million, up 11 per cent on a comparable basis

• • Free surplus of US$13.7 billion

• Solvency ratio for AIA Co., our principal operating company, of 458 per cent on the HKIO basis

Significant increase in interim dividend

• 14 per cent increase in interim dividend to 29.20 Hong Kong cents per share

Ng Keng Hooi, AIA’s Group Chief Executive and President, said:

“AIA achieved a very strong set of results in the first half of 2018 with VONB growth of 17 per cent to US$1,954 million as well as 14 per cent growth in IFRS operating profit. VONB for the period was up 24 per cent when excluding the retail IFA channel in our Hong Kong business which delivered an exceptional growth in the first half of 2017. These results are underpinned by the continued execution of our proven growth strategy and the scale, quality and breadth of AIA’s exceptional businesses across the Asia-Pacific region.

“The Board has declared a 14 per cent increase in the interim dividend for 2018, reflecting the strength of AIA’s financial results as well as our confidence in the outlook for the Group. This is in line with our prudent, sustainable and progressive dividend policy.

“AIA continues to hold a uniquely advantaged position stemming from the significant competitive advantages we have created over our long history in Asia. The quality of our results comes from our diverse and balanced platforms – across distribution, product and geography. Our clear strategy continues to work well as our experienced team of outstanding people collaborate to harness the enormous growth opportunities that the region presents.

“We remain confident that we will continue to execute our strategic priorities to realise AIA’s full potential as we help millions of people to live healthier, longer, better lives.”

i

About AIA

AIA Group Limited and its subsidiaries (collectively “AIA” or the “Group”) comprise the largest independent publicly listed pan-Asian life insurance group. It has a presence in 18 markets in Asia-Pacific – wholly-owned branches and subsidiaries in Hong Kong, Thailand, Singapore, Malaysia, China, Korea, the Philippines, Australia, Indonesia, Taiwan, Vietnam, New Zealand, Macau, Brunei, Cambodia, a 97 per cent subsidiary in Sri Lanka, a 49 per cent joint venture in India and a representative office in Myanmar.

The business that is now AIA was first established in Shanghai almost a century ago in 1919. It is a market leader in the Asia-Pacific region (ex-Japan) based on life insurance premiums and holds leading positions across the majority of its markets. It had total assets of US$221 billion as of 30 June 2018.

AIA meets the long-term savings and protection needs of individuals by offering a range of products and services including life insurance, accident and health insurance and savings plans. The Group also provides employee benefits, credit life and pension services to corporate clients. Through an extensive network of agents, partners and employees across Asia-Pacific, AIA serves the holders of 32 million individual policies and over 16 million participating members of group insurance schemes.

AIA Group Limited is listed on the Main Board of The Stock Exchange of Hong Kong Limited under the stock code “1299” with American Depositary Receipts (Level 1) traded on the over-the-counter market (ticker symbol: “AAGIY”).

ii

FINANCIAL SUMMARY

Performance Highlights

FINANCIAL SUMMARY Performance Highlights
US$ millions, unless otherwise stated	Six months ended 30 June 2018 Six months ended 30 June 2017	YoY CER YoY AER
New Business Value Value of new business (VONB) VONB margin Annualised newpremiums(ANP)	1,954 1,605 59.5% 54.5% 3,252 2,906	17% 22% 4.4 pps 5.0 pps 9% 12%
EV Operating Profit Embedded value (EV) operating profit Operating ROEV Basic EV operating earnings per share (US cents)	4,152 3,370 17.0% 16.3% 34.55 28.10	19% 23% 0.7 pps 0.7 pps 19% 23%
IFRS Earnings Operating profit after tax (OPAT) Operating ROE Total weighted premium income (TWPI) Operating earnings per share (US cents) – Basic – Diluted	2,653 2,233 14.2% 13.9% 14,429 12,174 22.08 18.62 22.02 18.58	14% 19% – 0.3 pps 14% 19% 14% 19% 14% 19%
Dividends Dividend per share (HK cents)	29.20 25.62	n/a 14%
US$ millions, unless otherwise stated	As at 30 June 2018 As at 31 December 2017	Change CER Change AER
Embedded Value EV Equity Embedded value Free surplus EV Equity per share(US cents)	53,628 52,429 52,012 50,779 13,687 12,586 444.09 434.19	4% 2% 4% 2% 9% 9% 4% 2%
Equity and Capital Shareholders’ allocated equity AIA Co. HKIO solvency ratio Shareholders’ allocated equity per share (US cents)	36,328 36,413 458% 446% 300.83 301.56	1% – n/a 12 pps 1% –

New Business Performance by Segment

US$ millions, unless otherwise stated	Six months ended 30 June 2018 VONB VONB Margin ANP	Six months ended 30 June 2017 VONB VONB Margin ANP	VONB Change YoY CER YoY AER
Hong Kong Thailand Singapore Malaysia China Other Markets	796 62.2% 1,252 204 71.0% 287 178 61.4% 290 124 60.3% 204 556 91.0% 611 201 32.8% 608	723 49.2% 1,434 179 75.3% 237 138 71.1% 194 106 62.3% 169 377 88.2% 428 185 41.2% 444	10% 10% 5% 14% 22% 29% 5% 17% 37% 47% 7% 9%
Subtotal Adjustment to reflect consolidated reserving and capital requirements After-tax value of unallocated Group Office expenses	2,059 62.7% 3,252 (28) n/m n/m (77) n/m n/m	1,708 58.1% 2,906 (24) n/m n/m (79) n/m n/m	16% 21% n/m n/m n/m n/m
Total	1,954 59.5% 3,252	1,605 54.5% 2,906	17% 22%

iii

Notes:

• (1) A presentation for analysts and investors, hosted by Ng Keng Hooi, Group Chief Executive and President, was held on 24 August 2018.

A webcast archive of the presentation and presentation slides are available on AIA’s website:

http://www.aia.com/en/investor-relations/results-presentations.html

• (2) All figures are presented in actual reporting currency (US dollar) and based on actual exchange rates (AER) unless otherwise stated. Change on constant exchange rates (CER) is calculated using constant average exchange rates for the six months ended 30 June 2018 and for the six months ended 30 June 2017 other than for balance sheet items that use CER as at 30 June 2018 and as at 31 December 2017.

• (3) Change is shown on a year-on-year basis unless otherwise stated.

• (4) Long-term economic assumptions used in the EV basis for the interim results are the same as those shown as at 31 December 2017 in the supplementary embedded value information included in this document and consistent with those shown as at 30 November 2017 in our Annual Report 2017. Non-economic assumptions used in the EV basis are based on those at 31 December 2017 updated to reflect AIA’s view of the latest experience observed.

• (5) VONB is calculated based on assumptions applicable at the point of sale and before deducting the amount attributable to non-controlling interests. The amounts of VONB attributable to non-controlling interests in the six months ended 30 June 2018 and in the six months ended 30 June 2017 were US$13 million and US$11 million respectively.

• (6) VONB includes pension business. ANP and VONB margin exclude pension business.

• (7) IFRS operating profit after tax and operating earnings per share are shown after non-controlling interests unless otherwise stated.

• (8) Operating ROEV and operating ROE are measured on an annualised basis.

• (9) The 11 per cent growth of underlying free surplus generated is calculated on a comparable basis before the reduction of US$141 million in the first half of 2018 relating to the change in reserving and capital requirements for consolidation purposes following the subsidiarisation of AIA Korea.

• (10) Interim dividends for 2018 and 2017 were declared for the seven months ended 30 June 2018 and the six months ended 31 May 2017, respectively.

• (11) Hong Kong refers to operations in Hong Kong and Macau; Singapore refers to operations in Singapore and Brunei; and Other Markets refers to operations in Australia (including New Zealand), Cambodia, Indonesia, Korea, the Philippines, Sri Lanka, Taiwan, Vietnam and India. The results of our joint venture in India are accounted for using the equity method. For clarity, TWPI, ANP and VONB exclude any contribution from India.

• (12) AIA’s financial information in this document is based on the unaudited interim condensed consolidated financial statements and supplementary embedded value information for the six months ended 30 June 2018.

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TABLE OF CONTENTS

TABLE OF CONTENTS
	Page
Financial and Operating Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Financial Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Business Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Compliance with Corporate Governance Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Compliance with Model Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Changes in Directors’ Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Directors’ and the Chief Executive’s Interests and Short Positions
in Shares and Underlying Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Interests and Short Positions in Shares and Underlying Shares of Persons Other Than the Directors or the Chief Executive . . . . . . . . . . . . . . . . . . . . . . 35
Purchase, Sale or Redemption of the Company’s Listed Securities . . . . . . . . . . . . . . . . . . 36
Share-based Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Report on Review of Interim Condensed Consolidated Financial Statements . . . . . . . . . . . 42
Interim Consolidated Income Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Interim Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . 44
Interim Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Interim Consolidated Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Interim Condensed Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . 49
Notes to the Unaudited Interim Condensed Consolidated Financial Statements . . . . . . . . . 50
Supplementary financial information on a calendar year basis . . . . . . . . . . . . . . . . . . . . 96
Report on Review of Supplementary Embedded Value Information. . . . . . . . . . . . . . . . . . . 111
Supplementary Embedded Value Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
Condensed Business and Financial Review for the Seven Months ended 30 June 2018 . . . . . . . 131
Information for Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141
Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144

1

FINANCIAL AND OPERATING REVIEW

AIA is the largest publicly listed pan-Asian life insurance group, with a presence across 18 markets in the Asia-Pacific region. We receive the vast majority of our premiums in local currencies and we closely match our local assets and liabilities to minimise the economic effects of foreign exchange movements. When reporting the Group’s consolidated figures, there is a currency translation effect as we report in US dollars. We have provided growth rates and commentaries on our operating performance on a CER basis, unless otherwise stated, as this provides a clearer picture of the year-on-year performance of the underlying businesses.

In February 2018, the board of Directors (Board) resolved to change the AIA Group Limited’s (Company) financial year-end date from 30 November to 31 December. Accordingly, the current financial period-end date of the Company is 31 December 2018. In conjunction with this change and for the purpose of enhancing the comparability of financial information, the financial information presented below covers a six-month period from 1 January 2018 to 30 June 2018 for the current period and a six-month period from 1 January 2017 to 30 June 2017 for the prior period. In addition, we have voluntarily presented the Group’s unaudited consolidated financial results for the six months ended 30 June 2018 and the comparative financial information covering the six-month period ended 30 June 2017 as set out in note 27 to the interim condensed consolidated financial statements and the supplementary embedded value information.

FINANCIAL REVIEW

Summary and Key Financial Highlights

AIA has delivered a strong set of financial results with double-digit growth across our main operating financial metrics of value of new business (VONB), IFRS operating profit after tax (OPAT), embedded value (EV) operating profit and underlying free surplus generation. The strong performance in VONB demonstrates the consistent execution of our proven growth strategy. Profitable new business growth and disciplined management of our in-force book have driven double-digit growth in both EV operating profit and IFRS OPAT. We have also delivered an increase in underlying free surplus generation and maintained a healthy solvency position in the first half of 2018. The Board has declared an increase in our interim dividend reflecting the financial results in the first half and our confidence in the outlook for the Group.

Our strong financial performance in the first half of 2018 and our consistent track record of success over time are the direct outcome of our focus on executing our strategic priorities with financial discipline and our unique competitive advantages. AIA continues to be well placed to capture the enormous long-term growth opportunities in the region and deliver value for our shareholders.

VALUE GROWTH

VONB increased by 17 per cent to US$1,954 million. All of our reportable market segments delivered positive VONB growth in the first half of the year. VONB was up 24 per cent after excluding the exceptional performance in the Hong Kong retail independent financial adviser (retail IFA) channel in the first half of 2017, as previously highlighted. Agency distribution remains our main source of new business and accounted for 71 per cent of the Group’s total VONB in the first half of 2018. The disciplined execution of our Premier Agency strategy has enabled us to deliver another strong performance with VONB growth of 27 per cent. VONB from partnership distribution was 4 per cent lower mainly due to the exceptionally strong performance in our Hong Kong retail IFA channel in the first half of 2017.

ANP grew by 9 per cent to US$3,252 million and VONB margin was up by 4.4 pps to 59.5 per cent.

EV operating profit increased by 19 per cent to US$4,152 million, reflecting the strong new business growth and positive operating variances of US$340 million resulting from the proactive management of our in-force portfolio. This led to an increase of 70 bps in our annualised operating return on EV (ROEV) to 17.0 per cent compared with the first half of 2017.

2

Equity attributable to shareholders of the Company on the embedded value basis (EV Equity) grew by US$1,199 million in the first half to US$53,628 million. The increase was mainly driven by EV operating profit growth of 19 per cent, partly offset by negative investment return variances of US$1,446 million reflecting the effect of short-term capital market movements on our investment portfolio and statutory reserves compared with expected returns. The growth in EV Equity is reported after the payment of shareholder dividends of US$1,140 million.

IFRS EARNINGS

OPAT increased by 14 per cent to US$2,653 million mainly driven by double-digit growth in Hong Kong, Malaysia, China and Other Markets. This performance was the result of new business growth over time and the proactive management of our portfolio.

The expense ratio reduced to 7.1 per cent from 7.8 per cent in the first half of 2017 as we continued to benefit from increasing scale.

Annualised operating return on shareholders’ allocated equity (operating ROE) remained stable at 14.2 per cent reflecting strong OPAT growth offset by a higher average shareholders’ allocated equity compared with the first half of 2017. Average shareholders’ allocated equity increased by US$5,377 million to US$37,474 million in the first half of 2018 compared with US$32,097 million in the first half of 2017 as a result of a strong capital market performance in 2017.

At 30 June 2018, shareholders’ allocated equity was US$36,328 million reflecting net profit from the current period offset by the depreciation of local currencies against our US dollar reporting currency and the payment of shareholder dividends of US$1,140 million.

CAPITAL AND DIVIDENDS

Free surplus increased by US$1,101 million in the first half to US$13,687 million at 30 June 2018. This included a positive addition to free surplus of US$1,886 million due to the subsidiarisation of AIA Korea. Underlying free surplus generation increased to US$2,497 million, representing growth of 11 per cent on a comparable basis before the reduction of US$141 million in the first half of 2018 relating to the subsidiarisation of AIA Korea. Underlying free surplus generation was partly offset by negative investment return variances and other items, as well as the payment of shareholder dividends.

The solvency ratio of AIA Company Limited (AIA Co.), our principal operating company, was 458 per cent at 30 June 2018, up by 12 pps compared with 446 per cent at 31 December 2017.

Our local businesses remitted US$1,188 million to the Group Corporate Centre in the first half of 2018, a similar level compared with the first half of 2017.

The Board has declared an interim dividend of 29.20 Hong Kong cents per share. This represents a strong increase of 14 per cent compared with the interim dividend in 2017, reflecting the strength of our financial results in the first half of 2018 and our confidence in the outlook for the Group.

The Board intends to follow AIA’s established prudent, sustainable and progressive dividend policy allowing for future growth opportunities and the financial flexibility of the Group.

3

OUTLOOK

Asian macroeconomic fundamentals remain resilient, despite recent volatility in financial markets due to international trade tensions and softening consumer sentiment. The region is well positioned to meet potential challenges, as Asian economies have increasingly reoriented towards domestic drivers of growth.

Asian economic and demographic drivers provide strong support for the long-term growth prospects of AIA’s business. Our long history in the region and proven growth strategy place us in a highly advantaged position to benefit from these drivers, including accelerating urbanisation, large working populations, increasing wealth and low levels of existing social welfare and private insurance cover. We remain confident in executing our strategic priorities to deliver long-term, sustainable value for our shareholders.

4

New Business Performance

VONB, ANP AND MARGIN BY SEGMENT

US$ millions, unless otherwise stated	Six months ended 30 June 2018 VONB VONB Margin ANP	Six months ended 30 June 2017 VONB VONB Margin ANP	VONB Change YoY CER YoY AER
Hong Kong Thailand Singapore Malaysia China Other Markets	796 62.2% 1,252 204 71.0% 287 178 61.4% 290 124 60.3% 204 556 91.0% 611 201 32.8% 608	723 49.2% 1,434 179 75.3% 237 138 71.1% 194 106 62.3% 169 377 88.2% 428 185 41.2% 444	10% 10% 5% 14% 22% 29% 5% 17% 37% 47% 7% 9%
Subtotal Adjustment to reflect consolidated reserving and capital requirements After-tax value of unallocated Group Office expenses	2,059 62.7% 3,252 (28) n/m n/m (77) n/m n/m	1,708 58.1% 2,906 (24) n/m n/m (79) n/m n/m	16% 21% n/m n/m n/m n/m
Total	1,954 59.5% 3,252	1,605 54.5% 2,906	17% 22%

VONB grew by 17 per cent compared with the first half of 2017 to US$1,954 million. All of our reportable market segments delivered positive VONB growth in the first half of the year. VONB was up 24 per cent after excluding the exceptional performance in the Hong Kong retail IFA channel in the first half of 2017.

ANP was higher by 9 per cent to US$3,252 million. VONB margin increased by 4.4 pps to 59.5 per cent and present value of new business premium (PVNBP) margin increased to 10 per cent from 9 per cent in the first half of 2017, reflecting positive shifts in product and country mix.

Agency distribution remains our main source of new business and accounted for 71 per cent of the Group’s total VONB in the first half of 2018. The disciplined execution of our Premier Agency strategy has enabled us to deliver another excellent performance with 27 per cent growth. VONB from partnership distribution was 4 per cent lower mainly due to the exceptionally strong performance in the Hong Kong retail IFA channel in the first half of 2017.

Hong Kong delivered strong VONB growth of 10 per cent to US$796 million in the first half of 2018 with a very strong performance in both agency and bancassurance channels. Sales of higher-margin products resulted in lower ANP of US$1,252 million but with an increased VONB margin of 62.2 per cent.

AIA’s wholly-owned operation in China was once again our fastest-growing business in the first half of 2018 with VONB growth of 37 per cent to US$556 million, predominantly from higher sale volumes as we continued to focus on quality recruitment and ongoing productivity enhancement through the disciplined execution of our Premier Agency strategy.

Thailand also reported positive VONB growth of 5 per cent to US$204 million in the first half of 2018. Sales momentum strengthened in the first half of 2018 as we continued to enhance and expand our Financial Adviser programme to drive the transformation of our agency force in Thailand.

Singapore delivered very strong VONB growth of 22 per cent driven by 42 per cent growth in ANP. Double-digit growth in VONB in the agency channel resulted from an increased number of active agents and improved productivity. VONB margin was lower at 61.4 per cent as a result of lower profitability from our HealthShield business and a shift in product mix.

5

Malaysia reported positive VONB growth of 5 per cent to US$124 million in the first half of 2018. Following a strong first quarter, new business performance was affected in the second quarter by reduced consumer activity relating to the country’s general election and ahead of changes to Goods and Services Tax (GST).

Other Markets reported solid growth in VONB of 7 per cent. Highlights included strong performances from Korea, the Philippines, Taiwan and Vietnam. ANP grew by 36 per cent to US$608 million and VONB margin reduced to 32.8 per cent. The reported results for Other Markets were affected by the uneven timing of large group insurance schemes in Australia. VONB growth of Other Markets was 18 per cent, excluding the impact of these large group schemes.

VONB is reported after a US$105 million total deduction for the consolidated reserving and capital requirements over and above local statutory requirements and for the present value of unallocated Group Office expenses.

EV Equity

EV OPERATING PROFIT

EV operating profit increased by 19 per cent to US$4,152 million compared with the first half of 2017.

This strong performance was the result of 17 per cent growth in VONB to US$1,954 million, a higher expected return on EV of US$1,930 million and strong overall positive operating variances of US$340 million. Overall operating variances have totalled more than US$1.7 billion since our initial public offering (IPO) in 2010.

The strength of our new business growth and operating performance delivered an increase in annualised operating ROEV by 70 bps to 17.0 per cent compared with the first half of 2017.

EV OPERATING EARNINGS PER SHARE – BASIC

	Six months Six months ended ended 30 June 30 June YoY YoY 2018 2017 CER AER
EV operating profit (US$ millions) Weighted average number of ordinary shares (millions) Basic EV operating earnings per share (US cents)	4,152 3,370 19% 23% 12,018 11,995 n/a n/a 34.55 28.10 19% 23%

EV OPERATING EARNINGS PER SHARE – DILUTED

	Six months Six months ended ended 30 June 30 June YoY YoY 2018 2017 CER AER
EV operating profit (US$ millions) Weighted average number of ordinary shares(1)(millions) Diluted EV operating earnings per share(1) (US cents)	4,152 3,370 19% 23% 12,050 12,018 n/a n/a 34.46 28.04 18% 23%

Note:

(1) Diluted EV operating earnings per share including the dilutive effects, if any, of the awards of share options, restricted share units, restricted stock purchase units (RSPUs) and restricted stock subscription units (RSSUs) granted to eligible directors, officers, employees and agents under the share-based compensation plans as described in note 38 to the financial statements in our Annual Report 2017.

6

EV MOVEMENT

EV grew by US$1,233 million in the first half to US$52,012 million at 30 June 2018.

The increase was mainly driven by EV operating profit growth of 19 per cent to US$4,152 million, partly offset by negative investment return variances of US$1,446 million reflecting the effect of short-term capital market movements on our investment portfolio and statutory reserves compared with expected returns. Other non-operating variances amounted to US$376 million, mainly from the subsidiarisation of AIA Korea. The effect of negative foreign exchange translation movements was US$754 million.

The overall growth in EV is shown after the payment of shareholder dividends of US$1,140 million.

An analysis of the movement in EV is shown as follows:

	Six months	ended 30 June 2018
US$ millions, unless otherwise stated	ANW	VIF	EV
Opening EV	20,974	29,805	50,779
Value of new business	(357)	2,311	1,954
Expected return on EV	2,164	(234)	1,930
Operating experience variances	277	68	345
Operating assumption changes	8	(13)	(5)
Finance costs	(72)	–	(72)
EV operating profit	2,020	2,132	4,152
Investment return variances	(1,724)	278	(1,446)
Other non-operating variances	3,160	(2,784)	376
Total EV profit	3,456	(374)	3,082
Dividends	(1,140)	–	(1,140)
Other capital movements	45	–	45
Effect of changes in exchange rates	(360)	(394)	(754)
Closing EV	22,975	29,037	52,012
	Six months	ended 30 June 2017
US$ millions, unless otherwise stated	ANW	VIF	EV
Opening EV	16,862	25,986	42,848
Value of new business	(291)	1,896	1,605
Expected return on EV	2,042	(374)	1,668
Operating experience variances	325	(103)	222
Operating assumption changes	(213)	152	(61)
Finance costs	(64)	–	(64)
EV operating profit	1,799	1,571	3,370
Investment return variances	877	160	1,037
Other non-operating variances	282	(506)	(224)
Total EV profit	2,958	1,225	4,183
Dividends	(983)	–	(983)
Other capital movements	86	–	86
Effect of changes in exchange rates	144	757	901
Closing EV	19,067	27,968	47,035

7

EV EQUITY

EV EQUITY
US$ millions, unless otherwise stated	As at 30 June 2018 As at 31 December 2017
EV Goodwill and other intangible assets(1)	52,012 50,779 1,616 1,650
EV Equity	53,628 52,429

Note:

(1) Consistent with the IFRS financial statements, net of tax, amounts attributable to participating funds and non-controlling interests.

EV AND VONB SENSITIVITIES

Sensitivities to EV and VONB arising from changes to central assumptions from equity price and interest rate movements are shown below and are consistent with the prior period.

US$ millions, unless otherwise stated	EV as at 30 June 2018 VONB for the six months ended 30 June 2018 EV as at 31 December 2017 VONB for the six months ended 30 June 2017
Central value Equity price changes 10 per cent increase in equity prices 10 per cent decrease in equity prices Interest rate changes 50 basis points increase in interest rates 50 basis points decrease in interest rates	52,012 1,954 50,779 1,605 52,795 n/a 51,529 n/a 51,232 n/a 50,036 n/a 52,354 2,045 50,828 1,691 51,716 1,843 50,323 1,474

Please refer to Section 3 of the Supplementary Embedded Value Information for additional information.

IFRS Profit

OPAT[(1)] BY SEGMENT

OPAT(1) BY SEGMENT
US$ millions, unless otherwise stated	Six months Six months ended ended YoY YoY 30 June 2018 30 June 2017 CER AER
Hong Kong Thailand Singapore Malaysia China Other Markets Group Corporate Centre	922 821 12% 12% 496 423 7% 17% 273 240 9% 14% 158 118 19% 34% 436 294 37% 48% 393 337 16% 17% (25) – n/m n/m
Total	2,653 2,233 14% 19%

Note:

(1) Attributable to shareholders of the Company only excluding non-controlling interests.

8

OPAT grew by 14 per cent to US$2,653 million compared with the first half of 2017 mainly driven by double-digit growth in Hong Kong, Malaysia, China and Other Markets. This performance was the result of growth in new business over time and the proactive management of our portfolio.

Hong Kong delivered growth of 12 per cent reflecting growth in our business and an improvement in claims experience, which was partly offset by a shift in product mix towards participating business. China achieved excellent growth of 37 per cent, primarily supported by the growing scale of our business and reflecting our high-quality sources of earnings.

Thailand and Singapore reported a 7 per cent and a 9 per cent increase in OPAT respectively in line with business growth. OPAT in Malaysia increased by 19 per cent as a result of improved claims and lapse experience.

Other Markets delivered strong OPAT growth of 16 per cent with strong performances in most of our operating markets.

Annualised operating ROE remained stable at 14.2 per cent reflecting strong OPAT growth offset by a higher average shareholders’ allocated equity compared with the first half of 2017.

TWPI BY SEGMENT

TWPI BY SEGMENT
US$ millions, unless otherwise stated	Six months Six months ended ended YoY YoY 30 June 2018 30 June 2017 CER AER
Hong Kong Thailand Singapore Malaysia China Other Markets	5,075 4,275 19% 19% 1,803 1,571 5% 15% 1,392 1,172 12% 19% 1,047 882 7% 19% 2,076 1,467 31% 42% 3,036 2,807 6% 8%
Total	14,429 12,174 14% 19%

TWPI increased by 14 per cent to US$14,429 million compared with the first half of 2017. The Group’s persistency remained strong and stable at 95.4 per cent in the first half of 2018.

IFRS OPERATING PROFIT INVESTMENT RETURN

US$ millions, unless otherwise stated	Six months Six months ended ended YoY YoY 30 June 2018 30 June 2017 CER AER
Interest income Expected long-term investment return for equities and real estate	3,009 2,646 9% 14% 972 783 19% 24%
Total	3,981 3,429 11% 16%

IFRS operating profit investment return increased by 11 per cent to US$3,981 million compared with the first half of 2017. The growth was primarily driven by an increased level of investments over the period.

9

OPERATING EXPENSES

OPERATING EXPENSES
US$ millions, unless otherwise stated	Six months Six months ended ended YoY YoY 30 June 2018 30 June 2017 CER AER
Operating expenses	1,023 949 4% 8%

Operating expenses grew by 4 per cent to US$1,023 million with a lower expense ratio of 7.1 per cent compared with 7.8 per cent in the first half of 2017.

NET PROFIT[(1)]

NET PROFIT(1)
US$ millions, unless otherwise stated	Six months Six months ended ended YoY YoY 30 June 2018 30 June 2017 CER AER
OPAT Short-term fluctuations in investment return related to equities and real estate, net of tax(2) Reclassification of revaluation gain for property held for own use, net of tax(2)(3) Other non-operating investment return and other items, net of tax(3)	2,653 2,233 14% 19% (675) 1,024 n/m n/m (177) (20) n/m n/m (139) 4 n/m n/m
Total	1,662 3,241 (50)% (49)%

Notes:

(1) Attributable to shareholders of the Company only excluding non-controlling interests.

(2) Short-term fluctuations in investment return include the revaluation gain for property held for own use. This amount is then reclassified out of net profit to conform to IFRS measurement and presentation.

(3) The comparative information has been adjusted to conform to current period presentation.

10

IFRS NON-OPERATING MOVEMENT

AIA’s IFRS net profit definition includes mark-to-market movements from our equity portfolio. Equity markets declined significantly during the first half of 2018, compared with large gains reported previously in 2017. Consequently, IFRS net profit decreased by 50 per cent to US$1,662 million compared with the first half of 2017. The decrease was due to negative short-term fluctuations in investment returns of US$675 million compared with positive movements of US$1,024 million in the first half of 2017. Other non-operating items of negative US$139 million in the first half of 2018 included tax expenses of US$94 million in relation to the subsidiarisation of AIA Korea.

MOVEMENT IN SHAREHOLDERS’ ALLOCATED EQUITY

US$ millions, unless otherwise stated	Six months ended 30 June 2018 Year ended 31 December 2017 Six months ended 30 June 2017	) )
Opening shareholders’ allocated equity Net profit Purchase of shares held by employee share-based trusts Dividends Revaluation (losses)/gains on property held for own use Foreign currency translation adjustments Other capital movements	36,413 29,653 29,653 1,662 6,496 3,241 (5) (10) (5 (1,140) (1,376) (983 (9) 88 39 (644) 1,409 660 51 153 95
Total movement in shareholders’ allocated equity	(85) 6,760 3,047
Closing shareholders’ allocated equity	36,328 36,413 32,700
Average shareholders’ allocated equity	37,474 33,034 32,097

The movement in shareholders’ allocated equity is shown before fair value reserve movements. AIA believes this provides a clearer reflection of the underlying movement in shareholders’ equity over the period, before the IFRS accounting treatment of market value movements in available for sale bonds.

Average shareholders’ allocated equity increased by US$5,377 million to US$37,474 million in the first half of 2018 compared with US$32,097 million in the first half of 2017 as a result of the strong capital market performance in 2017.

Shareholders’ allocated equity remained stable at US$36,328 million at 30 June 2018 reflecting net profit of US$1,662 million for the period offset by the negative foreign exchange translation movements of US$644 million and the payment of shareholder dividends of US$1,140 million. The negative movement in foreign currency translation in the first half of 2018 was concentrated in the month of June 2018.

Sensitivities arising from foreign exchange rate, interest rate and equity price movements are included in note 22 to the interim financial statements.

11

IFRS Earnings per Share (EPS)

Basic EPS based on IFRS OPAT attributable to shareholders increased by 14 per cent to 22.08 US cents in the first half of 2018.

Basic EPS based on IFRS net profit attributable to shareholders, including mark-to-market movements from our equity and investment property portfolios, decreased by 50 per cent to 13.83 US cents in the first half of 2018.

IFRS EPS – BASIC

IFRS EPS – BASIC
	Net Profit(1) OPAT(1) Six months Six months Six months Six months ended ended ended ended 30 June 2018 30 June 2017 30 June 2018 30 June 2017
Profit (US$ millions) Weighted average number of ordinary shares (millions) Basic earnings per share (US cents)	1,662 3,241 2,653 2,233 12,018 11,995 12,018 11,995 13.83 27.02 22.08 18.62

IFRS EPS – DILUTED

IFRS EPS – DILUTED
	Net Profit(1) OPAT(1) Six months Six months Six months Six months ended ended ended ended 30 June 2018 30 June 2017 30 June 2018 30 June 2017
Profit (US$ millions) Weighted average number of ordinary shares(2)(millions) Diluted earnings per share(2) (US cents)	1,662 3,241 2,653 2,233 12,050 12,018 12,050 12,018 13.79 26.97 22.02 18.58

Notes:

(1) Attributable to shareholders of the Company only excluding non-controlling interests.

(2) Diluted earnings per share including the dilutive effects, if any, of the awards of share options, restricted share units, RSPUs and RSSUs granted to eligible directors, officers, employees and agents under the share-based compensation plans as described in note 38 to the financial statements in our Annual Report 2017.

12

Capital

FREE SURPLUS GENERATION

The Group’s free surplus at 30 June 2018 represented the excess of adjusted net worth over required capital including the consolidated reserving and capital requirements.

Free surplus increased by US$1,101 million in the first half to US$13,687 million at 30 June 2018. This included an increase of US$1,886 million due to the subsidiarisation of AIA Korea.

Underlying free surplus generation, which excludes investment return variances and other items, increased to US$2,497 million in the first half of 2018, representing growth of 11 per cent on a comparable basis before the reduction of US$141 million in the first half of 2018 relating to the subsidiarisation of AIA Korea. This reflects the growing scale of our in-force business and our focus on writing quality new business with attractive returns on capital. The amount invested in writing new business increased by 22 per cent to US$807 million.

The overall effect of investment return variances and other items including regulatory developments was negative US$1,208 million and the payment of shareholder dividends was US$1,140 million.

The following table summarises the change in free surplus:

US$ millions, unless otherwise stated	Six months ended Six months ended 30 June 2018 30 June 2017	) ) )
Opening free surplus Release of free surplus through the subsidiarisation of AIA Korea on 1 January 2018 Underlying free surplus generated Free surplus used to fund new business Investment return variances and other items Unallocated Group Office expenses Dividends Finance costs and other capital movements	12,586 9,940 1,886 – 2,497 2,290 (807) (635 (1,208) 833 (100) (107 (1,140) (983 (27) 22
Closing free surplus	13,687 11,360

13

NET FUNDS TO GROUP CORPORATE CENTRE

Working capital comprises debt and equity securities, deposits and cash and cash equivalents held at the Group Corporate Centre. Working capital increased to US$10,647 million at 30 June 2018.

Net remittances from business units totalled US$1,188 million, while the borrowings increased by US$1,463 million from the net proceeds of the issuance of medium-term notes of US$991 million and short-term bank loans of US$970 million, partly offset by the redemption of medium-term notes of US$500 million upon maturity. The total increase in working capital is reported after the payment of shareholder dividends of US$1,140 million. On 2 July 2018, AIA completed the acquisition of Sovereign Assurance Company Limited in New Zealand while the acquisition of CommInsure Life in Australia remains in progress, subject to securing all necessary regulatory and governmental approvals.

The movements in working capital are summarised as follows:

US$ millions, unless otherwise stated	Six months ended Six months ended 30 June 2018 30 June 2017	) ) )
Opening working capital Group Corporate Centre operating results Capital flows from/(to) business units Hong Kong Thailand Malaysia China Other Markets	9,714 8,404 (25) – 427 602 145 197 97 192 440 206 79 (28
Net funds remitted to Group Corporate Centre	1,188 1,169
Increase in borrowings Purchase of shares held by employee share-based trusts Payment of dividends Change in fair value reserve and others	1,463 508 (5) (5 (1,140) (983 (548) 45
Closing working capital	10,647 9,138

14

IFRS Balance Sheet

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

	As at	As at	Change
US$ millions, unless otherwise stated	30 June 2018	31 December 2017	AER
Assets
Financial investments	178,135	179,503	(1)%
Investment property	4,720	4,363	8%
Cash and cash equivalents	3,013	1,922	57%
Deferred acquisition and origination costs	23,473	21,950	7%
Other assets	11,379	10,908	4%
Total assets	220,720	218,646	1%
Liabilities
Insurance and investment contract liabilities	164,285	159,685	3%
Borrowings	5,421	3,958	37%
Other liabilities	12,123	11,447	6%
Less total liabilities	181,829	175,090	4%
Equity
Total equity	38,891	43,556	(11)%
Less non-controlling interests	385	380	1%
Total equity attributable to shareholders of
AIA Group Limited	38,506	43,176	(11)%
Shareholders’ allocated equity	36,328	36,413	–
MOVEMENT IN SHAREHOLDERS’ EQUITY
	Six months	Year ended	Six months
	ended	31 December	ended
US$ millions, unless otherwise stated	30 June 2018	2017	30 June 2017
Opening shareholders’ equity	43,176	34,555	34,555
Net profit	1,662	6,496	3,241
Fair value (losses)/gains on assets	(4,585)	1,861	1,449
Purchase of shares held by employee share-
based trusts	(5)	(10)	(5)
Dividends	(1,140)	(1,376)	(983)
Revaluation (losses)/gains on property held for
own use	(9)	88	39
Foreign currency translation adjustments	(644)	1,409	660
Other capital movements	51	153	95
Total movement in shareholders’ equity	(4,670)	8,621	4,496
Closing shareholders’ equity	38,506	43,176	39,051

15

TOTAL INVESTMENTS

TOTAL INVESTMENTS
US$ millions, unless otherwise stated	As at 30 June 2018 Percentage of total As at 31 December 2017 Percentage of total
Total policyholder and shareholder Total unit-linked contracts and consolidated investment funds	163,993 87% 162,676 87% 23,732 13% 24,815 13%
Total investments	187,725 100% 187,491 100%

The investment mix remained stable during the first half of the year as set out below:

UNIT-LINKED CONTRACTS AND CONSOLIDATED INVESTMENT FUNDS

US$ millions, unless otherwise stated	As at 30 June 2018 Percentage of total As at 31 December 2017 Percentage of total
Participating funds Government and government agency bonds Corporate bonds and structured securities Loans and deposits	10,750 7% 10,011 7% 10,574 7% 11,020 7% 2,090 1% 2,000 1%
Subtotal – Fixed income investments Equities Investment property and property held for own use Cash and cash equivalents Derivatives	23,414 15% 23,031 15% 6,766 4% 6,985 4% 472 – 472 – 188 – 158 – 46 – 81 –
Subtotal participating funds Other policyholder and shareholder Government and government agency bonds Corporate bonds and structured securities Loans and deposits	30,886 19% 30,727 19% 46,928 29% 47,152 29% 59,631 36% 59,966 37% 5,421 3% 6,113 4%
Subtotal – Fixed income investments Equities Investment property and property held for own use Cash and cash equivalents Derivatives	111,980 68% 113,231 70% 12,418 8% 11,572 7% 6,105 4% 5,594 3% 2,269 1% 1,298 1% 335 – 254 –
Subtotal other policyholder and shareholder	133,107 81% 131,949 81%
Total policyholder and shareholder	163,993 100% 162,676 100%

16

ASSETS

Total assets increased by US$2,074 million to US$220,720 million at 30 June 2018, compared with US$218,646 million at 31 December 2017.

Total investments including financial investments, investment property, property held for own use, and cash and cash equivalents increased by US$234 million to US$187,725 million at 30 June 2018, compared with US$187,491 million at 31 December 2017.

Of the total US$187,725 million investments at 30 June 2018, US$163,993 million were held in respect of policyholders and shareholders and the remaining US$23,732 million were backing unit-linked contracts and consolidated investment funds.

Fixed income investments, including debt securities, loans and term deposits held in respect of policyholders and shareholders, totalled US$135,394 million at 30 June 2018 compared with US$136,262 million at 31 December 2017. The average credit rating of the fixed income portfolio of A remained consistent with the position at 31 December 2017.

Government and government agency bonds represented 43 per cent of fixed income investments at 30 June 2018, compared with 42 per cent at 31 December 2017. Corporate bonds and structured securities accounted for 52 per cent of fixed income investments at 30 June 2018 and 31 December 2017.

Equity securities held in respect of policyholders and shareholders totalled US$19,184 million at 30 June 2018, compared with US$18,557 million at 31 December 2017. The US$627 million increase in carrying value was mainly attributable to new purchases offset by negative mark-to-market movements. Within this figure, equity securities of US$6,766 million were held in participating funds.

Cash and cash equivalents increased by US$1,091 million to US$3,013 million at 30 June 2018 compared with US$1,922 million at 31 December 2017. The increase largely reflected positive net cash inflows from our operating business, net proceeds of the issuance of medium-term notes in April 2018 of US$991 million and the short-term bank loans of US$970 million, partly offset by the redemption of medium-term notes of US$500 million upon maturity and the payment of shareholder dividends of US$1,140 million.

Investment property and property held for own use in respect of policyholders and shareholders totalled US$6,577 million at 30 June 2018 compared with US$6,066 million at 31 December 2017.

Deferred acquisition and origination costs increased to US$23,473 million at 30 June 2018 compared with US$21,950 million at 31 December 2017, largely reflecting new business growth.

Other assets increased to US$11,379 million at 30 June 2018 compared with US$10,908 million at 31 December 2017, reflecting an increase in reinsurance recoveries, accrued interest and prepayments.

LIABILITIES

Total liabilities increased to US$181,829 million at 30 June 2018 from US$175,090 million at 31 December 2017.

Insurance and investment contract liabilities grew to US$164,285 million at 30 June 2018 compared with US$159,685 million at 31 December 2017, reflecting the underlying growth of the in-force portfolio offset by negative mark-to-market movements on equities backing unit-linked and participating policies and negative foreign exchange translation.

Borrowings increased to US$5,421 million at 30 June 2018, due to the net proceeds of the issuance of medium-term notes in April 2018 of US$991 million and the short-term bank loans of US$970 million, partly offset by the redemption of medium-term notes of US$500 million upon maturity. Medium-term notes issued in 2014 will mature in March 2019 as disclosed in note 18 to the interim financial statements.

Other liabilities were US$12,123 million at 30 June 2018, compared with US$11,447 million at 31 December 2017.

Details of commitments and contingencies are included in note 25 to the interim financial statements.

17

Regulatory Capital

The Group’s lead insurance regulator is the Hong Kong Insurance Authority (HKIA). The Group’s principal operating company is AIA Co., a Hong Kong-domiciled insurer.

As at 30 June 2018, the total available capital for AIA Co., our main regulated entity, was US$9,382 million as measured under the Hong Kong Insurance Ordinance (HKIO) basis, resulting in a solvency ratio of 458 per cent of regulatory minimum capital compared with 446 per cent at 31 December 2017.

A summary of the total available capital and solvency ratios of AIA Co. is as follows:

US$ millions, unless otherwise stated	As at 30 June 2018 As at 31 December 2017
Total available capital Regulatory minimum capital (100%) Solvency ratio (%)	9,382 8,395 2,047 1,882 458% 446%

The Group’s individual branches and subsidiaries are also subject to supervision in the jurisdictions in which they and their parent entity operate. This means that local operating units, including branches and subsidiaries, must meet the regulatory capital requirements of their local prudential and, where applicable, parent entity regulators. These various regulators overseeing the Group’s branches and subsidiaries actively monitor their capital positions. The local operating units were in compliance with the capital requirements of their respective entity and local regulators in each of our geographical markets at 30 June 2018.

Regulatory and International Developments

Internationally, the regulatory environment facing life insurers has continued to evolve. In particular, the International Association of Insurance Supervisors (IAIS) continues a multi-year review of certain Insurance Core Principles with the longer-term aim of developing and implementing an updated common framework for the international regulation of insurance companies.

Regulators across AIA’s span of operations continue a variety of initiatives intended to align their respective regulatory frameworks with the broad principles recommended by the IAIS. AIA continues to be involved in these initiatives across the region, and is an active participant in the international industry dialogue on a host of relevant issues, including formulation by the IAIS of an insurance capital standard (ICS). Field testing for the ICS is expected to be completed in 2019 with implementation of the ICS to be conducted in two phases. Under the first phase, ICS will be used for confidential reporting to group-wide supervisors in a monitoring period lasting five years. The second phase will be implementation of the ICS as a group-wide prescribed capital requirement.

In 2016, Bermuda’s prudential framework for insurance was deemed to be equivalent to the regulatory standards applied to European insurers in accordance with the requirements of the Solvency II Directive. Under the enhanced commercial prudential return regime, the Bermuda Monetary Authority has instituted a number of changes to its statutory and prudential reporting requirements, including the need for commercial insurers to prepare an economic balance sheet. These new regulatory requirements were first applied to AIA’s financial year ended 30 November 2017 and AIA continues to participate in the development and refinement of these initiatives.

Following the establishment of the HKIA on 26 June 2017 as the regulator of Hong Kong insurance companies, it is anticipated that the HKIA will also directly regulate intermediaries within two years. A multi-year consultation process is also underway to develop a risk-based capital regime for Hong Kong insurers. AIA continues to be closely and constructively engaged in these developments.

On 16 May 2017, the HKIA and the China Banking and Insurance Regulatory Commission (formerly the China Insurance Regulatory Commission) signed the Equivalence Assessment Framework Agreement on the Solvency Regulatory Regime. As a transitional arrangement, AIA will report under the HKIO the capital position of its China branches based on the China local regulatory solvency basis progressively over a 4-year phase-in period to full implementation on 31 March 2022.

18

On 18 May 2017, the International Accounting Standards Board (IASB) published International Financial Reporting Standard (IFRS) 17, Insurance Contracts (previously IFRS 4 Phase II) which will replace the current IFRS 4, Insurance Contracts. IFRS 17 includes some fundamental differences to current accounting in both insurance contract measurement and profit recognition. On 12 December 2017, the Hong Kong Institute of Certified Public Accountants (HKICPA) approved the issuance of Hong Kong Financial Reporting Standard (HKFRS) 17, Insurance Contracts. The Group is conducting a detailed assessment of the new standards and preparing for their implementation. The standards are mandatorily effective for financial periods beginning on or after 1 January 2021.

Global Medium-term Note (GMTN) and Securities Programme

Under our US$6 billion GMTN and Securities programme, the Company issued senior unsecured fixed rate notes with a nominal amount of US$500 million and HK$3,900 million in April 2018. The US$500 million notes will mature in 2028 and bear annual interest of 3.90 per cent, while the HK$3,900 million notes, which are not listed, will mature in 2021 and bear annual interest of 2.76 per cent. The Company redeemed senior unsecured fixed rate notes with a nominal amount of US$500 million in March 2018. At 30 June 2018, the aggregate carrying amount of the debt issued under the GMTN and Securities programme was US$4,451 million.

Credit Ratings

At 30 June 2018, AIA Co. has financial strength ratings of Aa2 (Very Low Credit Risk) with a stable outlook from Moody’s; AA (Very Strong) with a stable outlook from Fitch; and AA- (Very Strong) with a stable outlook from Standard & Poor’s.

The Company has issuer credit ratings of A2 (Low Credit Risk) with a stable outlook from Moody’s; AA- (Very High Credit Quality) with a stable outlook from Fitch; and A (Strong) with a stable outlook from Standard & Poor’s.

Dividends

The Board has declared an interim dividend of 29.20 Hong Kong cents per share. This represents a strong increase of 14 per cent compared with the interim dividend in 2017, reflecting the strength of our financial results in the first half of 2018 and our confidence in the outlook for the Group.

The Board intends to follow AIA’s established prudent, sustainable and progressive dividend policy allowing for future growth opportunities and the financial flexibility of the Group.

19

BUSINESS REVIEW

Distribution

AGENCY

AIA’s proprietary tied agency network is our core distribution platform and accounted for 71 per cent of the Group’s total VONB in the first half of 2018. The professional advice and high-quality service provided by our agents enable AIA to partner with our customers over their lifetimes. Through these relationships, our agents help customers make informed choices from our comprehensive range of products and services. Regular and personalised interaction with customers is a key component of how we fulfil our brand promise to help people across the Asia-Pacific region live healthier, longer, better lives.

Disciplined execution of AIA’s Premier Agency strategy continued to drive sustainable VONB growth. In the first half of 2018, agency VONB grew by 27 per cent to US$1,457 million. ANP increased by 18 per cent to US$2,062 million with a higher VONB margin of 70.6 per cent.

Building on our track record of success, we remained focused on enhancing the quality and capabilities of our Premier Agency in the first half of 2018. We raised minimum performance standards across all our markets and strengthened our best-in-class recruitment and training programmes to further differentiate our agents. This relentless focus on quality contributed to higher active agent productivity compared with the first half of 2017.

We continued to expand the functionality of our digital platforms. These investments enable our agents to more efficiently and effectively identify and meet our customers’ changing needs throughout their lifetimes. We are integrating AIA’s in-house data analytics capabilities and propensity models with our mobile-enabled agency support apps. This provides our agents with a real-time view of their customers’ policies and notifies them of events such as a claim or a change in personal circumstances. These digital tools and services are widely used by our agents with more than 90 per cent of total cases across the Group issued through our digital interactive Point of Sale (iPoS) platform in June 2018.

Our focus on agent professionalism is reflected in our number of Million Dollar Round Table (MDRT) registered members. In 2018, AIA became the first multinational company to achieve the largest number of MDRT registered members for four consecutive years, and we now have more than 10,000 MDRT registered members across the Group.

20

PARTNERSHIPS

AIA’s partnership business is complementary to our agency distribution. These relationships provide us with broader access to potential customers across the Asia-Pacific region. As the middle-class populations continue to expand in the markets where we operate, the extensive nationwide reach of our partnerships helps us to meet the diverse and evolving purchasing preferences of our customers.

VONB from partnerships was US$583 million in the first half of 2018, representing a reduction of 4 per cent due to the exceptionally strong performance in Hong Kong’s retail IFA channel in the first half of 2017, as previously highlighted. VONB margin remained strong at 48.9 per cent, while ANP was lower at US$1,190 million. Partnerships accounted for 29 per cent of the Group’s total VONB in the first half of 2018.

Our intermediated channels, including IFAs, brokers, private banks and specialist advisers, reported lower VONB compared with the first half of 2017. We continue to realign our propositions and service support model to differentiate AIA and meet the needs of our partners’ customers while driving long-term sustainable growth.

Our bancassurance partnerships delivered strong double-digit growth in VONB in the first half of 2018. This success was underpinned by our excellent progress in improving the productivity of in-branch insurance specialists through greater integration with our partners’ financial advisory processes, the introduction of analytics-enhanced digital leads generation and customised sales management programmes. We have also delivered an increasing level of engagement with bank customers where we have embedded AIA Vitality into our products. We launched our strategic partnership with Bangkok Bank Public Company Limited (Bangkok Bank) in Thailand in March 2018.

VONB growth in our direct channel benefited from continued strong growth momentum in Korea, which was driven by the successful execution of our strategy in product propositions, promotional campaigns and expansion of sponsor partnerships.

21

Customer Engagement and Marketing

Strengthening customer engagement and offering products and services that are tailored to meet an individual’s specific needs are important strategic priorities for AIA. Our enriched customer data and the application of advanced propensity models, combined with our leading distribution capabilities, help to make this possible. These enhancements to how AIA collects and analyses customer data have enabled us to generate meaningful insights for our agents and distribution partners that enable them to offer the most relevant propositions to our customers. Pilot campaigns using these tools have demonstrated early signs of success. For example, one such customer campaign run by our Thailand business in the first half of 2018 saw a doubling of the repurchase rate for targeted customer segments.

Membership of our wellness programmes has nearly trebled over the last 12 months to close to 1 million members, with participants of AIA Vitality and AIA China’s wellness programme now able to enjoy a broader range of positive and rewarding experiences. User activity on our mobile and web-enabled apps continues to grow, allowing AIA to engage with our customers on a regular basis to influence changes in behaviour and promote positive health outcomes. On average, our wellness programme members exercised once every two days in the first half of 2018 compared with once every five days in 2017.

To ensure that the AIA brand continues to resonate with our customers as their lifestyles and financial needs evolve, we launched a new brand promise in the first half of 2018: helping people live healthier, longer, better lives. This promise captures important aspects of the value that we offer to our customers and features prominently in our marketing and branding activities across the Group.

AIA’s Global Ambassador David Beckham continued to promote AIA’s brand promise around healthy living. The video of our global #WhatsYourWhy social media campaign featuring David has generated over 40 million online views. The campaign engaged with thousands of people across Asia, who each shared their motivation for wanting to live a healthier life.

Our long-term partnership with Tottenham Hotspur also supported the launch of our new brand promise. In the first half of 2018, elite coaches from the club hosted football festivals for children in Thailand, Indonesia, Cambodia, Hong Kong and Vietnam that attracted thousands of families to attend. These festivals are one of many company-driven initiatives to give back to the communities in which we operate through promoting the importance of a healthy lifestyle including nutritional balance and regular exercise.

In Hong Kong, AIA continued to sponsor the Hong Kong Observation Wheel at the iconic Central Harbourfront. In just over six months since AIA became the exclusive Principal Sponsor in December 2017, the Observation Wheel has hosted more than 15,000 charity guests and celebrated its one millionth visitor.

22

Employee and Community Engagement

EMPLOYEE ENGAGEMENT

At AIA we believe that our people represent our most valuable resource. We are dedicated to creating an engaging and enriching environment that will help us continue to attract outstanding people and allow them to develop and excel. Our commitment to attracting, developing and retaining the best people is underpinned by a culture of supporting people and rewarding performance.

To help achieve our vision to be the world’s pre-eminent life insurance provider, we continue to expand participation in the AIA Leadership Centre (ALC) in Bangkok. The ALC provides bespoke leadership and development programmes designed to enhance the skills and knowledge of our senior executives, emerging leaders, distribution managers and technical leaders. The ALC plays an important role in equipping leaders to drive AIA’s business strategy, which is guided by our Strategic Framework and Operating Philosophy of “Doing the Right Thing, in the Right Way, with the Right People… the Right Results will come”. Since opening in 2016, there have been more than 14,000 visits by senior executives, subsidiary board members, emerging leaders from the Group Office and the business units, as well as agency leaders and bank partners have attended programmes, events, meetings and conferences at the ALC.

Career Mobility remains an important tool in supporting people development at all levels of the Group. We actively facilitate the mobility of our people through deployment to various AIA locations and functions to provide a range of experiences and deepen learning.

We provide our employees with a comprehensive total rewards programme that supports the attraction, retention and engagement of the very best people in the industry. The Company’s short-term and long-term incentive programmes are designed to balance the achievement of both near-term and longer-term initiatives to generate the best possible outcomes for our customers and sustainable value for our shareholders. These programmes are reviewed annually and are subject to dialogue between the Board Risk Committee and Remuneration Committee. All of our recognition and benefit programmes are assessed regularly to ensure they remain competitive and aligned with our long-term stakeholder interests, while remaining compliant with all applicable regulations.

An important component of our total rewards programme is the Employee Share Purchase Plan (ESPP) which is designed to encourage employees to become AIA shareholders, further aligning the interests of our more than 21,000 employees with those of our shareholders.

Sustaining the growth and success of our business necessitates the effective engagement and motivation of employees throughout the organisation. Every year, we conduct the Gallup Q[12] Survey, an independent survey which we use to measure employee engagement. The most recent survey findings resulted in AIA winning the Gallup Great Workplace Award for 2018. The award is one of Gallup’s highest honour which recognises global organisations across different industries that achieve exceptional performance by fostering a culture of engagement.

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CORPORATE SOCIAL RESPONSIBILITY (CSR)

AIA’s business is underpinned by a promise to help our customers and indeed all of our stakeholders to live healthier, longer, better lives. We believe we can make a significant difference through the products we provide, the investments we make and the community initiatives we support.

Our CSR programme reflects our focus on healthier, longer, better lives. In practice, it enables AIA to support a diverse array of initiatives that promote healthy living and well-being while inspiring those in our local communities to embrace a healthy and active lifestyle from every age.

In Jakarta nearly 1,000 children took part in our first “Football for the Nation” event. AIA donated 10,000 footballs to schools across Indonesia with the aim of promoting sport among local children. As part of AIA’s Health Fest initiative in Indonesia, we also invited 100 health-focused key opinion leaders from around the country to encourage conversations about health with the aim of reaching young, digitally savvy people on the topic. AIA’s Global Ambassador David Beckham spoke at the event about the importance of pursuing healthy goals at every stage of life.

In Thailand, AIA launched its latest “AIA Operation Smile” project which helps to raise money and offer support for a hospital dedicated to patients with facial deformities and other physical ailments. This is the 14th year AIA has run the project, improving the lives of an estimated 2,400 patients to date.

Philam Life’s CSR arm, the Philam Foundation, collaborated with other organisations to support the building of seven new classrooms in three separate schools across the province of Bukidnon in the Philippines. Each classroom can accommodate 50 students and is equipped with necessary learning equipment, electricity and sanitation facilities. Philam Life has so far constructed a total of 137 classrooms around the country.

24

Geographical Markets

HONG KONG

HONG KONG
US$ millions, unless otherwise stated	Six months ended 30 June 2018 Six months ended 30 June 2017	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	796 723 62.2% 49.2% 1,252 1,434 5,075 4,275 922 821	10% 10% 13.0 pps 13.0 pps (13)% (13)% 19% 19% 12% 12%

Financial Highlights

AIA Hong Kong delivered 10 per cent growth in VONB to US$796 million, building on an exceptionally strong performance in the first half of 2017. The excellent growth in our proprietary agency business was partly offset by lower volumes in the retail IFA channel. Sales of higher-margin products resulted in lower ANP of US$1,252 million but with an increased VONB margin of 62.2 per cent. IFRS operating profit after tax grew by 12 per cent to US$922 million, reflecting growth in our underlying business as well as an improvement in claims experience, partly offset by a shift in product mix towards participating business.

Business Highlights

Our disciplined execution of AIA’s Premier Agency strategy delivered very strong double-digit VONB growth for our agency business. AIA Hong Kong continues to attract and train high-calibre agents through the AIA Premier Academy, a comprehensive recruitment and training platform that identifies and develops future MDRT agents and Premier Agency leaders. We also support our highly-productive agency force with a broad suite of digital tools that covers training, point-of-sale and servicing, which enables our agents to better connect and engage with their customers.

AIA’s long-term strategic partnership with Citibank, N.A. (Citibank) generated excellent double-digit growth in VONB, driven by higher levels of productivity as we continued to proactively support the bank’s relationship managers and insurance specialists in meeting their customers’ protection needs. VONB from the retail IFA channel was lower following an exceptional performance in the first half of 2017, as previously highlighted. We continue to drive further differentiation through enhancing our customer propositions and the training and sales support that we offer to our partners.

AIA Hong Kong continued to invest in deploying innovative technology and digital tools that make a material difference to customer experience and support our agents in providing tailored, professional advice. In March 2018, we launched AIA Connect, a mobile application that enables our customers to manage their individual life policies, group insurance policies, mandatory provident fund (MPF) accounts and AIA Vitality membership through a single portal. In June 2018, AIA Hong Kong also launched AIA iShop, our first online insurance purchase platform.

We continue to actively engage with existing customers and are committed to helping them meet their protection and long-term savings needs at every stage of their lives. Our initiatives to more closely engage with customers and to equip our agents with best-in-class digital tools delivered an increase of more than 30 per cent in VONB from our existing customers in the first half of 2018. Membership of AIA Vitality, our comprehensive science backed wellness programme, in Hong Kong increased by more than 60 per cent over the last 12 months.

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THAILAND

THAILAND
US$ millions, unless otherwise stated	Six months ended 30 June 2018 Six months ended 30 June 2017	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	204 179 71.0% 75.3% 287 237 1,803 1,571 496 423	5% 14% (4.4) pps (4.3) pps 11% 21% 5% 15% 7% 17%

Financial Highlights

AIA Thailand delivered 5 per cent VONB growth to US$204 million in the first half of 2018, driven by stronger sales momentum. ANP grew by 11 per cent to US$287 million, with regular premium business accounting for more than 95 per cent of ANP as we maintained our focus on providing long-term protection and savings solutions. IFRS operating profit after tax increased by 7 per cent to US$496 million as a result of underlying business growth.

Business Highlights

As part of our Premier Agency strategy, we continued to enhance and expand our Financial Adviser programme to drive the transformation of our agency force in Thailand and attract young high-calibre individuals to full-time, professional careers with AIA. In the first half of 2018, we delivered doubledigit growth in new recruits to this programme and ANP from Financial Advisers grew by more than 30 per cent. Our number of registered MDRT members across the Thailand agency force increased by 48 per cent, demonstrating the enhanced quality of our agency. We continue to strictly apply minimum performance standards to reduce the numbers of less productive agents.

In October 2017, we announced that AIA Thailand had entered into a 15-year strategic bancassurance partnership with Bangkok Bank; the largest bank in Thailand by total assets with more than 16 million customer accounts. The partnership was officially launched in March 2018, and we focused on recruiting and training Bangkok Bank’s in-branch insurance specialists in the second quarter of 2018 to lay the foundations for supporting future growth.

We continued to offer a wide range of products targeted towards meeting the needs of the emerging affluent and high net worth market in Thailand and maintained our leadership in the group insurance market. Membership of AIA Vitality in Thailand more than trebled over the last 12 months.

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SINGAPORE

SINGAPORE
US$ millions, unless otherwise stated	Six months ended 30 June 2018 Six months ended 30 June 2017	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	178 138 61.4% 71.1% 290 194 1,392 1,172 273 240	22% 29% (9.7) pps (9.7) pps 42% 49% 12% 19% 9% 14%

Financial Highlights

AIA Singapore delivered very strong VONB growth in the first half of 2018, with an increase of 22 per cent to US$178 million. ANP grew by 42 per cent to US$290 million from strong sales in both agency and partnership distribution. VONB margin was strong at 61.4 per cent, but reduced due to lower profitability from our HealthShield business and a shift in product mix. IFRS operating profit after tax increased by 9 per cent to US$273 million.

Business Highlights

AIA Singapore’s market-leading agency force delivered very strong double-digit VONB growth with a focus on regular premium protection business. We continued to develop our professional, full-time agents and supplemented our recruitment and training programmes with innovative digital tools designed to enhance agency productivity. In the first half, we launched iConnect, which is a new mobile application that is integrated with our propensity models and helps agents to better engage with customers and tailor their advice to the needs of customers within their portfolio. Our focus on agency development has led to a 17 per cent increase in the number of active agents and a doubledigit growth in agent productivity compared with the first half of 2017.

AIA Singapore’s strategic partnership with Citibank generated excellent double-digit VONB growth through our sustained focus on enhancing the productivity of the bank’s sales force and meeting the protection needs of its customers. Growth in the partnership was also supported by higher direct sales of simplified protection solutions to Citibank’s credit card customer base.

Our commitment to delivering quality healthcare for our customers was reinforced by the launch of our exclusive partnership with Medix, the first-of-its-kind personal medical case management services in Singapore. We also increased the number of participating hospitals and expanded our AIA Quality Healthcare Partners network to provide our customers with greater flexibility when choosing the most suitable healthcare provider.

We also continued to enhance our AIA Vitality wellness programme by expanding its integration across our product suite. VONB from AIA Vitality integrated products grew by 57 per cent compared with the first half of 2017, while membership of AIA Vitality more than doubled over the last 12 months.

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MALAYSIA

MALAYSIA
US$ millions, unless otherwise stated	Six months ended 30 June 2018 Six months ended 30 June 2017	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	124 106 60.3% 62.3% 204 169 1,047 882 158 118	5% 17% (1.9) pps (2.0) pps 8% 21% 7% 19% 19% 34%

Financial Highlights

AIA Malaysia reported 5 per cent growth in VONB to US$124 million in the first half of 2018. Following a strong first quarter, new business performance was affected in the second quarter by reduced consumer activity relating to Malaysia’s general election and ahead of changes to Goods and Services Tax (GST). ANP increased by 8 per cent to US$204 million, which was partially offset by a lower VONB margin of 60.3 per cent. IFRS operating profit after tax increased by 19 per cent to US$158 million, driven by improved claims and lapse experience compared with the first half of 2017.

Business Highlights

Our strategic priorities for agency distribution remained focused on quality recruitment and productivity enhancement. The Balanced Scorecard requirements imposed by the government on remuneration for insurance agents became effective in January 2018, and AIA Malaysia’s Premier Agency model has ensured a smooth and successful transition to the new system.

AIA Malaysia continued to roll out initiatives aimed at improving agent productivity, including new apps on our digital platform. In the first half of 2018, we launched the AIA Life Planner App, which enables our agents to serve customers more efficiently with real-time updates on customer information and policy status. Usage of the app has reached 69 per cent within the first six months since launch. AIA Malaysia’s agency recruitment programme has continued to drive quality recruitment, supported by the new AIA Recruiter App for agency leaders. We delivered double-digit growth in active Takaful-producing agents, which contributed to growth in our Takaful business. Low levels of insurance cover for the Malay population in Malaysia continue to offer significant growth opportunities with attractive new business returns although VONB margin is lower than conventional business.

Bancassurance delivered double-digit VONB growth as we worked closely with Public Bank on increasing the life insurance penetration of its customer base. In the first half of 2018, we upgraded our high sum assured regular premium unit-linked product tailored for the bank’s customers, which contributed to a double-digit increase in average case size for the Public Bank partnership.

AIA is the clear leader in Malaysia’s group insurance market. We delivered double-digit VONB growth with increased volume from existing clients and several new cases from large corporate accounts.

AIA Vitality continues to differentiate our insurance proposition from other industry participants and improve customer engagement. Membership of the programme increased by close to 50 per cent over the last 12 months.

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CHINA

CHINA
US$ millions, unless otherwise stated	Six months ended 30 June 2018 Six months ended 30 June 2017	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	556 377 91.0% 88.2% 611 428 2,076 1,467 436 294	37% 47% 2.8 pps 2.8 pps 32% 43% 31% 42% 37% 48%

Financial Highlights

In the first half of 2018, AIA China was our fastest-growing operating segment with VONB growth of 37 per cent to US$556 million. ANP grew by 32 per cent to US$611 million as we maintained our focus on quality recruitment and the ongoing enhancement of agent productivity. VONB margin remained very strong at 91.0 per cent, reflecting our focus on regular premium protection products. IFRS operating profit after tax increased by 37 per cent to US$436 million, in line with the growth in business and reflecting our high-quality sources of earnings.

Business Highlights

AIA China’s digital platform provides our agents with a comprehensive suite of tools to enable all aspects of their roles including recruitment, training, advice and service. In the first half of 2018 we launched a new tool, Master Planner, that supports our agency leaders to manage their teams in a more systematic and effective way, including new agent development, performance evaluation and business planning activities. Combined with our quality recruitment and training programmes, these digital tools have helped to deliver a significant increase in active new agent productivity compared with the first half of 2017. AIA China reported 31 per cent growth in registered MDRT members, clearly demonstrating the consistent execution of our Premier Agency strategy.

AIA China maintained its strong position in the protection market, with traditional protection business accounting for 86 per cent of VONB. We upgraded our flagship product, All-in-One, to tailor it to the specific needs of various customer segments with enriched features. We also launched a new long-term savings product that addresses the needs of the high net worth segment for retirement planning, asset allocation and wealth management.

Our wellness programme that was launched in March 2017 continued to be a key differentiator for AIA’s customer proposition in China. Membership of the wellness programme grew by more than 60 per cent since the start of the year and has increased by nearly five times over the last 12 months. In May 2018, we formed a long-term strategic partnership with WeDoctor, China’s leading technology-enabled healthcare solution platform. WeDoctor’s more than 110 million registered customers will be offered our market-leading protection solutions in the areas where AIA China operates, while AIA’s customers gained preferred access to WeDoctor’s leading healthcare services across the nation.

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OTHER MARKETS

OTHER MARKETS
US$ millions, unless otherwise stated	Six months ended 30 June 2018 Six months ended 30 June 2017	YoY CER YoY AER
VONB(1) VONB margin(2) ANP TWPI Operating profit after tax	201 185 32.8% 41.2% 608 444 3,036 2,807 393 337	7% 9% (8.6) pps (8.4) pps 36% 37% 6% 8% 16% 17%

AIA’s Other Markets include Australia (including New Zealand), Cambodia, Indonesia, Korea, the Philippines, Sri Lanka, Taiwan, Vietnam and India.

The financial results from our 49 per cent shareholding in Tata AIA, our joint venture with the Tata Group in India, are accounted for using the equity method. For clarity, TWPI, ANP and VONB exclude any contribution from India.

Financial Highlights

Other Markets reported 7 per cent VONB growth in the first half of 2018, building on the very strong growth last year. ANP grew by 36 per cent to US$608 million and VONB margin reduced to 32.8 per cent. The reported results for Other Markets were affected by the uneven timing of large group insurance schemes in Australia. VONB growth of Other Markets was 18 per cent, excluding the impact of these large group schemes. IFRS operating profit after tax increased by 16 per cent to US$393 million.

Business Highlights

Australia: AIA Australia delivered a solid underlying performance in the first half of 2018 with the retail IFA business reporting double-digit VONB growth. We maintained our new business leadership position in the retail IFA channel as AIA Vitality remained a key differentiator for AIA in the market. Our group insurance business continued to make good progress by securing a new large scheme in March 2018, that will largely be reflected in the second-half VONB results.

In July 2018, we completed the acquisition of Sovereign Assurance Company Limited (Sovereign), which includes a 20-year strategic bancassurance partnership with ASB Bank Limited (ASB) in New Zealand. We continue to work with Commonwealth Bank of Australia (CBA) on completing our acquisition of the bank’s Australian life insurance business and the associated 20-year strategic partnership with CBA in Australia.

Cambodia: AIA’s Cambodian business continued to build momentum and increase scale since its official launch in May 2017. Our multi-channel distribution strategy remained focused on growing a full-time, professional agency and developing bancassurance partnerships. In the first half of 2018, we expanded our customer reach to include the affluent customer base of Cambodian Public Bank, which is a wholly-owned subsidiary of Public Bank Berhad in Malaysia.

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Indonesia: AIA’s agency business in Indonesia delivered double-digit VONB growth, driven by higher agent activity and productivity. Our quality recruitment programme in Indonesia contributed to a double-digit increase in the number of active new agents, with a strong focus on training our agents to meet the increasingly sophisticated financial protection needs of the rapidly growing middle-class population in Indonesia. The extension of our partnership with Bank Central Asia (BCA) has broadened our access to the bank’s customer base. In the first half of 2018, we delivered strong sales momentum with BCA, driven by an increase in the number of active in-branch insurance specialists.

Korea: AIA Korea reported strong VONB growth in the first half of 2018. Our direct channel delivered an excellent performance as we engaged our sponsors for more telemarketing leads and recorded a double-digit increase in the number of our telesales representatives. We also made good progress in developing our new strategic partnership with SK Telecom, the leading telecommunications service provider in Korea that has approximately 30 million customers.

Philippines: Our business in the Philippines delivered a double-digit increase in VONB, with growth across both agency and bancassurance channels. We increased our focus on quality recruitment in the first half of 2018, leading to an increase in the number of active new agents. Our joint venture with the Bank of the Philippine Islands (BPI) delivered excellent VONB growth as we continued to support the bank’s initiatives to improve the quality of our in-branch insurance specialists, which resulted in a higher number of active insurance specialists and a positive shift in product mix.

Sri Lanka: Our Sri Lankan business delivered double-digit ANP growth in the first half of 2018, driven by improved agency recruitment, strong performance of our key bank partners and the launch of new protection and retirement savings solutions. However, VONB was impacted by a change in tax regulations that took effect in April 2018.

Taiwan: AIA Taiwan achieved excellent double-digit VONB growth in the first half of 2018. Strong sales growth in both the IFA and bancassurance channels was driven by our insurance solutions which are targeted towards meeting customer needs for retirement and legacy planning.

Vietnam: AIA Vietnam’s business reported double-digit VONB growth in the first half of 2018. Our sustained focus on the professional development of our agency force resulted in improved productivity and higher VONB. Partnership distribution achieved excellent growth, driven by the successful launch of our exclusive partnership with Vietnam Prosperity Joint-Stock Commercial Bank (VPBank) and higher production from our other bank partners. In the first half of 2018, we broadened our product portfolio with a first-to-market whole-life critical illness product and a diabetes protection product to meet our customers’ needs for long-term protection solutions.

Notes:

Throughout the Distribution section:

VONB and VONB margin by distribution channel are based on local statutory reserving and capital requirements and exclude pension business.

Throughout the Geographical Markets section:

(1) VONB figures shown in the tables are based on local statutory reserving and capital requirements and include pension business.

(2) VONB margin excludes pension business to be consistent with the definition of ANP used within the calculation.

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RISK MANAGEMENT

The Group recognises the importance of sound risk management in every aspect of our business and for all our stakeholders. For our policyholders it provides the security of knowing that we will always be there for them. For investors it is key to protecting and enhancing the long-term value of their investment. Finally, for regulators it supports industry growth and enhances the public’s trust in the industry.

While effective risk management is vital to any organisation, it goes to the core of a life insurance business where it is a fundamental driver of value. The Group’s Risk Management Framework (RMF) does not seek to eliminate all risks but rather to identify, understand and manage them within acceptable limits in order to support the creation of long-term value.

The Group’s RMF is built around developing an appropriate and mindful risk culture at every level of the organisation in support of our strategic objectives. It provides business units with appropriate tools, processes and capabilities for the identification, assessment and, where required, escalation of identified material risks for further evaluation.

The Group’s RMF consists of the following key components:

• Risk Culture;

• Risk Management Process;

• Risk Governance;

• Risk Appetite; and

• Risk Landscape.

The Group’s RMF is described on pages 50 to 60 and note 36 to the financial statements on pages 219 to 226 of the Company’s Annual Report 2017.

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CORPORATE GOVERNANCE

COMPLIANCE WITH CORPORATE GOVERNANCE CODE

Throughout the seven months ended 30 June 2018, the Company complied with all applicable code provisions set out in the Corporate Governance Code.

COMPLIANCE WITH MODEL CODE

The Company has adopted its own Directors’ and Chief Executives’ Dealing Policy (Dealing Policy) on terms no less exacting than those set out in the Model Code in respect of dealings by the Directors in the securities of the Company. All of the Directors confirmed, following specific enquiry by the Company, that they have complied with the required standards set out in the Model Code and the Dealing Policy throughout the seven months ended 30 June 2018.

CHANGES IN DIRECTORS’ INFORMATION

Changes in the Directors’ information which are required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules are set out below:

Name of Director	Change(s)
Mr. Jack Chak-Kwong So	• Ceased to act as a member of the Chinese People’s Political Consultative Conference with effect from 1 March 2018. • Appointed as a non-official member of the Chief Executive’s Council of Advisers on Innovation and Strategic Development with effect from 21 March 2018.
Mr. George Yong-Boon Yeo	• Appointed as a senior advisor to Brunswick Group LLP with effect from 1 March 2018. • Appointed as an independent director of Pinduoduo Inc. (listed on the Nasdaq Global Select Market) with effect from 25 July2018.
Professor Lawrence Juen-Yee Lau	• Ceased to act as a member of the 12th National Committee of the Chinese People’s Political Consultative Conference and the Vice-Chairman of its Sub-committee of Economics with effect from 1 March 2018. • Appointed as an independent non-executive director of Semiconductor Manufacturing International Corporation (listed on the Hong Kong Stock Exchange and the New York Stock Exchange)with effect from 22 June 2018.
Mr. Chung-Kong Chow	• Appointed as a non-official member of the Human Resources Planning Commission of the HKSAR Government with effect from 1 April 2018. • Retired from the position of the Chairman of Hong Kong Exchanges and Clearing Limited (listed on the Hong Kong Stock Exchange)with effect from 25 April 2018.
Mr. Cesar Velasquez Purisima	• Appointed as an independent director of Ayala Land, Inc. (listed on The Philippine Stock Exchange, Inc.) with effect from 18 April 2018. • Appointed as an independent director of Universal Robina Corporation (listed on The Philippine Stock Exchange, Inc.) with effect from 30 May 2018. • Appointed as a member of the Global Advisory Council of Sumitomo Mitsui Banking Corporation with effect from 1 July2018.
Mr. Mohamed Azman Yahya	• Retired from the board of Khazanah Nasional Berhad with effect from 31 July2018.
Ms. Swee-Lian Teo	• Ceased to be a member of Corporate Governance Council of the Monetary Authority of Singapore with effect from 6 August 2018. • Appointed as a director of Clifford Capital Pte. Ltd. with effect from 10 August 2018.

Directors’ biographies are available on the Company’s website.

Save as disclosed above, no other information is required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules.

Reference is made to the particulars of two ongoing investigations involving Mr. Cesar Velasquez Purisima as set out on pages 25 to 26 of the circular of the Company dated 22 March 2018. Mr. Purisima had informed the Company that (i) the complaint filed with the Office of the Ombudsman of the Philippines for alleged conspiracy to award maintenance contracts of the Metro Rail Transit Line 3 to favoured contractors; and (ii) the complaint filed before the Office of the City Prosecutor, Davao City, Philippines alleging that the Philippines Deposit Insurance Corporation engaged in criminal deception, had both been dismissed against him.

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DIRECTORS’ AND THE CHIEF EXECUTIVE’S INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES

As at 30 June 2018, the Directors’ and the Chief Executive’s interests and short positions in the shares, underlying shares and debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code, are as follows:

Interests in the shares and underlying shares of the Company:

Name of Director

Number of shares or underlying shares Long Position (L) Class Percentage of the total number of shares in issue(1) Capacity

Mr. Ng Keng Hooi Mr. Edmund Sze-Wing Tse Mr. Chung-Kong Chow Mr. Jack Chak-Kwong So Mr. John Barrie Harrison Mr. George Yong-Boon Yeo Professor Lawrence Juen-Yee Lau

7,900,122 (L)(2) 61,200 (L)(3) Ordinary Ordinary 0.07 ﹤0.01 Beneficial owner Interest of spouse(4) 3,560,400 (L)(3) Ordinary 0.03 Beneficial owner 86,000 (L)(3) Ordinary ﹤0.01 Beneficial owner 260,000 (L)(3) Ordinary ﹤0.01 Interest of controlled corporation(5) 75,000 (L)(3) Ordinary ﹤0.01 Beneficial owner 100,000 (L)(3) Ordinary ﹤0.01 Beneficial owner 60,000 (L)(3) 100,000 (L)(3) Ordinary Ordinary ﹤0.01 ﹤0.01 Beneficial owner Interest of spouse(6)

Notes:

(1) Based on 12,076,208,684 shares in issue as at 30 June 2018.

(2) The interests included 2,347,324 shares, 4,309,630 share options under the Share Option Scheme (SO Scheme), 1,240,152 restricted share units under the Restricted Share Unit Scheme (RSU Scheme) and 3,016 matching RSPUs under the ESPP.

(3) The interests were shares of the Company.

• (4) The 61,200 shares were held by Ms. Leong Seet Lan, the spouse of Mr. Ng Keng Hooi, as beneficial owner.

(5) The 260,000 shares were held by Cyber Project Developments Limited, a company beneficially wholly owned by Mr. Jack Chak-Kwong So.

• (6) The 100,000 shares were held by Ms. Ayesha Abbas Macpherson, the spouse of Professor Lawrence Juen-Yee Lau, as beneficial owner.

Save as disclosed above, as at 30 June 2018, neither any Director nor the Chief Executive of the Company had any interest or short position in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO, or as otherwise notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.

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INTERESTS AND SHORT POSITIONS IN SHARES AND UNDERLYING SHARES OF PERSONS OTHER THAN THE DIRECTORS OR THE CHIEF EXECUTIVE

As at 30 June 2018, the following persons, other than the Directors or the Chief Executive of the Company, had interests and short positions in the shares and underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO:

Name of Shareholder

Number of shares or underlying shares (Note 1) Long Position (L) Short Position (S) Lending Pool (P) Class Percentage of the total number of shares in issue (Note 2) Long Position (L) Short Position (S) Lending Pool (P) Capacity

JPMorgan Chase & Co. The Capital Group Companies, Inc. The Bank of New York Mellon Corporation Citigroup Inc. BlackRock, Inc.

1,088,254,932 (L) 19,556,741 (S) 737,449,866 (P) Ordinary 9.01 (L) 0.16 (S) 6.11 (P) Note 3 984,372,860 (L) Ordinary 8.15 (L) Interest of controlled corporations 751,880,605 (L) 709,200,742 (P) Ordinary 6.23 (L) 5.87 (P) Interest of controlled corporation – 624,117,422 (L) 1,153,224 (S) 605,938,943 (P) Ordinary 5.17 (L) 0.01 (S) 5.02 (P) Note 4 604,419,448 (L) 4,404,600 (S) Ordinary 5.01 (L) 0.04 (S) Interest of controlled corporations

Notes:

(1) The interests and short positions included underlying shares as follows:

Name of Shareholder		Long Position	Short Position
		Physically settled listed equity derivatives Cash settled listed equity derivatives Physically settled unlisted equity derivatives Cash settled unlisted equity derivatives	Physically settled listed equity derivatives Cash settled listed equity derivatives Physically settled unlisted equity derivatives Cash settled unlisted equity derivatives
JPMorgan Chase & Co. The Capital Group Companies, Inc. Citigroup Inc. BlackRock, Inc.		4,623,648 1,556,000 491,200 6,687,175 – – 3,593,080 – 4,434,900 – 859,022 7,800 – – – 281,400	1,082,000 10,685,300 1,725,066 5,889,375 – – – – – – 859,022 294,201 – – – 3,238,000

• (2) Based on 12,076,208,684 shares in issue as at 30 June 2018.

• (3) JPMorgan Chase & Co. held the interests and short positions in the following capacities:

Capacity	Number of shares or underlying shares Number of shares or underlying shares (Long Position) (Short Position)
Beneficial owner Investment manager Trustee (other than a bare trustee) Custodian corporation/approved lending agent	100,979,108 19,556,741 249,550,900 – 275,058 – 737,449,866 –

35

(4) Citigroup Inc. held the interests and short positions in the following capacities:

Capacity	Number of shares or underlying shares Number of shares or underlying shares (Long Position) (Short Position)
Interest of controlled corporations Approved lending agent	18,178,479 1,153,224 605,938,943 –

Save as disclosed above, as at 30 June 2018, no person, other than the Directors or the Chief Executive of the Company whose interests are set out in the section entitled “Directors’ and the Chief Executive’s Interests and Short Positions in Shares and Underlying Shares”, had any interest or short position in the shares or underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S LISTED SECURITIES

Save for the purchase of 749,578 shares of the Company under the ESPP at a total consideration of approximately US$6 million, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company’s listed securities during the seven months ended 30 June 2018. The share purchases under the ESPP were made by the scheme trustee on the Hong Kong Stock Exchange. These shares are held on trust for the relevant participants of the ESPP and therefore were not cancelled.

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SHARE-BASED COMPENSATION

LONG-TERM INCENTIVE PLANS

The RSU Scheme and the SO Scheme were both adopted by the Company on 28 September 2010 and are effective for a period of 10 years from the date of adoption. For further information regarding these schemes, please refer to pages 111 to 117 of the Company’s 2017 Annual Report. Under these schemes, the Company may award restricted share units and/or share options to employees, Directors (excluding Independent Non-executive Directors) or officers of the Company or any of its subsidiaries.

RSU Scheme

During the seven months ended 30 June 2018, the Company awarded 11,434,382 restricted share units under the RSU Scheme. Since the adoption of the RSU Scheme on 28 September 2010 and up to 30 June 2018, a cumulative total of 74,373,590 restricted share units vested under the RSU Scheme, representing approximately 0.618 per cent of the shares in issue as at the Company’s listing date. No new shares have been issued under the RSU Scheme since its adoption.

For the restricted share units awarded during the seven months ended 30 June 2018, the Company adopted the same performance measures as the restricted share units awarded in the year ended 30 November 2017. As a result of the change in financial year-end, the 2018 restricted share unit award performance measures will be assessed over a three-year period starting 1 January 2018.

The table below summarises the movements in restricted share unit awards.

						Restricted
						share units
				Restricted	Restricted	cancelled/
Group Chief Executive			Restricted	share units	share units	lapsed/
and President,			share units	awarded	vested	reclassified	Restricted
Key Management	Date of	Date of	outstanding	during the	during the	during the	share units
Personnel and other	grant	vesting	as at	seven months	seven months	seven months	outstanding
eligible employees and	(day/month/	(day/month/	1 December	ended	ended	ended	as at
participants	year)(2)	year)(3)	2017	30 June 2018	30 June 2018	30 June 2018(8)	30 June 2018(9)
Group Chief Executive and	12/3/2015	12/3/2018(4)	283,490	–	(272,633)	(10,857)	–
President, Director	9/3/2016	9/3/2019(4)	320,071	–	–	–	320,071
Mr. Ng Keng Hooi	10/3/2017	10/3/2020(4)	267,659	–	–	–	267,659
	31/7/2017	1/6/2020(4)	213,164	–	–	–	213,164
	15/3/2018	15/3/2021(4)	–	439,258	–	–	439,258
Key Management	12/3/2015	12/3/2018(4)	1,284,096	–	(924,739)	(359,357)	–
Personnel (excluding the	1/9/2015	See note(5)	169,688	–	–	–	169,688
Group Chief Executive and	9/3/2016	9/3/2019(4)	1,661,968	–	–	(364,163)	1,297,805
President, Director)	1/8/2016	1/8/2019(4)	41,249	–	–	–	41,249
	10/3/2017	10/3/2020(4)	1,441,875	–	–	(304,526)	1,137,349
	31/7/2017	1/6/2020(4)	311,947	–	–	–	311,947
	15/3/2018	15/3/2021(4)	–	1,070,214	–	–	1,070,214
Other eligible employees	12/3/2015	12/3/2018(4)	10,916,765	–	(10,309,414)	(607,351)	–
and participants(1)	1/9/2015	1/9/2018(4)	20,316	–	–	–	20,316
	9/3/2016	9/3/2019(4)	13,327,726	–	(41,026)	(636,814)	12,649,886
	1/8/2016	1/8/2019(4)	34,621	–	–	–	34,621
	17/10/2016	1/8/2019(6)	101,217	–	–	–	101,217
	17/10/2016	See Note(7)	41,875	–	–	–	41,875
	10/3/2017	10/3/2020(4)	12,134,441	–	(16,648)	(631,117)	11,486,676
	31/7/2017	1/6/2020(4)	28,519	–	–	–	28,519
	15/3/2018	15/3/2021(4)	–	9,815,954	–	(84,968)	9,730,986
	29/6/2018	15/3/2021(4)	–	108,956	–	–	108,956

37

Notes:

• (1) Include restricted share units outstanding as at 1 December 2017 for the retired Group Chief Executive and President, Mr. Mark Edward Tucker.

• (2) The measurement dates (i.e. the dates used to determine the value of the awards for accounting purposes) for awards made during the year ended 30 November 2015 were determined to be 12 March 2015 and 1 September 2015. The measurement dates for awards made during the year ended 30 November 2016 were determined to be 9 March 2016, 1 August 2016 and 17 October 2016. The measurement dates for awards made during the year ended 30 November 2017 were determined to be 10 March 2017 and 31 July 2017. The measurement dates for awards made during the seven months ended 30 June 2018 were determined to be 15 March 2018 and 29 June 2018. These measurement dates were determined in accordance with IFRS 2.

• (3) The date of vesting is subject to applicable dealing restrictions.

• (4) The vesting of these restricted share units is subject to the achievement of performance measures shown on page 112 of the Company’s 2017 Annual Report.

• (5) The vesting of these restricted share units is service-based only (meaning there are no further conditions attached). Three-quarters of restricted share units vested on 1 September 2017 and one-quarter (representing all of the outstanding share units as at 30 June 2018) will vest on 1 September 2018.

• (6) The vesting of these restricted share units is service-based only (meaning there are no further conditions attached). All restricted share units will vest on 1 August 2019.

• (7) The vesting of these restricted share units is service-based only (meaning there are no further conditions attached). One-third of restricted share units vested on 1 August 2017, one-third (representing half of the outstanding restricted share units as at 30 June 2018) will vest on 1 August 2018 and one-third (representing half of the outstanding restricted share units as at 30 June 2018) will vest on 1 August 2019.

• (8) These restricted share units lapsed or were reclassified during the seven months ended 30 June 2018. The reclassification of restricted share units was a result of two executives who were previously categorised as “Key Management Personnel” becoming “Other eligible employees and participants” during this period. There were no cancelled restricted share units during the seven months ended 30 June 2018.

• (9) Include restricted share units outstanding as at 30 June 2018 that, in accordance with the RSU Scheme rules, will lapse on or before the respective vesting date.

38

SO Scheme

During the seven months ended 30 June 2018, the Company awarded 4,439,362 share options under the SO Scheme. Since the adoption of the SO Scheme on 28 September 2010 and up to 30 June 2018, a cumulative total of 28,035,636 new shares were issued under the SO Scheme, representing approximately 0.233 per cent of the shares in issue as at the Company’s listing date. No share options have been awarded to substantial shareholders, or in excess of the individual limit.

Details regarding the valuation of the share options are set out in note 23 to the interim financial statements.

The table below summarises the movements in share option awards.

							Share
							options				Weighted
					Share	Share	cancelled/	Share			average closing
				Share	options	options	lapsed/	options			price of shares
Group Chief Executive and				options	awarded	vested	reclassified	exercised		Share	immediately
President, Key Management	Date of	Period during which		outstanding	during the	during the	during the	during the		options	before the dates
Personnel and other	grant	share	options are	as at	seven months	seven months	seven months	seven months	Exercise	outstanding	on which share
eligible employees and	(day/month/		exercisable	1 December	ended	ended	ended	ended	price	as at	options were
participants	year)(2)	(day/month/year)		2017	30 June 2018	30 June 2018	30 June 2018(14)	30 June 2018	(HK$)	30 June 2018(15)	exercised (HK$)
Group Chief Executive and	5/3/2014	5/3/2017 –	4/3/2024(3)	602,486	–	–	–	–	37.56	602,486	n/a
President, Director	12/3/2015	12/3/2018 –	11/3/2025(4)	541,692	–	541,692	–	–	47.73	541,692	n/a
Mr. Ng Keng Hooi	9/3/2016	9/3/2019 –	8/3/2026(5)	851,026	–	–	–	–	41.90	851,026	n/a
	10/3/2017	10/3/2020 –	9/3/2027(6)	732,574	–	–	–	–	50.30	732,574	n/a
	31/7/2017	1/6/2020 –	30/7/2027(7)	476,786	–	–	–	–	61.55	476,786	n/a
	15/3/2018	15/3/2021 –	14/3/2028(8)	–	1,105,066	–	–	–	67.15	1,105,066	n/a
Key Management Personnel	1/6/2011	1/4/2014 –	31/5/2021(9)	472,746	–	–	–	–	27.35	472,746	n/a
(excluding the Group Chief	1/6/2011	1/4/2014 –	31/5/2021(10)	547,738	–	–	–	–	27.35	547,738	n/a
Executive and President,	15/3/2012	15/3/2015 –	14/3/2022(11)	519,012	–	–	–	–	28.40	519,012	n/a
Director)	11/3/2013	11/3/2016 –	10/3/2023(12)	792,680	–	–	(229,513)	–	34.35	563,167	n/a
	5/3/2014	5/3/2017 –	4/3/2024(3)	941,583	–	–	(277,793)	–	37.56	663,790	n/a
	14/4/2014	14/4/2017 –	13/4/2024(13)	332,282	–	–	–	–	39.45	332,282	n/a
	12/3/2015	12/3/2018 –	11/3/2025(4)	2,035,310	–	1,419,013	(616,297)	(435,169)	47.73	983,844	67.15
	9/3/2016	9/3/2019 –	8/3/2026(5)	3,737,698	–	–	(968,262)	–	41.90	2,769,436	n/a
	10/3/2017	10/3/2020 –	9/3/2027(6)	3,246,812	–	–	(833,479)	–	50.30	2,413,333	n/a
	31/7/2017	1/6/2020 –	30/7/2027(7)	697,732	–	–	–	–	61.55	697,732	n/a
	15/3/2018	15/3/2021 –	14/3/2028(8)	–	2,692,372	–	–	–	67.15	2,692,372	n/a
Other eligible employees	1/6/2011	1/4/2014 –	31/5/2021(9)	668,366	–	–	–	–	27.35	668,366	n/a
and participants(1)	1/6/2011	1/4/2014 –	31/5/2021(10)	631,097	–	–	–	–	27.35	631,097	n/a
	15/3/2012	15/3/2015 –	14/3/2022(11)	755,175	–	–	–	–	28.40	755,175	n/a
	11/3/2013	11/3/2016 –	10/3/2023(12)	672,849	–	–	229,513	–	34.35	902,362	n/a
	5/3/2014	5/3/2017 –	4/3/2024(3)	2,636,920	–	–	277,793	–	37.56	2,914,713	n/a
	12/3/2015	12/3/2018 –	11/3/2025(4)	2,461,745	–	2,670,779	209,034	(65,038)	47.73	2,605,741	68.73
	9/3/2016	9/3/2019 –	8/3/2026(5)	2,988,827	–	–	253,463	–	41.90	3,242,290	n/a
	10/3/2017	10/3/2020 –	9/3/2027(6)	1,769,098	–	–	98,624	–	50.30	1,867,722	n/a
	15/3/2018	15/3/2021 –	14/3/2028(8)	–	641,924	–	–	–	67.15	641,924	n/a

Notes:

• (1) Include share options outstanding as at 1 December 2017 for the retired Group Chief Executive and President, Mr. Mark Edward Tucker.

• (2) The measurement date (i.e. the date used to determine the value of the awards for accounting purposes) for awards made during the year ended 30 November 2011 was determined to be 15 June 2011. The measurement date for awards made during the year ended 30 November 2012 was determined to be 15 March 2012. The measurement date for awards made during the year ended 30 November 2013 was determined to be 11 March 2013. The measurement dates for awards made during the year ended 30 November 2014 were determined to be 5 March 2014 and 14 April 2014. The measurement date for awards made during the year ended 30 November 2015 was determined to be 12 March 2015. The measurement date for awards made during the year ended 30 November 2016 was determined to be 9 March 2016. The measurement dates for awards made during the year ended 30 November 2017 were determined to be 10 March 2017 and 31 July 2017. The measurement date for awards made during the seven months ended 30 June 2018 was determined to be 15 March 2018. These measurement dates were determined in accordance with IFRS 2.

• (3) The vesting of share options is service-based only. All share options vested on 5 March 2017.

• (4) The vesting of share options is service-based only. All share options vested on 12 March 2018.

39

(5) The vesting of share options is service-based only. All share options will vest on 9 March 2019.

• (6) The vesting of share options is service-based only. All share options will vest on 10 March 2020.

(7) The vesting of share options is service-based only. All share options will vest on 1 June 2020.

(8) The closing price of the Company’s shares immediately before the date on which share options were awarded was HK$67.00. The vesting of share options is service-based only. All share options will vest on 15 March 2021.

(9) The vesting of share options is service-based only. All share options vested on 1 April 2014.

(10) The vesting of share options is service-based only. One-third of share options vested on 1 April 2014, one-third vested on 1 April 2015, and one third vested on 1 April 2016.

(11) The vesting of share options is service-based only. All share options vested on 15 March 2015.

• (12) The vesting of share options is service-based only. All share options vested on 11 March 2016.

• (13) The vesting of share options is service-based only. All share options vested on 14 April 2017.

• (14) These share options lapsed or were reclassified during the seven months ended 30 June 2018. The reclassification of share options was a result of two executives who were previously categorised as “Key Management Personnel” becoming “Other eligible employees and participants” during this period. There were no cancelled share options during the seven months ended 30 June 2018.

(15) Include share options outstanding as at 30 June 2018 that, in accordance with the SO Scheme rules, will lapse on or before the end of the respective periods during which the share options are exercisable.

ESPP

The Company adopted the ESPP on 25 July 2011 (ESPP Adoption Date). Under the ESPP, eligible employees of the Group may elect to purchase the Company’s shares and, after having been in the plan for a period of three years, receive one matching share for each two shares purchased through the award of matching RSPU. Each eligible employee’s participation level is capped at a maximum purchase in any plan year of 8 per cent of his or her base salary or HK$9,750 (or local equivalent) per calendar month, whichever is lower. Upon vesting of the matching RSPUs, those employees who are still in employment with the Group will receive one matching share for each RSPU which he or she holds. The matching shares can either be purchased on market by the trustee of the ESPP or provided to recipients through the issuance by the Company of new shares. The aggregate number of shares which can be issued by the Company under the ESPP during the 10-year period shall not exceed 2.5 per cent of the number of shares in issue on the ESPP Adoption Date. No new shares have been issued under the ESPP since its adoption.

During the seven months ended 30 June 2018, 749,580 matching RSPUs were awarded, 28,936 matching RSPUs were vested and no new shares were issued for the RSPUs pursuant to the ESPP. Since the ESPP Adoption Date and up to 30 June 2018, a cumulative total of 2,667,132 matching RSPUs vested under the ESPP, representing approximately 0.022 per cent of the shares in issue as at the ESPP Adoption Date.

AGENCY SHARE PURCHASE PLAN (ASPP)

The Company adopted the ASPP on 23 February 2012 (ASPP Adoption Date). Under the ASPP, certain agents and agency leaders of the Group are selected to participate in the plan. Those agents selected for participation may elect to purchase the Company’s shares and, after having been in the plan for a period of three years, receive one matching share for each two shares purchased through the award of matching RSSUs. Each eligible agent’s participation level is capped at a maximum purchase in any plan year of US$15,000. Upon vesting of the matching RSSUs, those agents who remain with the Group will receive one matching share for each RSSU which he or she holds. The aggregate number of shares which can be issued by the Company under the ASPP during the 10-year period shall not exceed 2.5 per cent of the number of shares in issue on the ASPP Adoption Date.

During the seven months ended 30 June 2018, 742,348 matching RSSUs were awarded, 1,167,021 matching RSSUs were vested, and 1,167,021 new shares (Awarded Shares) were issued for RSSUs vested pursuant to the ASPP. The Awarded Shares were issued at the subscription price of US$1.00 each to Computershare Hong Kong Trustees Limited (being the scheme trustee) to hold the same on trust for certain eligible agents upon vesting of their matching RSSUs. The closing price of the Company’s shares on 27 April 2018 (being the date on which the aforesaid matching RSSUs were vested) was HK$69.00. The proceeds received amounted to approximately US$1.17 million which were used to fund the administration expenses of the ASPP. From the ASPP Adoption Date to 30 June 2018, a cumulative total of 4,173,047 new shares were issued under the ASPP, representing approximately 0.035 per cent of the shares in issue as at the ASPP Adoption Date.

40

INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report on Review of Interim Condensed Consolidated Financial Statements. . . . . . . . . . . . 42
Interim Consolidated Income Statement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Interim Consolidated Statement of Comprehensive Income. . . . . . . . . . . . . . . . . . . . . . . . . . 44
Interim Consolidated Statement of Financial Position. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Interim Consolidated Statement of Changes in Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Interim Condensed Consolidated Statement of Cash Flows. . . . . . . . . . . . . . . . . . . . . . . . . . 49
Notes to the Unaudited Interim Condensed Consolidated Financial Statements. . . . . . . . . 50
1. Corporate information

1. Basis of preparation and statement of compliance

2. Exchange rates 4. Operating profit after tax

3. Total weighted premium income and annualised new premiums

4. Segment information

5. Investment return

6. Expenses

7. Income tax

8. Earnings per share

9. Dividends

10. Intangible assets

11. Financial investments

12. Derivative financial instruments

13. Fair value measurement of financial instruments

14. Cash and cash equivalents

15. Insurance and investment contract liabilities

16. Borrowings

17. Obligations under repurchase agreements

18. Share capital and reserves

19. Group capital structure

20. Risk management

21. Share-based compensation

22. Remuneration of key management personnel

23. Commitments and contingencies

24. Events after the reporting period

25. Supplementary financial information on a calendar year basis

In February 2018, the Board resolved to change the Company’s financial year-end date from 30 November to 31 December. Accordingly, the current financial period-end date of the Company is 31 December 2018. This set of interim condensed consolidated financial statements of the Group adopting the new year-end date is for the seven months ended 30 June 2018 with the comparative figures prepared based on the six months ended 31 May 2017. In conjunction with the change, supplementary financial information on a calendar year basis covering the six months ended 30 June 2018 for the current period and the six months ended 30 June 2017 for the prior period is disclosed in note 27 for comparison purpose.

41

FINANCIAL STATEMENTS

REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TO THE BOARD OF DIRECTORS OF AIA GROUP LIMITED

(incorporated in Hong Kong with limited liability)

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Introduction

We have reviewed the interim condensed consolidated financial statements set out on pages 43 to 110, which comprise the interim consolidated statement of financial position of AIA Group Limited (the “Company”) and its subsidiaries (together, the “Group”) as at 30 June 2018 and the related interim consolidated income statement, interim consolidated statement of comprehensive income, interim consolidated statement of changes in equity and interim condensed consolidated statement of cash flows for the seven-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and Hong Kong Accounting Standard 34 “Interim Financial Reporting” (“HKAS 34”) issued by the Hong Kong Institute of Certified Public Accountants and International Accounting Standard 34 “Interim Financial Reporting” (“IAS 34”) issued by the International Accounting Standards Board. The directors of the Company are responsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with HKAS 34 and IAS 34. Our responsibility is to express a conclusion on these interim condensed consolidated financial statements based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with HKAS 34 and IAS 34.

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PricewaterhouseCoopers Certified Public Accountants

Hong Kong 24 August 2018

42

INTERIM CONSOLIDATED INCOME STATEMENT

Seven months ended 30 June 2018 US$m Notes (Unaudited) Revenue Premiums and fee income 17,511 Premiums ceded to reinsurers (970) Net premiums and fee income 16,541 Investment return 7 2,805 Other operating revenue 145 Total revenue 19,491 Expenses Insurance and investment contract benefits 13,716 Insurance and investment contract benefits ceded (877) Net insurance and investment contract benefits 12,839 Commission and other acquisition expenses 2,113 Operating expenses 1,218 Finance costs 100 Other expenses 395 Total expenses 8 16,665 Profit before share of profit from associates and joint venture 2,826 Share of profit from associates and joint venture – Profit before tax 2,826 Income tax credit/(expense) attributable to policyholders’ returns 26 Profit before tax attributable to shareholders’ profits 2,852 Tax expense 9 (562) Tax attributable to policyholders’ returns (26) Tax expense attributable to shareholders’ profits (588) Net profit 2,264 Net profit attributable to: Shareholders of AIA Group Limited 2,228 Non-controlling interests 36 Earnings per share (US$) Basic 10 0.19 Diluted 10 0.18

Six months ended 31 May 2017 (Unaudited) 12,530 (714) 11,816 6,488 101 18,405 12,610 (619) 11,991 1,606 936 85 278 14,896 3,509 3 3,512 (104) 3,408 (553) 104 (449) 2,959 2,925 34 0.24 0.24

43

INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Seven months ended 30 June 2018 US$m (Unaudited) Net profit 2,264 Other comprehensive income Items that may be reclassified subsequently to profit or loss: Fair value (losses)/gains on available for sale financial assets (net of tax of: seven months ended 30 June 2018: US$131m; six months ended 31 May 2017: US$264m) (4,154) Fair value gains on available for sale financial assets transferred to income on disposal (net of tax of: seven months ended 30 June 2018: US$12m; six months ended 31 May 2017: US$7m) (25) Foreign currency translation adjustments (442) Cash flow hedges – Share of other comprehensive expense from associates and joint venture (25) Subtotal (4,646) Items that will not be reclassified subsequently to profit or loss: Revaluation (losses)/gains on property held for own use (net of tax of: seven months ended 30 June 2018: US$(2)m; six months ended 31 May 2017: US$(6)m) (6) Effect of remeasurement of net liability of defined benefit schemes (net of tax of: seven months ended 30 June 2018: nil; six months ended 31 May 2017: nil) – Subtotal (6) Total other comprehensive (expense)/income (4,652) Total comprehensive (expense)/income (2,388) Total comprehensive (expense)/income attributable to: Shareholders of AIA Group Limited (2,398) Non-controlling interests 10

Six months ended 31 May 2017 (Unaudited) 2,959 882 (51) 470 (11) (33) 1,257 30 (2) 28 1,285 4,244 4,212 32

44

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

US$m Notes Assets Intangible assets 12 Investments in associates and joint venture Property, plant and equipment Investment property Reinsurance assets Deferred acquisition and origination costs Financial investments: 13, 15 Loans and deposits Available for sale Debt securities At fair value through profit or loss Debt securities Equity securities Derivative financial instruments 14 Deferred tax assets Current tax recoverable Other assets Cash and cash equivalents 16 Total assets Liabilities Insurance contract liabilities 17 Investment contract liabilities 17 Borrowings 18 Obligations under repurchase agreements 19 Derivative financial instruments 14 Provisions Deferred tax liabilities Current tax liabilities Other liabilities Total liabilities	As at 30 June 2018 (Unaudited) 1,833 617 1,201 4,720 2,713 23,473 7,611 106,228 26,256 37,657 383 178,135 11 123 4,881 3,013 220,720 156,342 7,943 5,421 1,977 430 202 3,426 536 5,552 181,829	As at 30 November 2017 1,864 642 1,213 4,365 2,481 21,847 7,973 105,466 25,702 36,716 363 176,220 9 131 4,630 2,289 215,691 148,897 8,082 3,958 1,883 361 234 3,595 421 5,888 173,319

45

INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION (continued)

US$m Notes Equity Share capital 20 Employee share-based trusts 20 Other reserves 20 Retained earnings Fair value reserve 20 Foreign currency translation reserve 20 Property revaluation reserve 20 Others Amounts reflected in other comprehensive income Total equity attributable to: Shareholders of AIA Group Limited Non-controlling interests Total equity Total liabilities and equity	As at 30 June 2018 (Unaudited) 14,069 (254) (11,945) 35,175 2,178 (1,213) 521 (25) 1,461 38,506 385 38,891 220,720	As at 30 November 2017 14,065 (297) (11,948) 34,087 6,336 (751) 527 (25) 6,087 41,994 378 42,372 215,691

Approved and authorised for issue by the Board of Directors on 24 August 2018.

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Ng Keng Hooi Director

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Edmund Sze-Wing Tse Director

46

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

US$m Note Balance at 1 December 2017 Net profit Fair value losses on available for sale financial assets Fair value gains on available for sale financial assets transferred to income on disposal Foreign currency translation adjustments Share of other comprehensive income/(expense) from associates and joint venture Revaluation losses on property held for own use Effect of remeasurement of net liability of defined benefit schemes Total comprehensive income/ (expense) for the period Dividends 11 Shares issued under share option scheme and agency share purchase plan Share-based compensation Purchase of shares held by employee share-based trusts Transfer of vested shares from employee share-based trusts Others Balance at 30 June 2018 – Unaudited	Share capital 14,065 – – – – – – – – – 4 – – – – 14,069	Employee share- based trusts (297) – – – – – – – – – – – (7) 50 – (254)	Other reserves (11,948) – – – – – – – – – – 46 – (50) 7 (11,945)	Retained earnings 34,087 2,228 – – – – – – 2,228 (1,140) – – – – – 35,175	Other comprehensive income	Others Non- controlling interests (25) 378 – 36 – (18) – – – (8) – – – – – – – 10 – (3) – – – – – – – – – – (25) 385	Total equity 42,372 2,264 (4,154) (25) (442) (25) (6) –
					Fair value reserve Foreign currency translation reserve Property revaluation reserve 6,336 (751) 527 – – – (4,136) – – (25) – – – (434) – 3 (28) – – – (6) – – – (4,158) (462) (6) – – – – – – – – – – – – – – – – – – 2,178 (1,213) 521
							(2,388)
							(1,143) 4 46 (7) – 7
							38,891

47

INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (continued)

US$m Note Balance at 1 December 2016 Net profit Fair value gains/(losses) on available for sale financial assets Fair value gains on available for sale financial assets transferred to income on disposal Foreign currency translation adjustments Cash flow hedges Share of other comprehensive (expense)/income from associates and joint venture Revaluation gains on property held for own use Effect of remeasurement of net liability of defined benefit schemes Total comprehensive income/ (expense) for the period Dividends 11 Shares issued under share option scheme and agency share purchase plan Share-based compensation Purchase of shares held by employee share-based trusts Transfer of vested shares from employee share-based trusts Capital contributions Others Balance at 31 May 2017 – Unaudited	Share capital 13,998 – – – – – – – – – – 66 – – – – – 14,064	Employee share- based trusts (351) – – – – – – – – – – – – (5) 62 – – (294)	Other reserves (11,954) – – – – – – – – – – – 40 – (62) – (9) (11,985)	Retained earnings 29,334 2,925 – – – – – – – 2,925 (983) – – – – – 9 31,285	Other comprehensive income	Others Non- controlling interests (32) 326 – 34 – (2) – – – – (11) – – – – – (2) – (13) 32 – (1) – – – – – – – – – 4 – – (45) 361	Total equity 35,310 2,959 882 (51) 470 (11) (33) 30 (2)
					Fair value reserve Foreign currency translation reserve Property revaluation reserve 5,352 (1,812) 449 – – – 884 – – (51) – – – 470 – – – – (67) 32 2 – – 30 – – – 766 502 32 – – – – – – – – – – – – – – – – – – – – – 6,118 (1,310) 481
							4,244
							(984) 66 40 (5) – 4 –
							38,675

48

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Seven months ended 30 June 2018 US$m (Unaudited) Cash flows from operating activities Profit before tax 2,826 Adjustments for: Financial investments (7,919) Insurance and investment contract liabilities 6,979 Obligations under repurchase agreements 115 Other non-cash operating items, including investment income and the effect of exchange rate changes on certain operating items (4,846) Operating cash items: Interest received 3,654 Dividends received 448 Interest paid (23) Tax paid (428) Net cash provided by operating activities 806 Cash flows from investing activities Payments for intangible assets (49) Net payments for investment property and property, plant and equipment (89) Contribution to a joint venture – Net cash used in investing activities (138) Cash flows from financing activities Issuance of medium-term notes 991 Redemption of medium-term notes (500) Net proceeds from other borrowings 970 Interest paid on medium-term notes (74) Capital contributions from non-controlling interests – Dividends paid during the period (1,143) Purchase of shares held by employee share-based trusts (7) Shares issued under share option scheme and agency share purchase plan 4 Net cash provided by/(used in) financing activities 241 Net increase/(decrease) in cash and cash equivalents 909 Cash and cash equivalents at beginning of the financial period 1,787 Effect of exchange rate changes on cash and cash equivalents (38) Cash and cash equivalents at end of the financial period 2,658

Six months ended 31 May 2017 (Unaudited) 3,512 (9,595) 6,767 192 (3,342) 2,735 313 (23) (166) 393 (32) (44) (6) (82) 497 – – (62) 4 (984) (5) 66 (484) (173) 1,482 31 1,340

Cash and cash equivalents in the above interim condensed consolidated statement of cash flows can be further analysed as follows:

Note Cash and cash equivalents in the interim consolidated statement of financial position 16 Bank overdrafts Cash and cash equivalents in the interim condensed consolidated statement of cash flows	As at 30 June 2018 (Unaudited) 3,013 (355) 2,658	As at 31 May 2017 (Unaudited) 1,724 (384) 1,340

49

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate information

AIA Group Limited (the “Company”) was established as a company with limited liability incorporated in Hong Kong on 24 August 2009. The address of its registered office is 35/F, AIA Central, No. 1 Connaught Road Central, Hong Kong.

AIA Group Limited is listed on the Main Board of The Stock Exchange of Hong Kong Limited under the stock code “1299” with American Depositary Receipts (Level 1) being traded on the over-the-counter market (ticker symbol: “AAGIY”).

AIA Group Limited and its subsidiaries (collectively “AIA” or the “Group”) is a life insurance based financial services provider operating in 18 markets throughout the Asia-Pacific region. The Group’s principal activity is the writing of life insurance business, providing life insurance, accident and health insurance and savings plans throughout Asia, and distributing related investment and other financial services products to its customers.

2. Basis of preparation and statement of compliance

The interim condensed consolidated financial statements have been prepared in accordance with Hong Kong Accounting Standard (HKAS) 34, Interim Financial Reporting and International Accounting Standard (IAS) 34, Interim Financial Reporting. International Financial Reporting Standards (IFRS) is substantially consistent with Hong Kong Financial Reporting Standards (HKFRS) and the accounting policy selections that the Group has made in preparing these interim condensed consolidated financial statements are such that the Group is able to comply with both HKFRS and IFRS. References to IFRS, IAS and Interpretations developed by the IFRS Interpretations Committee (IFRS IC) in these interim condensed consolidated financial statements should be read as referring to the equivalent HKFRS, HKAS and Hong Kong (IFRIC) Interpretations (HK(IFRIC) – Int) as the case may be. Accordingly, there are no differences of accounting practice between HKFRS and IFRS affecting these interim condensed consolidated financial statements. The interim condensed consolidated financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 30 November 2017. Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

The accounting policies adopted are consistent with those of the previous financial year, except as described as follows.

50

2. Basis of preparation and statement of compliance (continued)

The following relevant new amendments to standards have been adopted for the first time for the financial year ending 31 December 2018 and have no material impact to the Group:

• Amendments to IAS 7, Disclosure Initiative;

• Amendments to IAS 12, Recognition of Deferred Tax Assets for Unrealised Losses;

• Amendments to IFRS 12, Clarification of the Scope of the Standard.

The following relevant new standards, interpretation and amendments to standards have been issued but are not effective for the financial year ending 31 December 2018 and have not been early adopted (the financial years for which the adoption is required for the Group are stated in parentheses). The Group has assessed the full impact of these new standards on its financial position and results of operations and they are not expected to have a material impact on the financial position or results of operations of the Group but may require additional disclosures:

• IFRIC 22, Foreign Currency Transactions and Advance Consideration (2019);

• IFRIC 23, Uncertainty Over Income Tax Treatment (2019);

• Amendments to IAS 12, Income Tax Consequences of Payments on Instruments Classified as Equity (2019);

• Amendments to IAS 23, Borrowing Costs Eligible for Capitalisation (2019);

• Amendments to IAS 28, Measuring an Associate or Joint Venture at Fair Value (2019);

• Amendments to IAS 28, Long-term Interests in Associates and Joint Ventures (2019);

• Amendments to IAS 40, Transfers of Investment Property (2019);

• IFRS 15, Revenue from Contracts with Customers and amendments thereto (2019);

• Amendments to IFRS 2, Classification and Measurement of Share-based Payment Transactions (2019);

• Amendments to IAS 19, Plan Amendment, Curtailment or Settlement (2019); and

• Amendments to IFRS 3, Business Combinations and IFRS 11, Joint Arrangements – Remeasurement of Previously Held Interests (2019).

51

2. Basis of preparation and statement of compliance (continued)

The following relevant new standards and requirements have been issued but are not effective for the financial year ending 31 December 2018 and have not been early adopted:

• IFRS 9, Financial Instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 requires financial assets to be classified into separate measurement categories: those measured as at fair value with changes either recognised in profit or loss or in other comprehensive income and those measured at amortised cost. The determination is made at initial recognition depending on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. In addition, a revised expected credit losses model will replace the incurred loss impairment model in IAS 39. The Group is yet to fully assess the impact of the standard on its financial position and results of operations.

For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, part of the fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than profit or loss, unless this creates an accounting mismatch. In addition, the new standard revises the hedge accounting model to more closely align with the entity’s risk management strategies. The IASB made further changes to two areas of IFRS 9. Financial assets containing prepayment features with negative compensation can be measured at amortised cost or at fair value through other comprehensive income if the cash flow represents solely payments of principal and interest. Non-substantial modifications or exchange of financial liabilities that do not result in derecognition will be required to be recognised in profit or loss. The Group is yet to fully assess the impact of the above new requirements and changes.

The standard is mandatorily effective for financial periods beginning on or after 1 January 2018 (except for prepayment features with negative compensation and modifications or exchange of financial liabilities that do not result in derecognition which will become effective for financial periods beginning on or after 1 January 2019), but the Group qualifies for a temporary exemption as explained below.

• On 12 September 2016, the IASB issued amendments to IFRS 4, Insurance Contracts, Applying IFRS 9 Financial Instruments with IFRS 4, which provides two alternative measures to address the different effective dates of IFRS 9 and IFRS 17, Insurance Contracts. These measures include a temporary option for companies whose activities are predominantly connected with insurance to defer the effective date of IFRS 9 until the earlier of the effective date of IFRS 17 and the financial reporting periods beginning on or after 1 January 2021, as well as an approach that allows an entity to remove from profit or loss the effects of certain accounting mismatches that may occur before IFRS 17 is applied. Based on the amendments to IFRS 4, the Group is eligible for and will elect to apply the temporary option to defer the effective date of IFRS 9 in order to implement the changes in parallel with IFRS 17, Insurance Contracts.

• IFRS 17, Insurance Contracts (previously IFRS 4 Phase II) will replace the current IFRS 4, Insurance Contracts. IFRS 17 includes some fundamental differences to current accounting in both insurance contract measurement and profit recognition. The general model is based on a discounted cash flow model with a risk adjustment and deferral of unearned profits. A separate approach applies to insurance contracts that are linked to returns on underlying items and meet certain requirements. Additionally, IFRS 17 requires more granular information and a new presentation format for the statement of comprehensive income as well as extensive disclosures. On 12 December 2017, the Hong Kong Institute of Certified Public Accountants (“HKICPA”) approved the issuance of HKFRS 17, Insurance Contracts. The Group is in the midst of conducting a detailed assessment of the new standards. The standards are mandatorily effective for financial periods beginning on or after 1 January 2021.

52

2. Basis of preparation and statement of compliance (continued)

• IFRS 16, Leases, sets out the principles for the recognition, measurement, presentation and disclosure of leases. The standard introduces a single lessee accounting model and requires a lessee to recognise assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee is required to recognise a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments. IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor continues to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. The Group is in the midst of conducting a detailed assessment of the standard on its financial position and results of operations. The standard is mandatorily effective for financial periods beginning on or after 1 January 2019.

The preparation of an interim financial report in conformity with IAS 34 requires management to make judgement on estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities and income and expenses. Actual results may differ from these estimates.

The interim condensed consolidated financial statements contain condensed consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2017 annual financial statements. The interim condensed consolidated financial statements and notes thereon do not include all of the information required for a full set of financial statements prepared in accordance with HKFRS and IFRS.

The interim condensed consolidated financial statements are unaudited, but have been reviewed by PricewaterhouseCoopers in accordance with the Hong Kong Standard on Review Engagements 2410, Review of interim financial information performed by the independent auditor of the entity, issued by the Hong Kong Institute of Certified Public Accountants. PricewaterhouseCoopers’ independent review report to the Board of Directors is included on page 42. The interim condensed consolidated financial statements have also been reviewed by the Company’s Audit Committee.

The financial statements relating to the financial year ended 30 November 2017 that are included in the interim condensed consolidated financial statements as comparative information does not constitute the Group’s statutory financial statements for that financial year but is derived from those financial statements. The Group has delivered the financial statements for the year ended 30 November 2017 to the Registrar of Companies as required by section 662(3) of, and Part 3 of Schedule 6 to, the Hong Kong Companies Ordinance. The auditors have expressed an unqualified opinion on those financial statements in their report dated 27 February 2018. Their report did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report; and did not contain a statement under sections 406(2), 407(2) or (3) of the Hong Kong Companies Ordinance.

Items included in the interim condensed consolidated financial statements of each of the Group’s entities are measured in the currency of the primary economic environment in which that entity operates (the functional currency). The interim condensed consolidated financial statements are presented in millions of US dollars (US$m) unless otherwise stated, which is the Company’s functional currency, and the presentation currency of the Company and the Group.

In February 2018, the Board resolved to change the Company’s financial year-end date from 30 November to 31 December. Accordingly, the current financial period-end date of the Company is 31 December 2018 and the next audited financial statements of the Group will cover a 13-month period from 1 December 2017 to 31 December 2018. The first set of interim condensed consolidated financial statements of the Group adopting the new year-end date is for the seven months ended 30 June 2018.

53

3. Exchange rates

The Group’s principal overseas operations during the reporting period were located within the Asia-Pacific region. The results and cash flows of these operations have been translated into US dollars at the following average rates:

		US dollar exchange	US dollar exchange	rates
	Seven months		Year ended	Six months
		ended	30 November	ended
	30	June 2018	2017	31 May 2017
	(Unaudited)			(Unaudited)
Hong Kong		7.83	7.79	7.77
Thailand		31.72	34.15	35.02
Singapore		1.32	1.39	1.41
Malaysia		3.95	4.33	4.42
China		6.39	6.78	6.89

Assets and liabilities have been translated at the following period-end rates:

	US dollar exchange	US dollar exchange	rates
	As at	As at	As at
	30 June	30 November	31 May
	2018	2017	2017
	(Unaudited)		(Unaudited)
Hong Kong	7.85	7.81	7.79
Thailand	33.16	32.62	34.08
Singapore	1.36	1.35	1.38
Malaysia	4.04	4.09	4.28
China	6.62	6.61	6.83

Exchange rates are expressed in units of local currency per US$1.

54

4. Operating profit after tax

Operating profit after tax may be reconciled to net profit as follows:

Seven months ended 30 June 2018 US$m Note (Unaudited) Operating profit after tax 6 3,062 Non-operating items, net of related changes in insurance and investment contract liabilities: Short-term fluctuations in investment return related to equities and real estate (net of tax of: seven months ended 30 June 2018: US$74m; six months ended 31 May 2017: US$(37)m)(1) (498) Reclassification of revaluation gain for property held for own use (net of tax of: seven months ended 30 June 2018: US$2m; six months ended 31 May 2017: US$1m)(1)(2) (177) Other non-operating investment return and other items (net of tax of: seven months ended 30 June 2018: US$(46)m; six months ended 31 May 2017: US$16m)(2) (123) Net profit 2,264 Operating profit after tax attributable to: Shareholders of AIA Group Limited 3,039 Non-controlling interests 23 Net profit attributable to: Shareholders of AIA Group Limited 2,228 Non-controlling interests 36

Six months ended 31 May 2017 (Unaudited) 2,277 789 (20) (87) 2,959 2,262 15 2,925 34

Operating profit is determined using, among others, expected long-term investment return for equities and real estate. Short-term fluctuations between expected long-term investment return and actual investment return for these asset classes are excluded from operating profit. The investment return assumptions used to determine expected long-term investment return are based on the same assumptions used by the Group in determining its embedded value and are disclosed in the Supplementary Embedded Value Information.

Notes:

• (1) Short-term fluctuations in investment return include the revaluation gain for property held for own use. This amount is then reclassified out of net profit to conform with IFRS measurement and presentation.

• (2) The comparative information has been adjusted to conform to current period presentation.

55

5. Total weighted premium income and annualised new premiums

For management decision-making and internal performance management purposes, the Group measures business volumes during the period using a performance measure referred to as total weighted premium income (TWPI). The Group measures new business activity using a performance measure referred to as annualised new premiums (ANP). The presentation of this note is consistent with our reportable segment presentation in note 6.

TWPI consists of 100 per cent of renewal premiums, 100 per cent of first year premiums and 10 per cent of single premiums, before reinsurance ceded, and includes deposits and contributions for contracts that are accounted for as deposits in accordance with the Group’s accounting policies.

Management considers that TWPI provides an indicative volume measure of transactions undertaken in the reporting period that have the potential to generate profits for shareholders. The amounts shown are not intended to be indicative of premiums and fee income recorded in the interim consolidated income statement.

ANP is a key internal measure of new business activities, which consists of 100 per cent of annualised first year premiums and 10 per cent of single premiums, before reinsurance ceded. ANP excludes new business of pension business, personal lines and motor insurance.

TWPI Seven months ended 30 June 2018 US$m (Unaudited) TWPI by geography Hong Kong 6,132 Thailand 2,140 Singapore 1,560 Malaysia 1,209 China 2,436 Other Markets 3,518 Total 16,995 First year premiums by geography Hong Kong 1,168 Thailand 294 Singapore 185 Malaysia 174 China 633 Other Markets 549 Total 3,003 Single premiums by geography Hong Kong 1,551 Thailand 148 Singapore 1,013 Malaysia 107 China 87 Other Markets 404 Total 3,310

Six months ended 31 May 2017 (Unaudited) 4,507 1,594 1,143 875 1,509 2,765 12,393 1,601 214 127 137 460 408 2,947 942 90 554 73 71 313 2,043

56

5. Total weighted premium income and annualised new premiums (continued)

TWPI (continued) Seven months ended 30 June 2018 US$m (Unaudited) Renewal premiums by geography Hong Kong 4,809 Thailand 1,831 Singapore 1,274 Malaysia 1,024 China 1,794 Other Markets 2,929 Total 13,661 ANP Seven months ended 30 June 2018 US$m (Unaudited) ANP by geography Hong Kong 1,348 Thailand 324 Singapore 305 Malaysia 218 China 642 Other Markets 675 Total 3,512	Six months ended 31 May 2017 (Unaudited) 2,812 1,371 960 731 1,042 2,326 9,242 Six months ended 31 May 2017 (Unaudited) 1,696 232 187 167 474 440 3,196

57

6. Segment information

The Group’s operating segments, based on the reports received by the ExCo, are each of the geographical markets in which the Group operates. Each of the reportable segments, other than the “Group Corporate Centre” segment, writes life insurance business, providing life insurance, accident and health insurance and savings plans to customers in its local market, and distributes related investment and other financial services products. The reportable segments are Hong Kong (including Macau), Thailand, Singapore (including Brunei), Malaysia, China, Other Markets and Group Corporate Centre. Other Markets includes the Group’s operations in Australia (including New Zealand), Cambodia, Indonesia, Korea, the Philippines, Sri Lanka, Taiwan, Vietnam and India. The activities of the Group Corporate Centre segment consist of the Group’s corporate functions, shared services and eliminations of intragroup transactions.

As each reportable segment other than the Group Corporate Centre segment focuses on serving the life insurance needs of its local market, there are limited transactions between reportable segments. The key performance indicators reported in respect of each segment are:

• ANP;

• TWPI;

• investment return;

• operating expenses;

• operating profit after tax attributable to shareholders of AIA Group Limited;

• expense ratio, measured as operating expenses divided by TWPI;

• operating margin, measured as operating profit after tax expressed as a percentage of TWPI; and

• operating return on shareholders’ allocated equity measured on an annualised basis as operating profit after tax attributable to shareholders of AIA Group Limited expressed as a percentage of the simple average of opening and closing shareholders’ allocated segment equity (being the segment assets less segment liabilities in respect of each reportable segment less non-controlling interests and fair value reserve).

In presenting net capital in/(out) flows to reportable segments, capital outflows consist of dividends and profit distributions to the Group Corporate Centre segment and capital inflows consist of capital injections into reportable segments by the Group Corporate Centre segment. For the Group, net capital in/(out) flows reflect the net amount received from shareholders by way of capital contributions less amounts distributed by way of dividends.

Business volumes in respect of the Group’s five largest customers are less than 30 per cent of premiums and fee income.

58

6. Segment information (continued)

US$m Hong Kong Seven months ended 30 June 2018 – Unaudited ANP 1,348 TWPI 6,132 Net premiums, fee income and other operating revenue (net of reinsurance ceded) 7,081 Investment return 1,473 Total revenue 8,554 Net insurance and investment contract benefits 6,315 Commission and other acquisition expenses 780 Operating expenses 221 Finance costs and other expenses 74 Total expenses 7,390 Share of (losses)/profit from associates and joint venture – Operating profit before tax 1,164 Tax on operating profit before tax (90) Operating profit/(losses) after tax 1,074 Operating profit/(losses) after tax attributable to: Shareholders of AIA Group Limited 1,066 Non-controlling interests 8 Key operating ratios:	US$m Hong Kong Seven months ended 30 June 2018 – Unaudited ANP 1,348 TWPI 6,132 Net premiums, fee income and other operating revenue (net of reinsurance ceded) 7,081 Investment return 1,473 Total revenue 8,554 Net insurance and investment contract benefits 6,315 Commission and other acquisition expenses 780 Operating expenses 221 Finance costs and other expenses 74 Total expenses 7,390 Share of (losses)/profit from associates and joint venture – Operating profit before tax 1,164 Tax on operating profit before tax (90) Operating profit/(losses) after tax 1,074 Operating profit/(losses) after tax attributable to: Shareholders of AIA Group Limited 1,066 Non-controlling interests 8 Key operating ratios:	Thailand Singapore 324 305 2,140 1,560 2,110 1,768 780 687 2,890 2,455 1,600 1,791 439 191 125 119 30 18 2,194 2,119 – (1) 696 335 (134) (21) 562 314 562 314 – –	Thailand Singapore 324 305 2,140 1,560 2,110 1,768 780 687 2,890 2,455 1,600 1,791 439 191 125 119 30 18 2,194 2,119 – (1) 696 335 (134) (21) 562 314 562 314 – –	Malaysia 218 1,209 1,063 354 1,417 916 157 107 6 1,186 – 231 (46) 185 183 2	China 642 2,436 2,332 509 2,841 1,819 157 171 18 2,165 – 676 (171) 505 505 –	Other Markets Group Corporate Centre 675 – 3,518 – 2,319 11 635 195 2,954 206 1,608 12 383 1 354 121 34 70 2,379 204 2 (1) 577 1 (126) (30) 451 (29) 438 (29) 13 –	Other Markets Group Corporate Centre 675 – 3,518 – 2,319 11 635 195 2,954 206 1,608 12 383 1 354 121 34 70 2,379 204 2 (1) 577 1 (126) (30) 451 (29) 438 (29) 13 –	Total 3,512 16,995 16,684 4,633 21,317 14,061 2,108 1,218 250 17,637 – 3,680 (618) 3,062 3,039 23
Expense ratio Operating margin Operating return on shareholders’ allocated equity	3.6% 17.5% 21.6%	5.8% 26.3% 16.6%	7.6% 20.1% 17.7%	8.9% 15.3% 19.6%	7.0% 20.7% 24.1%	10.1% 12.8% 11.4%	– – –	7.2% 18.0% 14.1%
Operating profit before tax includes:
Finance costs Depreciation and amortisation	17 17	1 6	– 10	– 10	11 13	2 27	60 6	91 89
US$m Hong Kong 30 June 2018 – Unaudited Total assets 68,416 Total liabilities 59,189 Total equity 9,227 Shareholders’ allocated equity 8,282 Net capital (out)/in flows (427) Total assets include:		Thailand Singapore 30,542 35,997 24,026 33,029 6,516 2,968 5,672 2,903 (145) –		Malaysia 14,634 13,076 1,558 1,548 (97)	China 22,510 18,901 3,609 3,431 (440)	Other Markets Group Corporate Centre 36,002 12,619 28,621 4,987 7,381 7,632 6,468 8,024 (2) 21		Total 220,720 181,829 38,891 36,328 (1,090)
Investments in associates and joint venture	–	–	–	7	–	610	–	617

59

6. Segment information (continued)

Segment information may be reconciled to the interim consolidated income statement as shown below:

below:
US$m Seven months ended 30 June 2018 – Unaudited	Segment information	Short-term fluctuations in investment return related to equities and real estate	Other non-operating items(1)	Interim consolidated income statement
Net premiums, fee income and other operating revenue Investment return	16,684 4,633	– (880)	2 (948)	16,686 Net premiums, fee income and other operating revenue 2,805 Investment return
Total revenue	21,317	(880)	(946)	19,491 Total revenue
Net insurance and investment contract benefits Other expenses	14,061 3,576	(308) –	(914) 250	12,839 Net insurance and investment contract benefits 3,826 Other expenses
Total expenses Share of profit from associates and joint venture Operating profit before tax	17,637 – 3,680	(308) – (572)	(664) – (282)	16,665 Total expenses – Share of profit from associates and joint venture 2,826 Profit before tax

Note:

(1) Include unit-linked contracts.

60

6. Segment information (continued)

US$m Hong Kong Six months ended 31 May 2017 – Unaudited ANP 1,696 TWPI 4,507 Net premiums, fee income and other operating revenue (net of reinsurance ceded) 4,932 Investment return 1,022 Total revenue 5,954 Net insurance and investment contract benefits 4,273 Commission and other acquisition expenses 551 Operating expenses 171 Finance costs and other expenses 56 Total expenses 5,051 Share of profit from associates and joint venture – Operating profit before tax 903 Tax on operating profit before tax (61) Operating profit after tax 842 Operating profit after tax attributable to: Shareholders of AIA Group Limited 836 Non-controlling interests 6 Key operating ratios:	US$m Hong Kong Six months ended 31 May 2017 – Unaudited ANP 1,696 TWPI 4,507 Net premiums, fee income and other operating revenue (net of reinsurance ceded) 4,932 Investment return 1,022 Total revenue 5,954 Net insurance and investment contract benefits 4,273 Commission and other acquisition expenses 551 Operating expenses 171 Finance costs and other expenses 56 Total expenses 5,051 Share of profit from associates and joint venture – Operating profit before tax 903 Tax on operating profit before tax (61) Operating profit after tax 842 Operating profit after tax attributable to: Shareholders of AIA Group Limited 836 Non-controlling interests 6 Key operating ratios:	Thailand Singapore 232 187 1,594 1,143 1,618 1,312 561 524 2,179 1,836 1,182 1,330 360 151 97 86 23 10 1,662 1,577 – – 517 259 (104) (24) 413 235 413 235 – –	Thailand Singapore 232 187 1,594 1,143 1,618 1,312 561 524 2,179 1,836 1,182 1,330 360 151 97 86 23 10 1,662 1,577 – – 517 259 (104) (24) 413 235 413 235 – –	Malaysia 167 875 778 260 1,038 691 109 81 5 886 – 152 (32) 120 119 1	China 474 1,509 1,456 341 1,797 1,166 90 129 9 1,394 – 403 (98) 305 305 –	Other Markets 440 2,765 1,820 521 2,341 1,256 343 265 21 1,885 3 459 (102) 357 349 8	Group Corporate Centre – – 1 173 174 – (3) 107 57 161 – 13 (8) 5 5 –	Total 3,196 12,393 11,917 3,402 15,319 9,898 1,601 936 181 12,616 3 2,706 (429) 2,277 2,262 15
Expense ratio Operating margin Operating return on shareholders’ allocated equity	3.8% 18.7% 24.4%	6.1% 25.9% 17.0%	7.5% 20.6% 16.8%	9.3% 13.7% 17.1%	8.5% 20.2% 19.8%	9.6% 12.9% 12.0%	– – –	7.6% 18.4% 14.2%
Operating profit before tax includes:
Finance costs Depreciation and amortisation	14 12	3 5	– 7	– 4	2 4	1 16	46 3	66 51
US$m Hong Kong 30 November 2017 Total assets 65,485 Total liabilities 54,023 Total equity 11,462 Shareholders’ allocated equity 7,909 Net capital (out)/in flows (952) Total assets include:		Thailand Singapore 31,319 35,922 24,358 32,501 6,961 3,421 5,510 2,961 (467) (238)		Malaysia 14,347 12,806 1,541 1,524 (192)	China 19,915 16,789 3,126 3,391 (207)	Other Markets 37,145 29,172 7,973 6,430 (50)	Group Corporate Centre 11,558 3,670 7,888 7,933 866	Total 215,691 173,319 42,372 35,658 (1,240)
Investments in associates and joint venture	–	–	1	6	–	635	–	642

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6. Segment information (continued)

Segment information may be reconciled to the interim consolidated income statement as shown below:

below:
US$m Six months ended 31 May 2017 – Unaudited	Segment information	Short-term fluctuations in investment return related to equities and real estate	Other non-operating items(1)	Interim consolidated income statement
Net premiums, fee income and other operating revenue Investment return	11,917 3,402	– 1,109	– 1,977	11,917 Net premiums, fee income and other operating revenue 6,488 Investment return
Total revenue	15,319	1,109	1,977	18,405 Total revenue
Net insurance and investment contract benefits Other expenses	9,898 2,718	283 –	1,810 187	11,991 Net insurance and investment contract benefits 2,905 Other expenses
Total expenses Share of profit from associates and joint venture Operating profit before tax	12,616 3 2,706	283 – 826	1,997 – (20)	14,896 Total expenses 3 Share of profit from associates and joint venture 3,512 Profit before tax

Note:

(1) Include unit-linked contracts.

62

7. Investment return

Seven months ended 30 June 2018 US$m (Unaudited) Interest income 3,612 Dividend income 451 Rental income 98 Investment income 4,161 Available for sale Net realised gains from debt securities 37 Net gains of available for sale financial assets reflected in the interim consolidated income statement 37 At fair value through profit or loss Net (losses)/gains of financial assets designated at fair value through profit or loss Net (losses)/gains of debt securities (361) Net (losses)/gains of equity securities (1,395) Net (losses)/gains of financial instruments held for trading Net fair value movement on derivatives (194) Net (losses)/gains in respect of financial instruments at fair value through profit or loss (1,950) Net fair value movement of investment property 391 Net foreign exchange gains/(losses) 170 Other net realised losses (4) Investment experience (1,356) Investment return 2,805

Six months ended 31 May 2017 (Unaudited) 2,727 325 74 3,126 60 60 78 3,011 310 3,399 198 (294) (1) 3,362 6,488

Foreign currency movements resulted in the following gains/(losses) recognised in the interim consolidated income statement (other than gains and losses arising on items measured at fair value through profit or loss):

	Seven months	Six months
	ended	ended
	30 June 2018	31 May 2017
US$m	(Unaudited)	(Unaudited)
Foreign exchange gains/(losses)	197	(142)

63

8. Expenses

Seven months ended 30 June 2018 US$m (Unaudited) Insurance contract benefits 6,996 Change in insurance contract liabilities 6,707 Investment contract benefits 13 Insurance and investment contract benefits 13,716 Insurance and investment contract benefits ceded (877) Insurance and investment contract benefits, net of reinsurance ceded 12,839 Commission and other acquisition expenses incurred 3,458 Deferral and amortisation of acquisition costs (1,345) Commission and other acquisition expenses 2,113 Employee benefit expenses 780 Depreciation 42 Amortisation 28 Operating lease rentals 96 Other operating expenses 272 Operating expenses 1,218 Investment management expenses and others 269 Depreciation on property held for own use 14 Restructuring and other non-operating costs(1) 125 Change in third-party interests in consolidated investment funds (13) Other expenses 395 Finance costs 100 Total 16,665

Six months ended 31 May 2017 (Unaudited) 5,171 6,799 640 12,610 (619) 11,991 2,826 (1,220) 1,606 603 30 21 72 210 936 181 11 71 15 278 85 14,896

Note:

(1) Restructuring costs represent costs related to restructuring programmes and are primarily comprised of redundancy and contract termination costs. Other non-operating costs primarily consist of acquisition-related integration costs and implementation costs driven by the new accounting and regulatory requirements.

64

8. Expenses (continued)

Finance costs may be analysed as:

Seven months ended 30 June 2018 US$m (Unaudited) Repurchase agreements (see note 19 for details) 15 Medium-term notes 83 Other loans 2 Total 100 Employee benefit expenses consist of: Seven months ended 30 June 2018 US$m (Unaudited) Wages and salaries 634 Share-based compensation 41 Pension costs – defined contribution plans 46 Pension costs – defined benefit plans 7 Other employee benefit expenses 52 Total 780

Six months ended 31 May 2017 (Unaudited) 23 60 2 85 Six months ended 31 May 2017 (Unaudited) 491 36 34 4 38 603

65

9. Income tax

Seven months ended 30 June 2018 US$m (Unaudited) Tax charged in the interim consolidated income statement Current income tax – Hong Kong Profits Tax 82 Current income tax – overseas 476 Deferred income tax on temporary differences 4 Total 562	Six months ended 31 May 2017 (Unaudited) 54 244 255 553

Income tax expense is recognised based on the management’s best estimate of the weighted average annual income tax rate expected for the full financial year.

The tax benefit or expense attributable to life insurance policyholder returns in Singapore, Brunei, Malaysia, Australia, Indonesia, the Philippines and Sri Lanka is included in the tax charge or credit and is analysed separately in the interim consolidated income statement in order to permit comparison of the underlying effective rate of tax attributable to shareholders from period to period. The tax credit attributable to policyholders’ returns included above is US$26m (six months ended 31 May 2017: tax expense of US$104m).

10. Earnings per share

BASIC

Basic earnings per share is calculated by dividing the net profit attributable to shareholders of AIA Group Limited by the weighted average number of ordinary shares in issue during the period. The shares held by employee share-based trusts are not considered to be outstanding from the date of the purchase for purposes of computing basic and diluted earnings per share.

	Seven months	Six months
	ended	ended
	30 June 2018	31 May 2017
	(Unaudited)	(Unaudited)
Net profit attributable to shareholders of
AIA Group Limited (US$m)	2,228	2,925
Weighted average number of ordinary shares in issue (million)	12,017	11,989
Basic earnings per share (US cents per share)	18.54	24.40

66

10. Earnings per share (continued)

DILUTED

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. As of 30 June 2018 and 31 May 2017, the Group has potentially dilutive instruments which are the share options, restricted share units, restricted stock purchase units and restricted stock subscription units awarded to eligible directors, officers, employees and agents under various share-based compensation plans as described in note 23.

Seven months ended 30 June 2018 (Unaudited) Net profit attributable to shareholders of AIA Group Limited (US$m) 2,228 Weighted average number of ordinary shares in issue (million) 12,017 Adjustment for share options, restricted share units, restricted stock purchase units and restricted stock subscription units awarded under share-based compensation plans (million) 33 Weighted average number of ordinary shares for diluted earnings per share (million) 12,050 Diluted earnings per share (US cents per share) 18.49

Six months ended 31 May 2017 (Unaudited) 2,925 11,989 23 12,012 24.35

At 30 June 2018, 5,613,880 share options (31 May 2017: 13,673,927) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.

OPERATING PROFIT AFTER TAX PER SHARE

Operating profit after tax (see note 4) per share is calculated by dividing the operating profit after tax attributable to shareholders of AIA Group Limited by the weighted average number of ordinary shares in issue during the period. As of 30 June 2018 and 31 May 2017, the Group has potentially dilutive instruments which are the share options, restricted share units, restricted stock purchase units and restricted stock subscription units awarded to eligible directors, officers, employees and agents under various share-based compensation plans as described in note 23.

note 23.
	Seven months	Six months
	ended	ended
	30 June 2018	31 May 2017
	(Unaudited)	(Unaudited)
Basic (US cents per share)	25.29	18.87
Diluted (US cents per share)	25.22	18.83

67

11. Dividends

Dividends to shareholders of the Company attributable to the interim period:

		Seven months	Six months
		ended	ended
		30 June 2018	31 May 2017
US$m		(Unaudited)	(Unaudited)
Interim	dividend declared after the reporting date of 29.20
Hong	Kong cents per share (six months ended 31 May 2017:
25.62	Hong Kong cents per share)(1)	447	395

Note:

(1) Based upon shares outstanding at 30 June 2018 and 31 May 2017 that are entitled to a dividend, other than those held by employee share-based trusts.

The above interim dividend was declared after the reporting date and has not been recognised as a liability at the reporting date.

Dividends to shareholders of the Company attributable to the previous financial year, approved and paid during the interim period:

and paid during the interim period:
	Seven months	Six months
	ended	ended
	30 June 2018	31 May 2017
US$m	(Unaudited)	(Unaudited)
Final dividend in respect of the previous financial year,
approved and paid during the interim period of 74.38
Hong Kong cents per share (six months ended 31 May 2017:
63.75 Hong Kong cents per share)	1,140	983

68

12. Intangible assets

US$m Cost At 1 December 2017 Additions Disposals Foreign exchange movements At 30 June 2018 – Unaudited Accumulated amortisation At 1 December 2017 Amortisation charge for the period Foreign exchange movements At 30 June 2018 – Unaudited Net book value At 30 November 2017 At 30 June 2018 – Unaudited	Goodwill 835 – – 3 838 (4) – – (4) 831 834	Computer software 526 28 (1) (4) 549 (297) (28) 1 (324) 229 225	Distribution and other rights 907 – (1) (11) 895 (103) (19) 1 (121) 804 774	Total 2,268 28 (2) (12) 2,282 (404) (47) 2 (449) 1,864 1,833

The Group holds intangible assets for its long-term use and the annual amortisation charge of US$82m (30 November 2017: US$84m) approximates the amount that is expected to be recovered through consumption within 12 months after the end of the reporting period.

69

13. Financial investments

DEBT SECURITIES

Debt securities by type comprise the following:

Policyholder and shareholder

Participating funds Other policyholder and shareholder US$m FVTPL FVTPL AFS 30 June 2018 – Unaudited Government bonds 6,553 79 38,491 Government agency bonds(1) 4,197 13 8,345 Corporate bonds 10,398 199 58,677 Structured securities(2) 176 40 715 Total(3) 21,324 331 106,228 Policyholder and shareholder Participating funds Other policyholder and shareholder US$m FVTPL FVTPL AFS 30 November 2017 Government bonds 5,681 82 37,122 Government agency bonds(1) 3,904 14 9,229 Corporate bonds 10,895 187 58,484 Structured securities(2) 194 41 631 Total(3) 20,674 324 105,466	Subtotal 45,123 12,555 69,274 931 127,883 Subtotal 42,885 13,147 69,566 866 126,464	Unit-linked FVTPL 1,200 239 1,199 – 2,638 Unit-linked FVTPL 1,147 210 1,359 – 2,716	Consolidated investment funds(4) FVTPL – 346 1,617 – 1,963 Consolidated investment funds(4) FVTPL – 319 1,669 – 1,988	Total 46,323 13,140 72,090 931
				132,484
				Total 44,032 13,676 72,594 866
				131,168

Notes:

(1) Government agency bonds comprise bonds issued by government-sponsored institutions such as national, provincial and municipal authorities; government-related entities; multilateral development banks and supranational organisations.

(2) Structured securities include collateralised debt obligations, mortgage-backed securities and other asset-backed securities.

(3) Debt securities of US$4,939m (30 November 2017: US$4,900m) are restricted due to local regulatory requirements.

(4) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

70

13. Financial investments (continued)

EQUITY SECURITIES

Equity securities by type comprise the following:

Policyholder and shareholder

US$m 30 June 2018 – Unaudited Equity shares Interests in investment funds Total US$m 30 November 2017 Equity shares Interests in investment funds Total	Participating funds Other policyholder and shareholder FVTPL FVTPL 4,614 10,088 2,152 2,330 6,766 12,418 Policyholder and shareholder Participating funds Other policyholder and shareholder FVTPL FVTPL 4,631 9,267 2,191 1,674 6,822 10,941	Subtotal 14,702 4,482 19,184 Subtotal 13,898 3,865 17,763	Unit-linked FVTPL 4,338 14,135 18,473 Unit-linked FVTPL 4,610 14,343 18,953	Consolidated investment funds(1) FVTPL – – – Consolidated investment funds(1) FVTPL – – –	Total 19,040 18,617
					37,657
					Total 18,508 18,208
	Participating funds FVTPL 4,631 2,191 6,822
					36,716

Note:

(1) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

DEBT AND EQUITY SECURITIES

DEBT AND EQUITY SECURITIES
US$m Debt securities Listed Unlisted Total Equity securities Listed Unlisted(1) Total	As at 30 June 2018 (Unaudited) 102,190 30,294 132,484 20,358 17,299 37,657	As at 30 November 2017 100,647 30,521
		131,168
		20,205 16,511
		36,716

Note:

(1) Including US$15,882m (30 November 2017: US$15,375m) of investment funds which can be redeemed daily.

71

13. Financial investments (continued)

LOANS AND DEPOSITS

US$m Policy loans Mortgage loans on residential real estate Mortgage loans on commercial real estate Other loans Allowance for loan losses Loans Term deposits Promissory notes(1) Total	As at 30 June 2018 (Unaudited) 2,795 618 44 982 (12) 4,427 1,631 1,553 7,611	As at 30 November 2017 2,726 600 53 889 (12) 4,256 2,138 1,579 7,973

Note: (1) The promissory notes are issued by a government.

Certain term deposits with financial institutions and promissory notes are restricted due to local regulatory requirements or other pledge restrictions. The restricted balance held within term deposits and promissory notes is US$1,732m (30 November 2017: US$1,749m).

Other loans include receivables from reverse repurchase agreements under which the Group does not take physical possession of securities purchased under the agreements. Sales or transfers of securities are not permitted by the respective clearing house on which they are registered while the loan is outstanding. In the event of default by the counterparty to repay the loan, the Group has the right to the underlying securities held by the clearing house. At 30 June 2018, the carrying value of such receivables is US$375m (30 November 2017: US$326m).

72

14. Derivative financial instruments

The Group’s non-hedge derivative exposure is as follows:

US$m Notional amount 30 June 2018 – Unaudited Foreign exchange contracts Cross-currency swaps 7,442 Forwards 4,627 Foreign exchange futures 124 Currency options 6 Total foreign exchange contracts 12,199 Interest rate contracts Interest rate swaps 3,592 Other Warrants and options 4,674 Netting (124) Total 20,341 30 November 2017 Foreign exchange contracts Cross-currency swaps 7,569 Forwards 5,921 Foreign exchange futures 139 Currency options 7 Total foreign exchange contracts 13,636 Interest rate contracts Interest rate swaps 3,157 Other Warrants and options 161 Netting (139) Total 16,815

Fair value Assets Liabilities 174 (198) 65 (166) – – – – 239 (364) 88 (66) 56 – – – 383 (430) 249 (164) 47 (142) – – – – 296 (306) 51 (55) 16 – – – 363 (361)

Assets 174 65 – – 239 88 56 – 383 249 47 – – 296 51 16 – 363

The column “notional amount” in the above table represents the pay leg of derivative transactions other than equity index option. For certain equity-index call and put options with same notional amount that are purchased to hedge the downside risk of the underlying equities by means of a collar strategy, the notional amount represents the exposure of the hedged equities.

Of the total derivatives, US$5m (30 November 2017: US$8m) are listed in exchange or dealer markets and the rest are over-the-counter (OTC) derivatives. OTC derivative contracts are individually negotiated between contracting parties and not cleared through an exchange. OTC derivatives include forwards, swaps and options. Derivatives are subject to various risks including market, liquidity and credit risks, similar to those related to the underlying financial instruments.

Derivative assets and derivative liabilities are recognised in the interim consolidated statement of financial position as financial assets at fair value through profit or loss and derivative financial liabilities respectively. The Group’s derivative contracts are established to economic hedge financial exposures. The Group adopts hedge accounting in limited circumstances. The notional or contractual amounts associated with derivative financial instruments are not recorded as assets or liabilities in the interim consolidated statement of financial position as they do not represent the fair value of these transactions. The notional amounts in the previous table reflect the aggregate of individual derivative positions on a gross basis and so give an indication of the overall scale of derivative transactions.

73

14. Derivative financial instruments (continued)

FOREIGN EXCHANGE CONTRACTS

Foreign exchange forward and futures contracts represent agreements to exchange the currency of one country for the currency of another country at an agreed price and settlement date. Currency options are agreements that give the buyer the right to exchange the currency of one country for the currency of another country at agreed prices and settlement dates. Currency swaps are contractual agreements that involve the exchange of both periodic and final amounts in two different currencies. Exposure to gains and losses on the foreign exchange contracts will increase or decrease over their respective lives as a function of maturity dates, interest and foreign exchange rates, implied volatilities of the underlying indices and the timing of payments.

INTEREST RATE SWAPS

Interest rate swaps are contractual agreements between two parties to exchange periodic payments in the same currency, each of which is computed on a different interest rate basis, on a specified notional amount. Most interest rate swaps involve the net exchange of payments calculated as the difference between the fixed and floating rate interest payments.

OTHER DERIVATIVES

Warrants and options are option agreements that give the owner the right to buy or sell securities at an agreed price and settlement date.

NETTING ADJUSTMENT

The netting adjustment is related to futures contracts executed through clearing house where the settlement arrangement satisfied the netting criteria under IFRS.

COLLATERAL UNDER DERIVATIVE TRANSACTIONS

At 30 June 2018, the Group had posted cash collateral of US$15m (30 November 2017: US$10m) and pledged debt securities with carrying value of US$250m (30 November 2017: US$227m) for liabilities and held cash collateral of US$166m (30 November 2017: US$141m), debt securities collateral with carrying value of US$35m (30 November 2017: US$15m) for assets in respect of derivative transactions. The Group did not sell or repledge the collateral received. These transactions are conducted under terms that are usual and customary to collateralised transactions including, where relevant, standard repurchase agreements.

74

15. Fair value measurement of financial instruments

FAIR VALUE OF FINANCIAL INSTRUMENTS

The Group classifies all financial assets as either at fair value through profit or loss, or as available for sale, which are carried at fair value, or as loans and receivables, which are carried at amortised cost. Financial liabilities are classified as either at fair value through profit or loss or at amortised cost, except for investment contracts with DPF which are accounted for under IFRS 4.

The following tables present the fair values of the Group’s financial assets and financial liabilities:

US$m Notes 30 June 2018 – Unaudited Financial investments 13 Loans and deposits Debt securities Equity securities Derivative financial instruments 14 Reinsurance receivables Other receivables Accrued investment income Cash and cash equivalents 16 Financial assets Notes Financial liabilities Investment contract liabilities 17 Borrowings 18 Obligations under repurchase agreements 19 Derivative financial instruments 14 Other liabilities Financial liabilities	Fair value Fair value through profit or loss Available for sale Cost/ amortised cost – – 7,611 26,256 106,228 – 37,657 – – 383 – – – – 553 – – 2,040 – – 1,723 – – 3,013 64,296 106,228 14,940 Fair value through profit or loss Cost/ amortised cost 7,350 593 – 5,421 – 1,977 430 – 1,164 4,388 8,944 12,379	Fair value Fair value through profit or loss Available for sale Cost/ amortised cost – – 7,611 26,256 106,228 – 37,657 – – 383 – – – – 553 – – 2,040 – – 1,723 – – 3,013 64,296 106,228 14,940 Fair value through profit or loss Cost/ amortised cost 7,350 593 – 5,421 – 1,977 430 – 1,164 4,388 8,944 12,379	Total carrying value 7,611 132,484 37,657 383 553 2,040 1,723 3,013 185,464 Total carrying value 7,943 5,421 1,977 430 5,552 21,323	Total carrying value 7,611 132,484 37,657 383 553 2,040 1,723 3,013 185,464 Total carrying value 7,943 5,421 1,977 430 5,552 21,323	Total fair value 7,612 132,484 37,657 383 553 2,040 1,723 3,013 185,465 Total fair value 7,943 5,524 1,977 430 5,552 21,426
			Total carrying value 7,943 5,421 1,977 430 5,552 21,323

75

15. Fair value measurement of financial instruments (continued)

FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

US$m Notes 30 November 2017 Financial investments 13 Loans and deposits Debt securities Equity securities Derivative financial instruments 14 Reinsurance receivables Other receivables Accrued investment income Cash and cash equivalents 16 Financial assets Notes Financial liabilities Investment contract liabilities 17 Borrowings 18 Obligations under repurchase agreements 19 Derivative financial instruments 14 Other liabilities Financial liabilities	Fair value Fair value through profit or loss Available for sale Cost/ amortised cost – – 7,973 25,702 105,466 – 36,716 – – 363 – – – – 506 – – 2,150 – – 1,541 – – 2,289 62,781 105,466 14,459 Fair value through profit or loss Cost/ amortised cost 7,502 580 – 3,958 – 1,883 361 – 1,225 4,663 9,088 11,084	Fair value Fair value through profit or loss Available for sale Cost/ amortised cost – – 7,973 25,702 105,466 – 36,716 – – 363 – – – – 506 – – 2,150 – – 1,541 – – 2,289 62,781 105,466 14,459 Fair value through profit or loss Cost/ amortised cost 7,502 580 – 3,958 – 1,883 361 – 1,225 4,663 9,088 11,084	Total carrying value 7,973 131,168 36,716 363 506 2,150 1,541 2,289 182,706 Total carrying value 8,082 3,958 1,883 361 5,888 20,172	Total carrying value 7,973 131,168 36,716 363 506 2,150 1,541 2,289 182,706 Total carrying value 8,082 3,958 1,883 361 5,888 20,172	Total fair value 7,977 131,168 36,716 363 506 2,150 1,541 2,289 182,710 Total fair value 8,082 4,144 1,883 361 5,888 20,358
			Total carrying value 8,082 3,958 1,883 361 5,888 20,172

The Group does not have assets or liabilities measured at fair value on a non-recurring basis during the seven months ended 30 June 2018.

When the Group holds a group of derivative assets and derivative liabilities entered into with a particular counterparty, the Group takes into account the arrangements that mitigate credit risk exposure in the event of default (e.g. International Swap and Derivatives Association (ISDA) Master Agreements and Credit Support Annex (CSA) that require the exchange of collateral on the basis of each party’s net credit risk exposure). The Group measures the fair value of the group of financial assets and financial liabilities on the basis of its net exposure to the credit risk of that counterparty or the counterparty’s net exposure to our credit risk that reflects market participants’ expectations about the likelihood that such an arrangement would be legally enforceable in the event of default.

76

15. Fair value measurement of financial instruments (continued)

FAIR VALUE HIERARCHY FOR FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS ON A RECURRING BASIS

A summary of financial assets and liabilities carried at fair value on a recurring basis according to fair value hierarchy is given below:

US$m 30 June 2018 – Unaudited Recurring fair value measurement Financial assets Available for sale Debt securities At fair value through profit or loss Debt securities Participating funds Unit-linked contracts and consolidated investment funds Other policyholder and shareholder Equity securities Participating funds Unit-linked contracts and consolidated investment funds Other policyholder and shareholder Derivative financial instruments Foreign exchange contracts Interest rate contracts Other contracts Total financial assets on a recurring fair value measurement basis % of Total Financial liabilities Investment contract liabilities Derivative financial instruments Foreign exchange contracts Interest rate contracts Other liabilities Total financial liabilities on a recurring fair value measurement basis % of Total	Fair	value hierarchy Level 2 Level 3 104,948 1,280 20,795 529 4,529 69 265 66 488 491 169 1 840 829 239 – 88 – 51 – 132,412 3,265 77.7 1.9 – 7,350 364 – 66 – 1,164 – 1,594 7,350 17.8 82.2	Total 106,228 21,324 4,601 331 6,766 18,473 12,418 239 88 56
	Level 1 – – 3 – 5,787 18,303 10,749 – – 5 34,847 20.4 – – – – – –	Level 2 104,948 20,795 4,529 265 488 169 840 239 88 51 132,412 77.7 – 364 66 1,164 1,594 17.8
			170,524 100.0 7,350 364 66 1,164
			8,944 100.0

77

15. Fair value measurement of financial instruments (continued)

FAIR VALUE HIERARCHY FOR FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS ON A RECURRING BASIS (continued)

US$m 30 November 2017 Recurring fair value measurement Financial assets Available for sale Debt securities At fair value through profit or loss Debt securities Participating funds Unit-linked contracts and consolidated investment funds Other policyholder and shareholder Equity securities Participating funds Unit-linked contracts and consolidated investment funds Other policyholder and shareholder Derivative financial instruments Foreign exchange contracts Interest rate contracts Other contracts Total financial assets on a recurring fair value measurement basis % of Total Financial liabilities Investment contract liabilities Derivative financial instruments Foreign exchange contracts Interest rate contracts Other liabilities Total financial liabilities on a recurring fair value measurement basis % of Total	Fair	value hierarchy Level 2 Level 3 104,318 1,148 20,255 419 4,604 100 259 65 355 433 149 1 690 626 296 – 51 – 8 – 130,985 2,792 77.8 1.7 – 7,502 306 – 55 – 1,225 – 1,586 7,502 17.5 82.5	Total 105,466 20,674 4,704 324 6,822 18,953 10,941 296 51 16
	Level 1 – – – – 6,034 18,803 9,625 – – 8 34,470 20.5 – – – – – –	Level 2 104,318 20,255 4,604 259 355 149 690 296 51 8 130,985 77.8 – 306 55 1,225 1,586 17.5
			168,247 100.0 7,502 306 55 1,225
			9,088 100.0

The Group’s policy is to recognise transfers of assets and liabilities between Level 1 and Level 2 at their fair values as at the end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. During the seven months ended 30 June 2018, the Group transferred US$244m (30 November 2017: US$50m) of assets measured at fair value from Level 1 to Level 2. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. The Group transferred US$2m (30 November 2017: US$148m) of assets from Level 2 to Level 1 during the seven months ended 30 June 2018.

The Group’s Level 2 financial instruments include debt securities, equity securities and derivative instruments. The fair values of Level 2 financial instruments are estimated using values obtained from private pricing services and brokers corroborated with internal review as necessary. When the quotes from third-party pricing services and brokers are not available, internal valuation techniques and inputs will be used to derive the fair value for the financial instruments.

78

15. Fair value measurement of financial instruments (continued)

FAIR VALUE HIERARCHY FOR FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS ON A RECURRING BASIS (continued)

The table below sets out a summary of changes in the Group’s Level 3 financial assets and liabilities measured at fair value on a recurring basis for the seven months ended 30 June 2018. The table reflects gains and losses, including gains and losses on financial assets and liabilities categorised as Level 3 as at 30 June 2018.

Level 3 financial assets and liabilities

US$m At 1 December 2017 Net movement on investment contract liabilities Total gains/(losses) Reported under investment return in the interim consolidated income statement Reported under fair value reserve and foreign currency translation reserve in the interim consolidated statement of comprehensive income Purchases Sales Settlements Transfer into Level 3 At 30 June 2018 – Unaudited Change in unrealised gains or losses included in the interim consolidated income statement for assets and liabilities held at the end of the reporting period, under investment return	Debt securities 1,732 – 15 (12) 358 (9) (171) 31 1,944 13	Equity securities 1,060 – 9 (38) 311 (21) – – 1,321 (4)	Derivative financial assets/ (liabilities) – – – – – – – – – –	Investment contracts (7,502) 152 – – – – – – (7,350) –

Movements in investment contract liabilities at fair value are offset by movements in the underlying portfolio of matching assets.

There are not any differences between the fair values on initial recognition and the amounts determined using valuation techniques since the models adopted are calibrated using initial transaction prices.

79

15. Fair value measurement of financial instruments (continued)

SIGNIFICANT UNOBSERVABLE INPUTS FOR LEVEL 3 FAIR VALUE MEASUREMENTS

As at 30 June 2018, the valuation techniques and applicable unobservable inputs used to measure the Group’s Level 3 financial instruments are summarised as follows:

	Fair value at
	30 June 2018
	(Unaudited)
Description	(US$m)	Valuation techniques	Unobservable inputs	Range
Debt securities	1,053	Discounted cash flows	Discount rate for liquidity	4.68%-12.29%

VALUATION PROCESSES

The Group has the valuation policies, procedures and analyses in place to govern the valuation of financial assets required for financial reporting purposes, including Level 3 fair values. In determining the fair values of financial assets, the Group in general uses third-party pricing providers and, only in rare cases when third-party prices do not exist, will use prices derived from internal models. The Chief Investment Officers of each of the business units are required to review the reasonableness of the prices used and report price exceptions, if any. The Group Investment team analyses reported price exceptions and reviews price challenge responses from third-party pricing providers and provides the final recommendation on the appropriate price to be used. Any changes in valuation policies are reviewed and approved by the Group Valuations Advisory Committee which is part of the Group’s wider financial risk governance processes. Changes in Level 2 and 3 fair values are analysed at each reporting date.

The main Level 3 input used by the Group pertains to the discount rate for the fixed income securities and investment contracts. The unobservable inputs for determining the fair value of these instruments include the obligor’s credit spread and/or the liquidity spread. A significant increase/(decrease) in any of the unobservable input may result in a significantly lower/(higher) fair value measurement. The Group has subscriptions to private pricing services for gathering such information. If the information from private pricing services is not available, the Group uses the proxy pricing method based on internally-developed valuation inputs.

80

16. Cash and cash equivalents

US$m Cash Cash equivalents Total(1)	As at 30 June 2018 (Unaudited) 2,363 650 3,013	As at 30 November 2017 1,735 554 2,289

Note:

(1) Of cash and cash equivalents, US$469m (30 November 2017: US$385m) are held to back unit-linked contracts and US$87m (30 November 2017: US$71m) are held by consolidated investment funds.

Cash comprises cash at bank and cash in hand. Cash equivalents comprise bank deposits and highly liquid short-term investments with maturities at acquisition of three months or less and money market funds. Accordingly, all such amounts are expected to be realised within 12 months after the end of the reporting period.

17. Insurance and investment contract liabilities

INSURANCE CONTRACT LIABILITIES

Insurance contract liabilities (including liabilities in respect of investment contracts with DPF) can be analysed as follows:

US$m Deferred profit Unearned revenue Policyholders’ share of participating surplus Liabilities for future policyholder benefits Total	As at 30 June 2018 (Unaudited) 7,717 3,156 7,564 137,905 156,342	As at 30 November 2017 7,046 2,674 7,935 131,242 148,897

INVESTMENT CONTRACT LIABILITIES

Investment contract liabilities include deferred fee income of US$446m (30 November 2017: US$482m).

81

18. Borrowings

Borrowings
US$m Other loans Medium-term notes Total	As at 30 June 2018 (Unaudited) 970 4,451 5,421	As at 30 November 2017 – 3,958
		3,958

At 30 June 2018 and 30 November 2017, the Group did not have assets pledged as security with respect to amounts disclosed as other loans above.

The following table summarises the Company’s outstanding medium-term notes at 30 June 2018:

2018:
Issue date	Nominal amount	Interest rate	Tenor
13 March 2013(1)	US$500m	3.125%	10 years
11 March 2014(1)	US$500m	2.250%	5 years
11 March 2014(1)	US$500m	4.875%	30 years
11 March 2015(1)	US$750m	3.200%	10 years
16 March 2016(1)	US$750m	4.500%	30 years
23 May 2017(2)	US$500m	4.470%	30 years
6 April 2018(1)	US$500m	3.900%	10 years
12 April 2018	HK$3,900m	2.760%	3 years

Notes:

(1) These medium-term notes are listed on The Stock Exchange of Hong Kong Limited.

(2) These medium-term notes are listed on The Taipei Exchange, Taiwan. The Company has the right to redeem these notes at par on 23 May of each year beginning on 23 May 2022.

The net proceeds from issuance during the seven months ended 30 June 2018 are used for general corporate purposes.

The Group has access to an aggregate of US$3,074m unsecured committed credit facilities, which includes a US$300m revolving three-year credit facility expiring in 2020, along with a temporary increase to the facility of US$700m, as well as a US$2,074m five-year credit facility expiring in 2022. The credit facilities will be used for general corporate purposes. There were outstanding borrowings of US$970m under these credit facilities as of 30 June 2018 (30 November 2017: nil).

82

19. Obligations under repurchase agreements

The Group has entered into repurchase agreements whereby securities are sold to third parties with a concurrent agreement to repurchase the securities at a specified date.

The securities related to these agreements are not de-recognised from the Group’s interim consolidated statement of financial position, but are retained within the appropriate financial asset classification. During the term of the repurchase agreements, the Group is restricted from selling or pledging the transferred debt securities. The following table specifies the amounts included within financial investments subject to repurchase agreements which do not qualify for de-recognition at each period end:

US$m Debt securities – AFS Debt securities – FVTPL Total	As at 30 June 2018 (Unaudited) 1,987 35 2,022	As at 30 November 2017 1,854 12 1,866

COLLATERAL

At 30 June 2018, the Group had no pledged debt securities (30 November 2017: US$1m). No cash collateral (30 November 2017: US$1m) and debt collateral of US$2m (30 November 2017: nil) were held based on the market value of the securities transferred. In the absence of default, the Group does not sell or repledge the debt securities collateral received and they are not recognised in the interim consolidated statement of financial position.

At 30 June 2018, the obligations under repurchase agreements were US$1,977m (30 November 2017: US$1,883m).

83

20. Share capital and reserves

SHARE CAPITAL

SHARE CAPITAL
At beginning of the financial period Shares issued under share option scheme and agency share purchase plan At end of the financial period	As at 30 June 2018 Million shares US$m (Unaudited) (Unaudited) 12,074 14,065 2 4 12,076 14,069	As at 30 November 2017
	Million shares (Unaudited) 12,074 2 12,076	Million shares 12,056 18 12,074	US$m 13,998 67
			14,065

The Company issued 500,207 shares under share option scheme (30 November 2017: 17,053,136 shares) and 1,167,021 shares under agency share purchase plan (30 November 2017: 1,037,294 shares) during the seven months ended 30 June 2018.

The Company and its subsidiaries have not purchased, sold or redeemed any of the Company’s shares during the seven months ended 30 June 2018 with the exception of 749,578 shares (30 November 2017: 1,395,132 shares) of the Company purchased by and nil share (30 November 2017: nil) of the Company sold by the employee share-based trusts. These purchases were made by the relevant scheme trustees on the Hong Kong Stock Exchange. These shares are held on trust for participants of the relevant schemes and therefore were not cancelled.

During the seven months ended 30 June 2018, 11,750,286 shares (six months ended 31 May 2017: 14,417,864 shares) were transferred to eligible directors, officers and employees of the Group from the employee share-based trusts under share-based compensation plans as a result of vesting. As at 30 June 2018, 52,719,492 shares (30 November 2017: 63,720,201 shares) of the Company were held by the employee share-based trusts.

84

20. Share capital and reserves (continued)

RESERVES

Fair value reserve

The fair value reserve comprises the cumulative net change in the fair value of available for sale securities held at the end of the reporting period.

Foreign currency translation reserve

The foreign currency translation reserve comprises all foreign currency exchange differences arising from the translation of the financial statements of foreign operations.

Employee share-based trusts

Trusts have been established to acquire shares of the Company for distribution to participants in future periods through the share-based compensation plans. Those shares acquired by the trusts, to the extent not transferred to the participants upon vesting, are reported as “Employee share-based trusts”.

Property revaluation reserve

Property revaluation reserve comprises the cumulative net change in the revalued amount of property held for own use at the end of the reporting period. Property revaluation surplus is not considered to be a realised profit available for distribution to shareholders.

Other reserves

Other reserves mainly include the impact of merger accounting for business combinations under common control and share-based compensation.

85

21. Group capital structure

The Group is in compliance with the solvency and capital adequacy requirements applied by its regulators. The Group’s primary insurance regulator at the AIA Company Limited (AIA Co.) and AIA International Limited (AIA International) levels is the Hong Kong Insurance Authority (HKIA), which requires that AIA Co. and AIA International meet the solvency margin requirements of the Hong Kong Insurance Ordinance (HKIO). The HKIO (among other matters) sets minimum solvency margin requirements that an insurer must meet in order to be authorised to carry on insurance business in or from Hong Kong.

On 16 May 2017, the HKIA and the China Banking and Insurance Regulatory Commission (formerly the China Insurance Regulatory Commission) signed the Equivalence Assessment Framework Agreement on the Solvency Regulatory Regime. As a transitional arrangement, AIA will report under the Hong Kong Insurance Ordinance the capital position of its China branches based on the China local regulatory solvency basis progressively over a 4-year phase-in period to full implementation on 31 March 2022.

AIA has given an undertaking to the HKIA to maintain an excess of assets over liabilities for branches other than Hong Kong at no less than 100% of the Hong Kong statutory minimum solvency margin requirement in each of AIA Co. and AIA International.

The capital positions of the Group’s two principal operating companies as of 30 June 2018 and 30 November 2017 are as follows:

		30 June 2018		30	November 2017
		(Unaudited)
	Total	Regulatory		Total	Regulatory
	available	minimum	Solvency	available	minimum	Solvency
US$m	capital	capital	ratio	capital	capital	ratio
AIA Co.	9,382	2,047	458%	8,248	1,862	443%
AIA International	8,007	1,706	469%	7,826	2,431	322%

For these purposes, the Group defines total available capital as the amount of assets in excess of liabilities measured in accordance with the HKIO and “regulatory minimum capital” as the required minimum margin of solvency calculated in accordance with the HKIO. The solvency ratio is the ratio of total available capital to regulatory minimum capital.

The Group’s individual branches and subsidiaries are also subject to the supervision of government regulators in the jurisdictions in which those branches and subsidiaries and their parent entity operate and, in relation to subsidiaries, in which they are incorporated. The various regulators overseeing the Group actively monitor our local solvency positions. AIA Co. and AIA International submit annual filings to the HKIA of their solvency margin position based on their annual audited financial statements.

The ability of the Company to pay dividends to shareholders and to meet other obligations depends ultimately on dividends and other payments being received from its operating subsidiaries and branches, which are subject to contractual, regulatory and other limitations. The various regulators overseeing the individual branches and subsidiaries of the Group have the discretion to impose additional restrictions on the ability of those regulated subsidiaries and branches to make payment of dividends or other distributions and payments to AIA Co., including increasing the required margin of solvency that an operating unit must maintain. For example, capital may not be remitted without the consent from regulators for certain individual branches or subsidiaries of the Group. The payment of dividends, distributions and other payments to shareholders is subject to the oversight of the HKIA.

86

22. Risk management

The risks that the Group is exposed to include, but are not limited to, credit risk, interest rate risk, equity price risk, foreign exchange rate risk and liquidity risk.

CREDIT RISK

Credit risk is the risk that third parties fail to meet their obligations to the Group when they fall due. Although the primary source of credit risk is the Group’s investment portfolio, such risk can also arise through reinsurance, procurement, and treasury activities.

The Group’s credit risk management oversight process is governed centrally, but provides for decentralised management and accountability by our lines of business. A key to AIA’s credit risk management is adherence to a well-controlled underwriting process. The Group’s credit risk management starts with the assignment of an internal rating to all counterparties. A detailed analysis of each counterparty is performed and a rating recommended by the first lines of business. The Group’s Risk Management function manages the Group’s internal ratings framework and reviews these recommendations and makes final decision on the assigned ratings. Measuring and monitoring of credit risk is an ongoing process and is designed to enable early identification of emerging risk.

INTEREST RATE RISK

The Group’s exposure to interest rate risk predominantly arises from any differences between the duration of the Group’s liabilities and assets. Since most markets do not have assets of sufficient tenor to match life insurance liabilities, an uncertainty arises around the reinvestment of maturing assets to match the Group’s insurance liabilities.

AIA manages interest rate risk primarily on an economic basis to determine the durations of both assets and liabilities. Interest rate risk on local solvency basis is also taken into consideration for business units where local solvency regimes deviate from economic basis. Furthermore, for products with discretionary benefits, additional modelling of interest rate risk is performed to guide determination of appropriate management actions. Management also takes into consideration the asymmetrical impact of interest rate movements when evaluating products with options and guarantees.

EQUITY PRICE RISK

Equity price risk arises from changes in the market value of equity securities. Investments in equity securities on a long-term basis are expected to provide diversification benefits and enhance returns. The extent of exposure to equities at any time is subject to the terms of the Group’s strategic asset allocations.

Equity price risk is managed in the first instance through the individual investment mandates which define benchmarks and any tracking error targets. Equity limits are also applied to contain individual exposures. Equity exposures are included in the aggregate exposure reports on each individual counterparty to ensure concentrations are avoided.

87

22. Risk management (continued)

Sensitivity analysis

Sensitivity analysis to the key variables affecting financial assets and liabilities is set out in the table below. The carrying values of other financial assets are not subject to changes in response to movements in interest rates or equity prices. In calculating the sensitivity of debt and equity instruments to changes in interest rates and equity prices, the Group has made assumptions about the corresponding impact of asset valuations on liabilities to policyholders. Assets held to support unit-linked contracts have been excluded on the basis that changes in fair value are wholly borne by policyholders.

Information is presented to illustrate the estimated impact on profits and total equity arising from a change in a single variable before taking into account the effects of taxation.

The impact of any impairments of financial assets has been ignored for the purpose of illustrating the sensitivity of profit before tax and total equity before the effects of taxation to changes in interest rates and equity prices on the grounds that default events reflect the characteristics of individual issuers. As the Group’s accounting policies lock in interest rate assumptions on policy inception and the Group’s assumptions incorporate a provision for adverse deviations, the level of movement illustrated in this sensitivity analysis does not result in loss recognition and so there is not any corresponding effect on liabilities.

		30 June 2018		30	November 2017	November 2017
		(Unaudited)
			Impact on			Impact on
		Impact on	allocated		Impact on	allocated
		total equity	equity		total equity	equity
	Impact on	(before the	(before the	Impact on	(before the	(before the
	profit	effects of	effects of	profit	effects of	effects of
US$m	before tax	taxation)	taxation)	before tax	taxation)	taxation)
Equity price risk
10 per cent increase
in equity prices	1,329	1,329	1,329	1,182	1,182	1,182
10 per cent decrease
in equity prices	(1,329)	(1,329)	(1,329)	(1,182)	(1,182)	(1,182)
Interest rate risk
+ 50 basis points shift
in yield curves	(174)	(5,847)	(174)	(157)	(5,676)	(157)
- 50 basis points shift
in yield curves	187	6,475	187	169	6,272	169

FOREIGN EXCHANGE RATE RISK

The Group’s foreign exchange rate risk arises mainly from the Group’s operations in multiple geographical markets in the Asia-Pacific region and the translation of multiple currencies to US dollar for financial reporting purposes. The balance sheet values of our operating units and subsidiaries are not hedged to the Group’s presentation currency, the US dollar.

However, assets, liabilities and local regulatory and stress capital in each business unit are generally currency matched with the exception of holdings of equities denominated in currencies other than the functional currency, or any expected capital movements due within one year which may be hedged. Bonds denominated in currencies other than the functional currency are commonly hedged with cross-currency swaps or foreign exchange forward contracts.

88

22. Risk management (continued)

FOREIGN EXCHANGE RATE RISK (continued)

Foreign exchange rate net exposure

US$m 30 June 2018 – Unaudited Equity analysed by original currency Net notional amounts of currency derivative positions Currency exposure 5% strengthening of original currency Impact on profit before tax Impact on other comprehensive income Impact on total equity 5% strengthening of the US dollar Impact on profit before tax Impact on other comprehensive income Impact on total equity US$m 30 November 2017 Equity analysed by original currency Net notional amounts of currency derivative positions Currency exposure 5% strengthening of original currency Impact on profit before tax Impact on other comprehensive income Impact on total equity 5% strengthening of the US dollar Impact on profit before tax Impact on other comprehensive income Impact on total equity	United States Dollar Hong Kong Dollar 19,748 2,932 (8,479) 594 11,269 3,526 177 (10) (193) 151 (16) 141 177 46 (193) (187) (16) (141) United States Dollar Hong Kong Dollar 24,497 2,772 (9,225) 597 15,272 3,369 164 3 (188) 133 (24) 136 164 30 (188) (166) (24) (136)	Thai Baht 3,411 2,692 6,103 (9) 314 305 10 (315) (305) Thai Baht 3,768 2,535 6,303 (8) 323 315 9 (324) (315)	Singapore Dollar (2,323) 2,862 539 22 5 27 (7) (20) (27) Singapore Dollar (2,356) 3,005 649 21 12 33 (5) (28) (33)	Malaysian Ringgit 2,220 – 2,220 5 106 111 (3) (108) (111) Malaysian Ringgit 2,157 – 2,157 4 104 108 (3) (105) (108)	China Renminbi 3,950 6 3,956 15 183 198 (14) (184) (198) China Renminbi 3,527 8 3,535 19 158 177 (16) (161) (177)

89

22. Risk management (continued)

LIQUIDITY RISK

AIA identifies liquidity risk as occurring in two ways, financial liquidity risk and investment liquidity risk. Financial liquidity risk is the risk that insufficient cash is available to meet payment obligations to counterparties as they fall due. One area of particular focus in the management of financial liquidity is collateral. AIA manages this exposure by determining limits for its activities in the derivatives and repurchase agreement markets based on the collateral available within the relevant fund or subsidiary to withstand extreme market events. More broadly AIA supports its liquidity through committed bank facilities, use of the bond repurchase markets and maintaining access to debt markets via the Company’s Global Medium-term Note and Securities programme.

Investment liquidity risk occurs in relation to the Group’s ability to buy and sell investments. This is a function of the size of the Group’s holdings relative to the availability of counterparties willing to buy or sell these holdings at any given time. In times of stress, market losses will generally be compounded by forced sellers seeking unwilling buyers.

While life insurance companies are characterised by a relatively low need for liquidity to cover those of their liabilities which are directly linked to mortality and morbidity, this risk is nevertheless carefully managed by continuously assessing the relative liquidity of the Group’s assets and managing the size of individual holdings through limits.

US$m 30 June 2018 – Unaudited Financial assets (Policyholder and shareholder investments) Loans and deposits Other receivables Debt securities Equity securities Reinsurance receivables Accrued investment income Cash and cash equivalents Derivative financial instruments Subtotal Financial assets (Unit-linked contracts and consolidated investment funds) Total	Total Due in one year or less 7,511 994 1,706 1,585 127,883 3,155 19,184 – 553 553 1,670 1,667 2,457 2,457 381 137 161,345 10,548 23,860 – 185,205 10,548	Due after one year through five years Due after five years through ten years 1,045 294 74 2 17,725 29,373 – – – – – – – – 85 145 18,929 29,814 – – 18,929 29,814	Due after ten years 2,379 – 77,630 – – – – 14 80,023 – 80,023	No fixed maturity 2,799 45 – 19,184 – 3 – – 22,031 23,860
				45,891

90

22. Risk management (continued)

LIQUIDITY RISK (continued)

LIQUIDITY RISK (continued)
US$m Financial and insurance contract liabilities (Policyholder and shareholder investments) Insurance and investment contract liabilities (net of deferred acquisition and origination costs, and reinsurance) Borrowings Obligations under repurchase agreements Other liabilities Derivative financial instruments Subtotal Financial and insurance contract liabilities (Unit-linked contracts and consolidated investment funds) Total	Total Due in one year or less 115,814 2,676 5,421 1,469 1,977 1,977 4,266 3,165 430 185 127,908 9,472 23,865 – 151,773 9,472	Due after one year through five years Due after five years through ten years 10,579 11,527 994(1) 1,241 – – 110 2 95 97 11,778 12,867 – – 11,778 12,867	Due after ten years 91,032 1,717 – – 53 92,802 – 92,802	No fixed maturity – – – 989 – 989 23,865
				24,854

Note:

(1) These borrowings fall due after 2 years through 5 years.

91

22. Risk management (continued)

LIQUIDITY RISK (continued)

US$m 30 November 2017 Financial assets (Policyholder and shareholder investments) Loans and deposits Other receivables Debt securities Equity securities Reinsurance receivables Accrued investment income Cash and cash equivalents Derivative financial instruments Subtotal Financial assets (Unit-linked contracts and consolidated investment funds) Total Financial and insurance contract liabilities (Policyholder and shareholder investments) Insurance and investment contract liabilities (net of deferred acquisition and origination costs, and reinsurance) Borrowings Obligations under repurchase agreements Other liabilities Derivative financial instruments Subtotal Financial and insurance contract liabilities (Unit-linked contracts and consolidated investment funds) Total	Total 7,866 1,727 126,464 17,763 506 1,494 1,833 352 158,005 24,450 182,455 109,900 3,958 1,883 4,445 361 120,547 24,450 144,997	Due in one year or less 1,427 1,617 3,834 – 506 1,486 1,833 76 10,779 – 10,779 2,609 500 1,883 3,314 170 8,476 – 8,476	Due after one year through five years 919 59 17,553 – – 1 – 142 18,674 – 18,674 10,420 499(1) – 47 57 11,023 – 11,023	Due after five years through ten years 399 6 31,334 – – – – 122 31,861 – 31,861 11,404 1,242 – 2 86 12,734 – 12,734	Due after ten years 2,392 – 73,743 – – – – 12 76,147 – 76,147 85,467 1,717 – – 48 87,232 – 87,232	No fixed maturity 2,729 45 – 17,763 – 7 – – 20,544 24,450
						44,994
						– – – 1,082 – 1,082 24,450
						25,532

Note:

(1) No borrowings are due after 2 years through 5 years.

92

23. Share-based compensation

SHARE-BASED COMPENSATION PLANS

During the seven months ended 30 June 2018, the Group made further awards of share options, restricted share units (RSUs) and restricted stock purchase units (RSPUs) to certain directors, officers and employees of the Group under the Share Option Scheme (SO Scheme), the Restricted Share Unit Scheme (RSU Scheme) and the Employee Share Purchase Plan (ESPP). In addition, the Group made further awards of restricted stock subscription units (RSSUs) to eligible agents under the Agency Share Purchase Plan (ASPP).

VALUATION METHODOLOGY

The Group utilises a binomial lattice model to calculate the fair value of the share option awards, a Monte-Carlo simulation model and/or discounted cash flow technique to calculate the fair value of the RSU, ESPP and ASPP awards, taking into account the terms and conditions upon which the awards were made. The price volatility is estimated on the basis of implied volatility of the Company’s shares which is based on an analysis of historical data since they are traded in the Hong Kong Stock Exchange. The expected life of the share options is derived from the output of the valuation model and is calculated based on an analysis of expected exercise behaviour of the Company’s employees. The estimate of market condition for performance-based RSUs is based on one-year historical data preceding the grant date. An allowance for forfeiture prior to vesting is not included in the valuation of the awards.

The fair value calculated for share options is inherently subjective due to the assumptions made and the limitations of the model utilised.

The fair value calculated for share options is inherently and the limitations of the model utilised.	subjective due to the assumptions made	subjective due to the assumptions made
	Share option awards
	Seven months	Year ended
	ended	30 November
	30 June 2018	2017
	(Unaudited)
Assumptions
Risk-free interest rate	1.87%	1.45% – 1.90%
Volatility	20%	20%
Dividend yield	1.8%	1.8%
Exercise price (HK$)	67.15	50.30 – 61.55
Share option life (in years)	10	10
Expected life (in years)	7.95	7.95 – 8.00
Weighted average fair value per option/unit at
measurement date (HK$)	13.68	10.47

The weighted average share price for share option valuation for awards made during the seven months ended 30 June 2018 is HK$67.15 (30 November 2017: HK$51.70). The total fair value of share options awarded during the seven months ended 30 June 2018 is US$8m (six months ended 31 May 2017: US$11m).

RECOGNISED COMPENSATION COST

The total recognised compensation cost (net of expected forfeitures) related to various share-based compensation awards made under the RSU Scheme, SO Scheme, ESPP and ASPP by the Group for the seven months ended 30 June 2018 is US$46m (six months ended 31 May 2017: US$39m).

93

24. Remuneration of key management personnel

Key management personnel have been identified as the members of the Group’s Executive Committee.

Seven months ended 30 June 2018 US$ (Unaudited) Key management compensation and other expenses Salaries and other short-term employee benefits 15,169,418 Post-employment benefits 377,096 Share-based payments 8,503,129 Termination benefits – Total 24,049,643	Six months ended 31 May 2017 (Unaudited) 9,101,227 4,792,340 12,431,182 4,725,943 31,050,692

The emoluments of the key management personnel are within the following bands:

	Seven months	Seven months	Six months
		ended	ended
	30	June 2018	31 May 2017
US$	(Unaudited)		(Unaudited)
Below 1,000,000		–	3
1,000,001 to 2,000,000		7	5
2,000,001 to 3,000,000		4	1
3,000,001 to 4,000,000		–	1
4,000,001 to 5,000,000		1	1
Over 7,000,000		–	1

25. Commitments and contingencies

COMMITMENTS UNDER OPERATING LEASES

Total future aggregate minimum lease payments under non-cancellable operating leases are as follows:

US$m Properties and others expiring Not later than one year Later than one and not later than five years Later than five years Total	As at 30 June 2018 (Unaudited) 150 291 47 488	As at 30 November 2017 128 219 48 395

The Group is the lessee in respect of a number of properties and items of office equipment held under operating leases. The leases typically run for an initial period of one to ten years, with an option to renew the lease when all terms are renegotiated. Lease payments are usually reviewed at the end of the lease term to reflect market rates. None of the leases include contingent rentals.

94

25. Commitments and contingencies (continued)

INVESTMENT AND CAPITAL COMMITMENTS

US$m Not later than one year Later than one and not later than five years Total	As at 30 June 2018 (Unaudited) 1,368 3 1,371	As at 30 November 2017 1,231 6 1,237

Investment and capital commitments consist of commitments to invest in private equity partnerships and other assets.

CONTINGENCIES

The Group is subject to regulation in each of the geographical markets in which it operates from insurance, securities, capital markets, pension, data privacy and other regulators and is exposed to the risk of regulatory actions in response to perceived or actual non-compliance with regulations relating to suitability, sales or underwriting practices, claims payments and procedures, product design, disclosure, administration, denial or delay of benefits and breaches of fiduciary or other duties. The Group believes that these matters have been adequately provided for in these financial statements.

The Group is exposed to legal proceedings, complaints and other actions from its activities including those arising from commercial activities, sales practices, suitability of products, policies and claims. The Group believes that these matters are adequately provided for in these financial statements.

The Group is the reinsurer in a residential mortgage credit reinsurance agreement covering residential mortgages in Australia. The Group is exposed to the risk of losses in the event of the failure of the retrocessionaire, a subsidiary of American International Group, Inc., to honour its outstanding obligations which is mitigated by a trust agreement. The principal balance outstanding of mortgage loans to which the reinsurance agreement relates were approximately US$529m at 30 June 2018 (30 November 2017: US$561m). The liabilities and related reinsurance assets, which totalled US$2m (30 November 2017: US$2m), respectively, arising from these agreements are reflected and presented on a gross basis in these financial statements in accordance with the Group’s accounting policies. The Group expects to fully recover amounts outstanding at the reporting date under the terms of this agreement from the retrocessionaire.

26. Events after the reporting period

In September 2017, the Group reached an agreement to acquire Commonwealth Bank of Australia’s (CBA) life insurance business in Australia and life and health insurance businesses in New Zealand. The transaction includes 20-year strategic bancassurance partnerships with CBA in Australia and ASB Bank Limited in New Zealand. On 2 July 2018, the Group completed the acquisition of 100 per cent of share capital of 6 subsidiaries under CBA in New Zealand while the acquisition of CBA’s life insurance business in Australia remains in progress, subject to securing all necessary regulatory and governmental approvals. The transaction will expand the Group’s distribution capabilities and customer reach in Australia and New Zealand markets. As announced on 21 September 2017, the total gross consideration to be paid with respect to the proposed transaction is expected to be approximately US$3.0 billion payable in cash on completion of the proposed transaction and subject to certain adjustments at completion. After taking into account the expected proceeds from reinsurance agreements and the expected free surplus of the acquired business, the final net cash outlay by AIA is expected to be approximately US$1.5 billion.

On 24 August 2018, a Committee appointed by the Board of Directors declared an interim dividend of 29.20 Hong Kong cents per share (six months ended 31 May 2017: 25.62 Hong Kong cents per share).

95

27. Supplementary financial information on a calendar year basis

In February 2018, the Board resolved to change the Company’s financial year-end date from 30 November to 31 December. Accordingly, the current financial period-end date of the Company is 31 December 2018 and the next audited financial statements of the Group will cover a 13-month period from 1 December 2017 to 31 December 2018. In conjunction with this change, the following financial information is voluntarily disclosed by the Company for comparison purpose.

The accounting policies adopted to prepare the following supplementary financial information are consistent with those shown in note 2 of this 2018 interim condensed consolidated financial statements and note 2 of the 2017 consolidated financial statements.

(A) INTERIM CONSOLIDATED INCOME STATEMENT

US$m Revenue Premiums and fee income Premiums ceded to reinsurers Net premiums and fee income Investment return Other operating revenue Total revenue Expenses Insurance and investment contract benefits Insurance and investment contract benefits ceded Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs Other expenses Total expenses Profit before share of profit from associates and joint venture Share of profit from associates and joint venture Profit before tax Income tax credit/(expense) attributable to policyholders’ returns Profit before tax attributable to shareholders’ profits Tax expense Tax attributable to policyholders’ returns Tax expense attributable to shareholders’ profits Net profit Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests Earnings per share (US$) Basic Diluted	Six months ended 30 June 2018 (Unaudited) 14,901 (844) 14,057 1,382 123 15,562 10,965 (764) 10,201 1,757 1,023 84 334 13,399 2,163 1 2,164 40 2,204 (467) (40) (507) 1,697 1,662 35 0.14 0.14	Six months ended 30 June 2017 (Unaudited) 12,307 (728) 11,579 7,377 104 19,060 12,948 (606) 12,342 1,525 949 88 296 15,200 3,860 3 3,863 (106) 3,757 (586) 106 (480) 3,277 3,241 36 0.27 0.27

96

27. Supplementary financial information on a calendar year basis (continued)

(B) INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

US$m Assets Intangible assets Investments in associates and joint venture Property, plant and equipment(1) Investment property(1) Reinsurance assets Deferred acquisition and origination costs Financial investments: Loans and deposits Available for sale Debt securities At fair value through profit or loss Debt securities Equity securities Derivative financial instruments Deferred tax assets Current tax recoverable Other assets Cash and cash equivalents Total assets Liabilities Insurance contract liabilities Investment contract liabilities Borrowings Obligations under repurchase agreements Derivative financial instruments Provisions Deferred tax liabilities Current tax liabilities Other liabilities Total liabilities Equity Share capital Employee share-based trusts Other reserves Retained earnings Fair value reserve Foreign currency translation reserve Property revaluation reserve Others Amounts reflected in other comprehensive income Total equity attributable to: Shareholders of AIA Group Limited Non-controlling interests Total equity Total liabilities and equity	As at 30 June 2018 (Unaudited) 1,833 617 1,201 4,720 2,713 23,473 7,611 106,228 26,256 37,657 383 178,135 11 123 4,881 3,013 220,720 156,342 7,943 5,421 1,977 430 202 3,426 536 5,552 181,829 14,069 (254) (11,945) 35,175 2,178 (1,213) 521 (25) 1,461 38,506 385 38,891 220,720	As at 31 December 2017 (Unaudited) 1,870 643 1,225 4,363 2,549 21,950 8,210 106,788 26,081 38,079 345 179,503 13 117 4,491 1,922 218,646 151,475 8,210 3,958 1,557 271 223 3,611 497 5,288 175,090 14,065 (298) (11,943) 34,653 6,763 (569) 530 (25) 6,699 43,176 380 43,556 218,646

Note:

(1) The appraisal values for the real estate of the Group as at 31 December 2017 remain unchanged from those reported in the consolidated financial statements of the Group as at 30 November 2017.

97

27. Supplementary financial information on a calendar year basis (continued)

(C) EXCHANGE RATES

The Group’s principal overseas operations during the reporting period were located within the Asia-Pacific region. The results and cash flows of these operations have been translated into US dollars at the following average rates:

	US dollar exchange rates	US dollar exchange rates
	Six months	Six months
	ended	ended
	30 June 2018	30 June 2017
	(Unaudited)	(Unaudited)
Hong Kong	7.84	7.77
Thailand	31.74	34.71
Singapore	1.33	1.40
Malaysia	3.94	4.39
China	6.37	6.87

Assets and liabilities have been translated at the following period-end rates:

	US dollar exchange rates	US dollar exchange rates
	As at	As at
	30 June	31 December
	2018	2017
	(Unaudited)	(Unaudited)
Hong Kong	7.85	7.82
Thailand	33.16	32.61
Singapore	1.36	1.34
Malaysia	4.04	4.05
China	6.62	6.51

Exchange rates are expressed in units of local currency per US$1.

98

27. Supplementary financial information on a calendar year basis (continued)

(D) OPERATING PROFIT AFTER TAX

Operating profit after tax may be reconciled to net profit as follows:

US$m Operating profit after tax Non-operating items, net of related changes in insurance and investment contract liabilities: Short-term fluctuations in investment return related to equities and real estate (net of tax of: six months ended 30 June 2018: US$97m; six months ended 30 June 2017: US$(51)m)(1) Reclassification of revaluation gain for property held for own use (net of tax of: six months ended 30 June 2018: US$2m; six months ended 30 June 2017: US$1m)(1)(2) Other non-operating investment return and other items (net of tax of: six months ended 30 June 2018: US$(56)m; six months ended 30 June 2017: US$(1)m)(2) Net profit Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Net profit attributable to: Shareholders of AIA Group Limited Non-controlling interests	Six months ended 30 June 2018 (Unaudited) 2,674 (653) (177) (147) 1,697 2,653 21 1,662 35	Six months ended 30 June 2017 (Unaudited) 2,251 1,040 (20) 6 3,277 2,233 18 3,241 36

Operating profit is determined using, among others, expected long-term investment return for equities and real estate. Short-term fluctuations between expected long-term investment return and actual investment return for these asset classes are excluded from operating profit. The investment return assumptions used to determine expected long-term investment return are based on the same assumptions used by the Group in determining its embedded value and are disclosed in the Supplementary Embedded Value Information.

Notes:

• (1) Short-term fluctuations in investment return include the revaluation gain for property held for own use. This amount is then reclassified out of net profit to conform with IFRS measurement and presentation.

• (2) The comparative information has been adjusted to conform to current period presentation.

99

27. Supplementary financial information on a calendar year basis (continued)

(E) TOTAL WEIGHTED PREMIUM INCOME AND ANNUALISED NEW PREMIUMS

TWPI US$m TWPI by geography Hong Kong Thailand Singapore Malaysia China Other Markets Total First year premiums by geography Hong Kong Thailand Singapore Malaysia China Other Markets Total Single premiums by geography Hong Kong Thailand Singapore Malaysia China Other Markets Total Renewal premiums by geography Hong Kong Thailand Singapore Malaysia China Other Markets Total ANP US$m ANP by geography Hong Kong Thailand Singapore Malaysia China Other Markets Total	Six months ended 30 June 2018 (Unaudited) 5,075 1,803 1,392 1,047 2,076 3,036 14,429 1,096 259 173 153 601 489 2,771 1,340 133 960 100 78 354 2,965 3,845 1,531 1,123 884 1,467 2,512 11,362 Six months ended 30 June 2018 (Unaudited) 1,252 287 290 204 611 608 3,252	Six months ended 30 June 2017 (Unaudited) 4,275 1,571 1,172 882 1,467 2,807 12,174 1,345 216 131 136 415 422 2,665 912 90 570 76 62 309 2,019 2,839 1,346 984 738 1,046 2,354 9,307 Six months ended 30 June 2017 (Unaudited) 1,434 237 194 169 428 444 2,906

100

27. Supplementary financial information on a calendar year basis (continued)

(F) SEGMENT INFORMATION

SEGMENT INFORMATION	SEGMENT INFORMATION
US$m Hong Kong Six months ended 30 June 2018 – Unaudited ANP 1,252 TWPI 5,075 Net premiums, fee income and other operating revenue (net of reinsurance ceded) 5,892 Investment return 1,272 Total revenue 7,164 Net insurance and investment contract benefits 5,286 Commission and other acquisition expenses 626 Operating expenses 183 Finance costs and other expenses 63 Total expenses 6,158 Share of (losses)/profit from associates and joint venture – Operating profit before tax 1,006 Tax on operating profit before tax (77) Operating profit/(losses) after tax 929 Operating profit/(losses) after tax attributable to: Shareholders of AIA Group Limited 922 Non-controlling interests 7 Key operating ratios:		Thailand Singapore 287 290 1,803 1,392 1,786 1,587 670 590 2,456 2,177 1,340 1,604 368 164 108 102 26 15 1,842 1,885 – (1) 614 291 (118) (18) 496 273 496 273 – –		Malaysia 204 1,047 924 303 1,227 791 138 92 5 1,026 – 201 (41) 160 158 2	China 611 2,076 1,989 435 2,424 1,542 130 145 15 1,832 – 592 (156) 436 436 –	Other Markets Group Corporate Centre 608 – 3,036 – 1,990 10 546 165 2,536 175 1,368 12 329 1 294 99 30 60 2,021 172 3 (1) 518 2 (113) (27) 405 (25) 393 (25) 12 –		Total 3,252 14,429 14,178 3,981 18,159 11,943 1,756 1,023 214 14,936 1 3,224 (550) 2,674 2,653 21
Expense ratio Operating margin Operating return on shareholders’ allocated equity(1)	3.6% 18.3% 21.3%	6.0% 27.5% 16.8%	7.3% 19.6% 17.6%	8.8% 15.3% 19.3%	7.0% 21.0% 23.6%	9.7% 13.3% 11.7%	– – –	7.1% 18.5% 14.2%
Operating profit before tax includes:
Finance costs Depreciation and amortisation	14 15	1 5	– 8	– 8	9 12	2 22	50 5	76 75

Note:

(1) Operating return on shareholders’ allocated equity was measured on an annualised basis.

101

27. Supplementary financial information on a calendar year basis (continued)

(F) SEGMENT INFORMATION (continued)

US$m Hong Kong 30 June 2018 – Unaudited Total assets 68,416 Total liabilities 59,189 Total equity 9,227 Shareholders’ allocated equity 8,282 Net capital (out)/in flows (427) Total assets includes:	US$m Hong Kong 30 June 2018 – Unaudited Total assets 68,416 Total liabilities 59,189 Total equity 9,227 Shareholders’ allocated equity 8,282 Net capital (out)/in flows (427) Total assets includes:	Thailand Singapore 30,542 35,997 24,026 33,029 6,516 2,968 5,672 2,903 (145) –	Thailand Singapore 30,542 35,997 24,026 33,029 6,516 2,968 5,672 2,903 (145) –	Malaysia 14,634 13,076 1,558 1,548 (97)	China 22,510 18,901 3,609 3,431 (440)	Other Markets Group Corporate Centre 36,002 12,619 28,621 4,987 7,381 7,632 6,468 8,024 (79) 94	Other Markets Group Corporate Centre 36,002 12,619 28,621 4,987 7,381 7,632 6,468 8,024 (79) 94	Total 220,720 181,829 38,891 36,328 (1,094)
Investments in associates and joint venture	–	–	–	7	–	610	–	617

Segment information may be reconciled to the interim consolidated income statement as shown below:

US$m Six months ended 30 June 2018 – Unaudited	Segment information Short-term fluctuations in investment return related to equities and real estate	Segment information Short-term fluctuations in investment return related to equities and real estate	Other non-operating items(1)	Interim consolidated income statement
Net premiums, fee income and other operating revenue Investment return	14,178 3,981	– (1,092)	2 (1,507)	14,180 Net premiums, fee income and other operating revenue 1,382 Investment return
Total revenue	18,159	(1,092)	(1,505)	15,562 Total revenue
Net insurance and investment contract benefits Other expenses	11,943 2,993	(342) –	(1,400) 205	10,201 Net insurance and investment contract benefits 3,198 Other expenses
Total expenses Share of profit from associates and joint venture Operating profit before tax	14,936 1 3,224	(342) – (750)	(1,195) – (310)	13,399 Total expenses 1 Share of profit from associates and joint venture 2,164 Profit before tax

Note:

(1) Include unit-linked contracts.

102

27. Supplementary financial information on a calendar year basis (continued)

(F) SEGMENT INFORMATION (continued)

US$m Six months ended 30 June 2017 – Unaudited ANP TWPI Net premiums, fee income and other operating revenue (net of reinsurance ceded) Investment return Total revenue Net insurance and investment contract benefits Commission and other acquisition expenses Operating expenses Finance costs and other expenses Total expenses Share of profit from associates and joint venture Operating profit before tax Tax on operating profit before tax Operating profit after tax Operating profit after tax attributable to: Shareholders of AIA Group Limited Non-controlling interests Key operating ratios:	Hong Kong 1,434 4,275 4,717 1,033 5,750 4,141 492 173 55 4,861 – 889 (62) 827 821 6	Thailand 237 1,571 1,599 566 2,165 1,167 346 99 23 1,635 – 530 (107) 423 423 –	Singapore 194 1,172 1,344 529 1,873 1,356 153 86 14 1,609 – 264 (24) 240 240 –	Malaysia 169 882 782 260 1,042 700 105 84 6 895 – 147 (28) 119 118 1	China 428 1,467 1,401 346 1,747 1,124 86 132 12 1,354 – 393 (99) 294 294 –	Other Markets 444 2,807 1,839 523 2,362 1,289 336 271 20 1,916 3 449 (101) 348 337 11	Group Corporate Centre – – 1 172 173 1 – 104 60 165 – 8 (8) – – –	Total 2,906 12,174 11,683 3,429 15,112 9,778 1,518 949 190 12,435 3 2,680 (429) 2,251 2,233 18
Expense ratio Operating margin Operating return on shareholders’ allocated equity(1)	4.0% 19.3% 23.8%	6.3% 26.9% 17.2%	7.3% 20.5% 17.0%	9.5% 13.5% 16.8%	9.0% 20.0% 19.1%	9.7% 12.4% 11.5%	– – –	7.8% 18.5% 13.9%
Operating profit before tax includes:
Finance costs Depreciation and amortisation	14 9	3 3	– 5	– 7	4 8	1 15	48 5	70 52

Note:

(1) Operating return on shareholders’ allocated equity was measured on an annualised basis.

103

27. Supplementary financial information on a calendar year basis (continued)

(F) SEGMENT INFORMATION (continued)

US$m Hong Kong 30 June 2017 – Unaudited Total assets 60,604 Total liabilities 50,355 Total equity 10,249 Shareholders’ allocated equity 6,990 Net capital (out)/in flows (602) Total assets includes:	US$m Hong Kong 30 June 2017 – Unaudited Total assets 60,604 Total liabilities 50,355 Total equity 10,249 Shareholders’ allocated equity 6,990 Net capital (out)/in flows (602) Total assets includes:	Thailand 28,398 22,213 6,185 4,986 (197)	Singapore 34,132 30,758 3,374 2,919 –	Malaysia 13,444 12,073 1,371 1,347 (192)	China 19,297 16,173 3,124 3,030 (206)	Other Markets 35,336 27,633 7,703 6,012 28	Group Corporate Centre 10,986 3,578 7,408 7,416 288	Total 202,197 162,783 39,414 32,700 (881)
Investments in associates and joint venture	–	–	1	6	–	623	–	630

Segment information may be reconciled to the interim consolidated income statement as shown below:

US$m Six months ended 30 June 2017 – Unaudited	Segment information	Short-term fluctuations in investment return related to equities and real estate	Other non- operating items(1)	Interim consolidated income statement
Net premiums, fee income and other operating revenue Investment return	11,683 3,429	– 1,487	– 2,461	11,683 Net premiums, fee income and other operating revenue 7,377 Investment return
Total revenue	15,112	1,487	2,461	19,060 Total revenue
Net insurance and investment contract benefits Other expenses	9,778 2,657	396 –	2,168 201	12,342 Net insurance and investment contract benefits 2,858 Other expenses
Total expenses Share of profit from associates and joint venture Operating profit before tax	12,435 3 2,680	396 – 1,091	2,369 – 92	15,200 Total expenses 3 Share of profit from associates and joint venture 3,863 Profit before tax

Note:

(1) Include unit-linked contracts.

104

27. Supplementary financial information on a calendar year basis (continued)

(G) INVESTMENT RETURN

US$m Interest income Dividend income Rental income Investment income Available for sale Net realised gains from debt securities Net gains of available for sale financial assets reflected in the interim consolidated income statement At fair value through profit or loss Net (losses)/gains of financial assets designated at fair value through profit or loss Net (losses)/gains of debt securities Net (losses)/gains of equity securities Net (losses)/gains of financial instruments held for trading Net fair value movement on derivatives Net (losses)/gains in respect of financial instruments at fair value through profit or loss Net fair value movement of investment property Net foreign exchange gains/(losses) Other net realised losses Investment experience Investment return	Six months ended 30 June 2018 (Unaudited) 3,062 438 85 3,585 14 14 (371) (2,181) (279) (2,831) 391 226 (3) (2,203) 1,382	Six months ended 30 June 2017 (Unaudited) 2,736 341 74 3,151 83 83 241 3,653 467 4,361 200 (415) (3) 4,226 7,377

Foreign currency movements resulted in the following gains/(losses) recognised in the interim consolidated income statement (other than gains and losses arising on items measured at fair value through profit or loss):

	Six months	Six months
	ended	ended
US$m	30 June 2018	30 June 2017
	(Unaudited)	(Unaudited)
Foreign exchange gains/(losses)	212	(132)

105

27. Supplementary financial information on a calendar year basis (continued)

(H) EXPENSES

US$m Insurance contract benefits Change in insurance contract liabilities Investment contract benefits Insurance and investment contract benefits Insurance and investment contract benefits ceded Insurance and investment contract benefits, net of reinsurance ceded Commission and other acquisition expenses incurred Deferral and amortisation of acquisition costs Commission and other acquisition expenses Employee benefit expenses Depreciation Amortisation Operating lease rentals Other operating expenses Operating expenses Investment management expenses and others Depreciation on property held for own use Restructuring and other non-operating costs(1) Change in third-party interests in consolidated investment funds Other expenses Finance costs Total	Six months ended 30 June 2018 (Unaudited) 5,892 5,193 (120) 10,965 (764) 10,201 3,065 (1,308) 1,757 663 36 24 81 219 1,023 231 12 107 (16) 334 84 13,399	Six months ended 30 June 2017 (Unaudited) 5,155 7,029 764 12,948 (606) 12,342 2,687 (1,162) 1,525 613 31 21 72 212 949 188 11 73 24 296 88 15,200

Note:

(1) Restructuring costs represent costs related to restructuring programmes and are primarily comprised of redundancy and contract termination costs. Other non-operating costs primarily consist of acquisition-related, integration costs and implementation costs driven by the new accounting and regulatory requirements.

Finance costs may be analysed as:

US$m Repurchase agreements Medium-term notes Other loans Total	Six months ended 30 June 2018 (Unaudited) 12 70 2 84	Six months ended 30 June 2017 (Unaudited) 24 62 2 88

106

27. Supplementary financial information on a calendar year basis (continued)

(I) EARNINGS PER SHARE

Basic

Net profit attributable to shareholders of AIA Group Limited (US$m) Weighted average number of ordinary shares in issue (million) Basic earnings per share (US cents per share) Diluted Net profit attributable to shareholders of AIA Group Limited (US$m) Weighted average number of ordinary shares in issue (million) Adjustment for share options, restricted share units, restricted stock purchase units and restricted stock subscription units awarded under share-based compensation plans (million) Weighted average number of ordinary shares for diluted earnings per share (million) Diluted earnings per share (US cents per share)	Six months ended 30 June 2018 (Unaudited) 1,662 12,018 13.83 Six months ended 30 June 2018 (Unaudited) 1,662 12,018 32 12,050 13.79	Six months ended 30 June 2017 (Unaudited) 3,241 11,995 27.02 Six months ended 30 June 2017 (Unaudited) 3,241 11,995 23 12,018 26.97

At 30 June 2018, 5,613,880 share options (30 June 2017: 5,529,112) were excluded from the diluted weighted average number of ordinary shares calculation as their effect would have been anti-dilutive.

Operating profit after tax per share

Operating profit after tax per share
	Six months	Six months
	ended	ended
	30 June 2018	30 June 2017
	(Unaudited)	(Unaudited)
Basic (US cents per share)	22.08	18.62
Diluted (US cents per share)	22.02	18.58

107

27. Supplementary financial information on a calendar year basis (continued)

(J) FINANCIAL INVESTMENTS

Debt securities

Debt securities by type comprise the following:

US$m 31 December 2017 – Unaudited Government bonds Government agency bonds(1) Corporate bonds Structured securities(2) Total(3)	Policyholder and shareholder Participating funds Other policyholder and shareholder FVTPL FVTPL AFS 6,069 88 37,823 3,942 13 9,228 10,841 187 59,116 179 42 621 21,031 330 106,788	Policyholder and shareholder Participating funds Other policyholder and shareholder FVTPL FVTPL AFS 6,069 88 37,823 3,942 13 9,228 10,841 187 59,116 179 42 621 21,031 330 106,788	Subtotal 43,980 13,183 70,144 842 128,149	Unit-linked FVTPL 1,131 212 1,365 – 2,708	Consolidated investment funds(4) FVTPL – 344 1,668 – 2,012	Total 45,111 13,739 73,177 842
	Participating funds FVTPL 6,069 3,942 10,841 179 21,031
		FVTPL 88 13 187 42 330
						132,869

Notes:

• (1) Government agency bonds comprise bonds issued by government-sponsored institutions such as national, provincial and municipal authorities; government-related entities; multilateral development banks and supranational organisations.

• (2) Structured securities include collateralised debt obligations, mortgage-backed securities and other asset-backed securities.

• (3) As of 31 December 2017, debt securities of US$4,692m are restricted due to local regulatory requirements.

• (4) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

Equity securities

Equity securities by type comprise the following:

US$m 31 December 2017 – Unaudited Equity shares Interests in investment funds Total	Policyholder and shareholder Participating funds Other policyholder and shareholder FVTPL FVTPL 4,716 9,797 2,269 1,775 6,985 11,572	Subtotal 14,513 4,044 18,557	Unit-linked FVTPL 4,832 14,690 19,522	Consolidated investment funds(1) FVTPL – – –	Total 19,345 18,734
					38,079

Note:

• (1) Consolidated investment funds reflect 100 per cent of assets and liabilities held by such funds.

108

27. Supplementary financial information on a calendar year basis (continued)

(J) FINANCIAL INVESTMENTS (continued)

Debt and equity securities

US$m Debt securities Listed Unlisted Total Equity securities Listed Unlisted(1) Total	As at 31 December 2017 (Unaudited) 102,106 30,763 132,869 21,118 16,961 38,079

Note:

(1) As of 31 December 2017, the balance includes US$15,804m of investment funds which can be redeemed daily.

Loans and deposits

US$m Policy loans Mortgage loans on residential real estate Mortgage loans on commercial real estate Other loans Allowance for loan losses Loans Term deposits Promissory notes(1) Total	As at 31 December 2017 (Unaudited) 2,765 607 44 1,114 (12) 4,518 2,113 1,579 8,210

Note:

(1) The promissory notes are issued by a government.

109

27. Supplementary financial information on a calendar year basis (continued)

(K) INSURANCE AND INVESTMENT CONTRACT LIABILITIES

Insurance contract liabilities

Insurance contract liabilities (including liabilities in respect of investment contracts with DPF) can be analysed as follows:

US$m Deferred profit Unearned revenue Policyholders’ share of participating surplus Liabilities for future policyholder benefits Total	As at 31 December 2017 (Unaudited) 7,213 2,605 8,117 133,540 151,475

Investment contract liabilities

Investment contract liabilities include deferred fee income of US$475m.

(L) GROUP CAPITAL STRUCTURE

Regulatory Solvency

The capital positions of the Group’s two principal operating companies as of 31 December 2017 are as follows:

2017 are as follows:
	31	December 2017
		(Unaudited)
	Total	Regulatory
	available	minimum	Solvency
US$m	capital	capital	ratio
AIA Co.	8,395	1,882	446%
AIA International	7,883	2,511	314%

110

REPORT ON REVIEW OF SUPPLEMENTARY EMBEDDED VALUE INFORMATION AS AT AND FOR THE SIX-MONTH PERIOD ENDED 30 JUNE 2018 TO THE BOARD OF DIRECTORS OF AIA GROUP LIMITED

(incorporated in Hong Kong with limited liability)

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Introduction

We have reviewed the Supplementary Embedded Value Information (the “EV Information”) set out on pages 112 to 130, which comprises the EV consolidated results of AIA Group Limited (the “Company”) and its subsidiaries (together, the “Group”) as at and for the six-month period ended 30 June 2018, sensitivity analysis and a summary of significant methodology and assumptions and other explanatory notes. The directors of the Company are responsible for the preparation of the EV Information in accordance with the EV basis of preparation set out in Sections 4 and 5 of the EV Information. Our responsibility is to express a conclusion on this EV Information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

Scope of Review

We conducted our review in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. A review of the EV Information, including the summary of significant methodology and assumptions, consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Hong Kong Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the EV Information is not prepared, in all material respects, in accordance with the EV basis of preparation set out in Sections 4 and 5 of the EV Information.

Basis of Preparation

Without modifying our conclusion, we draw attention to Sections 4 and 5 of the EV Information, which describes the EV basis of preparation. As a result, the EV Information may not be suitable for another purpose. This report does not extend to any financial statements of the Company.

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PricewaterhouseCoopers Certified Public Accountants

Hong Kong, 24 August 2018

111

SUPPLEMENTARY EMBEDDED VALUE INFORMATION

Cautionary statements concerning Supplementary Embedded Value Information

This report includes non-IFRS financial measures and should not be viewed as a substitute for IFRS financial measures.

The results shown in this report are not intended to represent an opinion of market value and should not be interpreted in that manner. This report does not purport to encompass all of the many factors that may bear upon a market value.

The results shown in this report are based on a series of assumptions as to the future. It should be recognised that actual future results may differ from those shown, on account of the changes in the operating and economic environments and natural variations in experience. The results shown are presented at the valuation dates stated in this report and no warranty is given by the Group that future experience after these valuation dates will be in line with the assumptions made.

The Supplementary Embedded Value Information is unaudited, but has been reviewed by PricewaterhouseCoopers in accordance with Hong Kong Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Hong Kong Institute of Certified Public Accountants. PricewaterhouseCoopers’ independent review report to the Board of Directors is included on page 111.

112

1. Highlights

The embedded value (EV) is a measure of the value of shareholders’ interests in the earnings distributable from assets allocated to the in-force business after allowance for the aggregate risks in the business. The Group uses a traditional deterministic discounted cash flow methodology for determining its EV and value of new business (VONB). This methodology makes an implicit overall level of allowance for risk including the cost of investment return guarantees and policyholder options, asset-liability mismatch risk, credit risk, the risk that actual experience in future years differs from that assumed, and the economic cost of capital, through the use of a risk discount rate. The equity attributable to shareholders of the Company on the EV basis (EV Equity) is the total of the EV, goodwill and other intangible assets attributable to shareholders of the Company. More details of the EV results, methodology and assumptions are covered in later sections of this report.

In February 2018, the Board resolved to change the Company’s financial year-end date from 30 November to 31 December. Accordingly, the current financial year-end date of the Company is 31 December 2018. In conjunction with this change, the financial information as at 30 June 2017 and 31 December 2017 is provided for comparative purposes.

Summary of key metrics[(1)] (US$ millions)

	As at 30 June 2018 As at 31 December 2017 Growth CER(2) Growth AER (Unaudited)	(3
Equity attributable to shareholders of the Company on the EV basis (EV Equity) Embedded value (EV) Adjusted net worth (ANW) Value of in-force business(VIF)	53,628 52,429 4% 2% 52,012 50,779 4% 2% 22,975 20,974 10% 10% 29,037 29,805 – (3)%

	Six months ended 30 June 2018 Six months ended 30 June 2017 YoY CER YoY AER (Unaudited) (Unaudited)
Value of new business (VONB) Annualised new premiums (ANP) VONB margin EV operating profit Operating return on EV (OperatingROEV)(4)	1,954 1,605 17% 22% 3,252 2,906 9% 12% 59.5% 54.5% 4.4 pps 5.0 pps 4,152 3,370 19% 23% 17.0% 16.3% 0.7 pps 0.7 pps

Notes:

(1) The results are after adjustment to reflect the consolidated reserving and capital requirements and the present value of future after-tax unallocated Group Office expenses.

• (2) Constant exchange rates (CER). Change on constant exchange rates is calculated using constant average exchange rates for the current year and for the prior year other than for EV Equity, EV, ANW and VIF that use constant exchange rates as at the end of the current year and as at the end of the prior year.

• (3) Actual exchange rates (AER).

• (4) On an annualised basis.

113

2. Embedded Value Results

2.1 EMBEDDED VALUE BY BUSINESS UNIT

The EV as at 30 June 2018 is presented consistently with the segment information in the IFRS financial statements.

Summary of EV by Business Unit (US$ millions)

Business Unit AIA Hong Kong AIA Thailand AIA Singapore AIA Malaysia AIA China Other Markets Group Corporate Centre Subtotal Adjustment to reflect consolidated reserving and capital requirements(2) After-tax value of unallocated Group Office expenses Total Business Unit AIA Hong Kong AIA Thailand AIA Singapore AIA Malaysia AIA China Other Markets Group Corporate Centre Subtotal Adjustment to reflect consolidated reserving and capital requirements(2) After-tax value of unallocated Group Office expenses Total		As at 30 June 2018 (Unaudited)	As at 30 June 2018 (Unaudited)	As at 30 June 2018 (Unaudited)	EV 17,629 8,369 5,480 2,530 7,575 6,934 7,925 56,442 (3,418) (1,012) 52,012 EV 16,924 8,501 5,438 2,490 7,006 7,103 8,261 55,723 (3,877) (1,067) 50,779
	ANW(1) 6,572 4,680 2,201 1,140 2,507 4,442 8,055 29,597 (6,622) – 22,975	VIF before CoC CoC 11,871 814 4,479 790 3,928 649 1,597 207 5,068 – 3,352 860 (130) – 30,165 3,320 3,999 795 (1,012) – 33,152 4,115 As at 31 December		VIF after CoC 11,057 3,689 3,279 1,390 5,068 2,492 (130) 26,845 3,204 (1,012) 29,037 2017
	ANW(1) 6,701 4,566 2,516 1,200 2,143 4,823 8,381 30,330 (9,356) – 20,974	VIF before CoC 11,158 4,719 3,643 1,508 4,863 3,258 (121) 29,028 5,597 (1,067) 33,558	CoC 935 784 721 218 – 978 (1) 3,635 118 – 3,753	VIF after CoC 10,223 3,935 2,922 1,290 4,863 2,280 (120) 25,393 5,479 (1,067) 29,805

Notes:

(1) ANW by Business Unit is after net capital flows between Business Units and Group Corporate Centre as reported in the IFRS financial statements.

(2) Adjustment to reflect consolidated reserving and capital requirements as described in Section 2.3 of this report.

114

2. Embedded Value Results (continued)

2.2 RECONCILIATION OF ANW TO IFRS EQUITY

Derivation of the consolidated ANW from IFRS equity (US$ millions)

IFRS equity attributable to shareholders of the Company Elimination of IFRS deferred acquisition and origination costs assets Difference between IFRS policy liabilities and local statutory policy liabilities Difference between net IFRS policy liabilities and local statutory policy liabilities Mark-to-market adjustment for property and mortgage loan investments, net of amounts attributable to participating funds Elimination of intangible assets Recognition of deferred tax impacts of the above adjustments Recognition of non-controlling interests impacts of the above adjustments ANW (Business Unit) Adjustment to reflect consolidated reserving requirements, net of tax ANW (Consolidated)	As at 30 June 2018 (Unaudited) 38,506 (23,473) 13,944 (9,529) 494 (1,833) 1,902 57 29,597 (6,622) 22,975	As at 31 December 2017
		43,176 (21,950) 8,588
		(13,362) 348 (1,870) 1,979 59
		30,330 (9,356)
		20,974

2.3 BREAKDOWN OF ANW

The breakdown of the ANW for the Group between the required capital, as defined in Section 4.1 of this report, and the free surplus, which is the ANW in excess of the required capital, is set out below:

Free surplus and required capital for the Group (US$ millions)

Free surplus Required capital ANW	As at 30 June 2018 (Unaudited) Business Unit Consolidated 21,363 13,687 8,234 9,288 29,597 22,975	As at 31 December 2017	As at 31 December 2017
	Business Unit 21,363 8,234 29,597	Business Unit 21,831 8,499 30,330	Consolidated 12,586 8,388
			20,974

The Company’s subsidiaries, AIA Company Limited (AIA Co.) and AIA International Limited (AIA International) are both subject to the Hong Kong reserving and capital requirements. In addition, AIA International, which is incorporated in Bermuda, is subject to the Bermuda Monetary Authority (BMA) reserving and capital requirements. These regulatory and other consolidated reserving and capital requirements apply in addition to the relevant local requirements applicable to our Business Units.

As at 30 June 2018, the Hong Kong reserving and capital requirements, where applicable, are in excess of both the local reserving and capital requirements and the BMA reserving and capital requirements.

115

2. Embedded Value Results (continued)

2.4 EARNINGS PROFILE

The tables below show how the after-tax distributable earnings from the assets backing the statutory reserves and required capital of the in-force business of the Group are projected to emerge over future years. The projected values reflect the consolidated reserving and capital requirements.

Profile of projected after-tax distributable earnings for the Group’s in-force business (US$ millions)

(US$ millions)
Expected period of emergence 1 – 5 years 6 – 10 years 11 – 15 years 16 – 20 years 21 years and thereafter Total Expected period of emergence 1 – 5 years 6 – 10 years 11 – 15 years 16 – 20 years 21 years and thereafter Total	As at 30 June 2018 (Unaudited)
	Undiscounted Discounted 18,662 15,577 14,033 7,847 13,563 5,137 12,720 3,323 133,617 6,441 192,595 38,325 As at 31 December 2017	Discounted 15,577 7,847 5,137 3,323 6,441
		38,325
	Undiscounted 18,434 14,491 14,499 13,425 126,545 187,394	Discounted 15,175 7,952 5,386 3,434 6,246
		38,193

The profile of distributable earnings is shown on an undiscounted and discounted basis. The discounted value of after-tax distributable earnings of US$38,325 million (31 December 2017: US$38,193 million) plus the free surplus of US$13,687 million (31 December 2017: US$12,586 million) shown in Section 2.3 of this report is equal to the EV of US$52,012 million (31 December 2017: US$50,779 million) shown in Section 2.1 of this report.

116

2. Embedded Value Results (continued)

2.5 VALUE OF NEW BUSINESS

The VONB for the Group for the six months ended 30 June 2018 is summarised in the table below. The VONB is defined as the present value, at the point of sale, of the projected after-tax statutory profits less the cost of required capital. Results are presented consistently with the segment information in the IFRS financial statements.

The Group VONB for the six months ended 30 June 2018 was US$1,954 million, an increase of US$349 million, or 22 per cent on actual exchange rates, from US$1,605 million for the six months ended 30 June 2017.

Summary of VONB by Business Unit (US$ millions)

Business Unit AIA Hong Kong AIA Thailand AIA Singapore AIA Malaysia AIA China Other Markets Total before unallocated Group Office expenses (Business Unit) Adjustment to reflect consolidated reserving and capital requirements Total before unallocated Group Office expenses (Consolidated) After-tax value of unallocated Group Office expenses Total	Six months ended 30 June 2018 (Unaudited) VONB before CoC CoC VONB after CoC(1) 858 62 796 228 24 204 209 31 178 133 9 124 605 49 556 244 43 201 2,277 218 2,059 (33) (5) (28) 2,244 213 2,031 (77) – (77) 2,167 213 1,954	Six months ended 30 June 2018 (Unaudited) VONB before CoC CoC VONB after CoC(1) 858 62 796 228 24 204 209 31 178 133 9 124 605 49 556 244 43 201 2,277 218 2,059 (33) (5) (28) 2,244 213 2,031 (77) – (77) 2,167 213 1,954	Six months ended 30 June 2017 (Unaudited) VONB before CoC CoC VONB after CoC (1) 791 68 723 202 23 179 156 18 138 115 9 106 410 33 377 231 46 185 1,905 197 1,708 (36) (12) (24) 1,869 185 1,684 (79) – (79) 1,790 185 1,605	Six months ended 30 June 2017 (Unaudited) VONB before CoC CoC VONB after CoC (1) 791 68 723 202 23 179 156 18 138 115 9 106 410 33 377 231 46 185 1,905 197 1,708 (36) (12) (24) 1,869 185 1,684 (79) – (79) 1,790 185 1,605
	VONB before CoC 858 228 209 133 605 244 2,277 (33) 2,244 (77) 2,167	CoC 62 24 31 9 49 43 218 (5) 213 – 213	VONB before CoC 791 202 156 115 410 231 1,905 (36) 1,869 (79) 1,790	CoC 68 23 18 9 33 46 197 (12) 185 – 185

Note:

(1) VONB for the Group is calculated before deducting the amount attributable to non-controlling interests. The amounts of VONB attributable to non-controlling interests for the six months ended 30 June 2018 and 30 June 2017 were US$13 million and US$11 million respectively.

117

2. Embedded Value Results (continued)

2.5 VALUE OF NEW BUSINESS (continued)

The table below shows the breakdown of the VONB, ANP, VONB margin, and present value of new business premium (PVNBP) margin for the Group, by quarter, for business written in the six months ended 30 June 2018.

The VONB margin and PVNBP margin are defined as VONB, excluding pension business, expressed as a percentage of ANP and PVNBP, respectively. The VONB for pension business is excluded from the margin calculation to be consistent with the definition of ANP and PVNBP.

The Group VONB margin for the six months ended 30 June 2018 was 59.5 per cent compared with 54.5 per cent for the six months ended 30 June 2017. The Group PVNBP margin for the six months ended 30 June 2018 was 10 per cent compared with 9 per cent for the six months ended 30 June 2017.

Breakdown of VONB, ANP, VONB margin and PVNBP margin (US$ millions)

Half year Values for 2018 6 months ended 30 June 2018 (Unaudited) Values for 2017 6 months ended 30 June 2017 (Unaudited) Quarter Values for 2018 3 months ended 31 March 2018 (Unaudited) 3 months ended 30 June 2018 (Unaudited) Values for 2017 3 months ended 31 March 2017 (Unaudited) 3 months ended 30 June 2017 (Unaudited)	VONB after CoC 1,954 1,605 1,021 933 811 794	ANP 3,252 2,906 1,696 1,556 1,630 1,276	VONB Margin 59.5% 54.5% 59.7% 59.3% 49.2% 61.3%	PVNBP Margin 10% 9% 10% 10% 9% 10%

118

2. Embedded Value Results (continued)

2.5 VALUE OF NEW BUSINESS (continued)

The table below shows the VONB (excluding pension business), ANP, and VONB margin by Business Unit.

Summary of VONB excluding pension, ANP and VONB margin by Business Unit (US$ millions)

(US$ millions)
	Six	months ended		Six	months ended
	30 June 2018			30 June 2017
		(Unaudited)			(Unaudited)
	VONB			VONB
	Excluding		VONB	Excluding		VONB
Business Unit	Pension	ANP	Margin	Pension	ANP	Margin
AIA Hong Kong	779	1,252	62.2%	705	1,434	49.2%
AIA Thailand	204	287	71.0%	179	237	75.3%
AIA Singapore	178	290	61.4%	138	194	71.1%
AIA Malaysia	123	204	60.3%	105	169	62.3%
AIA China	556	611	91.0%	377	428	88.2%
Other Markets	200	608	32.8%	183	444	41.2%
Total before unallocated
Group Office expenses
(Business Unit)	2,040	3,252	62.7%	1,687	2,906	58.1%
Adjustment to reflect
consolidated reserving
and capital requirements	(28)	–		(25)	–
Total before unallocated
Group Office expenses
(Consolidated)	2,012	3,252	61.9%	1,662	2,906	57.2%
After-tax value of
unallocated Group
Office expenses	(77)	–		(79)	–
Total	1,935	3,252	59.5%	1,583	2,906	54.5%

119

2. Embedded Value Results (continued)

2.6 ANALYSIS OF EV MOVEMENT

Analysis of movement in EV (US$ millions)

Opening EV Value of new business Expected return on EV Operating experience variances Operating assumption changes Finance costs EV operating profit Investment return variances Effect of changes in economic assumptions Other non-operating variances Total EV profit Dividends Other capital movements Effect of changes in exchange rates Closing EV	Six months ended 30 June 2018 (Unaudited) ANW VIF EV 20,974 29,805 50,779 (357) 2,311 1,954 2,164 (234) 1,930 277 68 345 8 (13) (5) (72) – (72) 2,020 2,132 4,152 (1,724) 278 (1,446) – – – 3,160 (2,784) 376 3,456 (374) 3,082 (1,140) – (1,140) 45 – 45 (360) (394) (754) 22,975 29,037 52,012	Six months ended 30 June 2018 (Unaudited) ANW VIF EV 20,974 29,805 50,779 (357) 2,311 1,954 2,164 (234) 1,930 277 68 345 8 (13) (5) (72) – (72) 2,020 2,132 4,152 (1,724) 278 (1,446) – – – 3,160 (2,784) 376 3,456 (374) 3,082 (1,140) – (1,140) 45 – 45 (360) (394) (754) 22,975 29,037 52,012	Six months ended 30 June 2017 (Unaudited) ANW VIF EV 16,862 25,986 42,848 (291) 1,896 1,605 2,042 (374) 1,668 325 (103) 222 (213) 152 (61) (64) – (64) 1,799 1,571 3,370 877 160 1,037 – – – 282 (506) (224) 2,958 1,225 4,183 (983) – (983) 86 – 86 144 757 901 19,067 27,968 47,035	Six months ended 30 June 2017 (Unaudited) ANW VIF EV 16,862 25,986 42,848 (291) 1,896 1,605 2,042 (374) 1,668 325 (103) 222 (213) 152 (61) (64) – (64) 1,799 1,571 3,370 877 160 1,037 – – – 282 (506) (224) 2,958 1,225 4,183 (983) – (983) 86 – 86 144 757 901 19,067 27,968 47,035	YoY AER EV 19% 22% 16% 55% (92)% 13% 23% n/m(1) n/m n/m (26)% 16% (48)% n/m 11%
	ANW 20,974 (357) 2,164 277 8 (72) 2,020 (1,724) – 3,160 3,456 (1,140) 45 (360) 22,975	VIF 29,805 2,311 (234) 68 (13) – 2,132 278 – (2,784) (374) – – (394) 29,037	ANW 16,862 (291) 2,042 325 (213) (64) 1,799 877 – 282 2,958 (983) 86 144 19,067	VIF 25,986 1,896 (374) (103) 152 – 1,571 160 – (506) 1,225 – – 757 27,968

Note:

(1) Not meaningful (n/m).

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2. Embedded Value Results (continued)

2.6 ANALYSIS OF EV MOVEMENT (continued)

EV operating profit grew by 23 per cent on actual exchange rates to US$4,152 million (2017: US$3,370 million) compared with 2017. The growth reflected a combination of a higher VONB of US$1,954 million (2017: US$1,605 million) and a higher expected return on EV of US$1,930 million (2017: US$1,668 million). Overall operating experience variances and operating assumption changes were again positive at US$340 million (2017: US$161 million). Finance costs were US$72 million (2017: US$64 million).

The VONB is calculated at the point of sale for business written during the period before deducting the amount attributable to non-controlling interests. The expected return on EV is the expected change in the EV over the period plus the expected return on the VONB from the point of sale to 30 June 2018 less the VONB attributable to non-controlling interests. Operating experience variances reflect the impact on the ANW and VIF from differences between the actual experience over the period and that expected based on the operating assumptions.

The main operating experience variances, net of tax, were US$345 million (2017: US$222 million), reflecting:

• Expense variances of US$68 million (2017: US$17 million);

• Mortality and morbidity claims variances of US$141 million (2017: US$120 million); and

• Persistency and other variances of US$136 million (2017: US$85 million).

The effect of the changes in operating assumptions during the period was US$(5) million (2017: US$(61) million).

The EV profit of US$3,082 million (2017: US$4,183 million) is the total of the EV operating profit, investment return variances, the effect of changes in economic assumptions and other non-operating variances.

The investment return variances arise from the impact of differences between the actual investment returns in the period and the expected investment returns reflecting short-term fluctuations in investment returns. This amounted to US$(1,446) million (2017: US$1,037 million) from the effect of short-term equity market and other capital market movements on the Group’s investment portfolio and statutory reserves compared with the expected returns.

There were no changes in long-term economic assumptions used in the EV basis during the period (2017: nil).

Other non-operating variances amounted to US$376 million (2017: US$(224) million) which comprised the effects of subsidiarising AIA Korea and the transitional arrangement for equivalence as described in Section 4 partly offset by others including modelling-related enhancements.

The final dividend declared for 2017 was US$1,140 million (2017: US$983 million) which was paid in the first half of 2018.

Foreign exchange movements were US$(754) million (2017: US$901 million).

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2. Embedded Value Results (continued)

2.6 ANALYSIS OF EV MOVEMENT (continued)

Operating ROEV (US$ millions)

Operating return on EV (Operating ROEV) is calculated as EV operating profit expressed as a percentage of the opening EV and was 17.0% (2017: 16.3%) for the six months ended 30 June 2018.

Six months ended 30 June 2018 (Unaudited) Six months ended 30 June 2017 (Unaudited) EV operating profit 4,152 3,370 Opening EV 50,779 42,848 Operating ROEV(1) 17.0% 16.3%	YoY CER 19% 14% 0.7 pps	YoY AER 23% 19% 0.7 pps

Note:

(1) On an annualised basis.

2.7 EV EQUITY

The EV Equity grew to US$53,628 million at 30 June 2018, an increase of 2 per cent on actual exchange rates from US$52,429 million as at 31 December 2017.

Derivation of EV Equity from EV (US$ millions)

EV Goodwill and other intangible assets(1) EV Equity	As at 30 June 2018 As at 31 December 2017 (Unaudited) 52,012 50,779 1,616 1,650 53,628 52,429	Growth CER 4% (1)% 4%	Growth AER 2% (2)% 2%

Note:

(1) Consistent with the IFRS financial statements, net of tax, amounts attributable to participating funds and non-controlling interests.

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3. Sensitivity Analysis

The EV as at 30 June 2018 and the VONB for the six months ended 30 June 2018 have been recalculated to illustrate the sensitivity of the results to changes in certain central assumptions discussed in Section 5 of this report.

The sensitivities analysed were:

• Risk discount rates 200 basis points per annum higher than the central assumptions;

• Risk discount rates 200 basis points per annum lower than the central assumptions;

• Interest rates 50 basis points per annum higher than the central assumptions;

• Interest rates 50 basis points per annum lower than the central assumptions;

• The presentation currency (as explained below) appreciated by 5 per cent;

• The presentation currency depreciated by 5 per cent;

• Lapse and premium discontinuance rates increased proportionally by 10 per cent (i.e. 110 per cent of the central assumptions);

• Lapse and premium discontinuance rates decreased proportionally by 10 per cent (i.e. 90 per cent of the central assumptions);

• Mortality/morbidity rates increased proportionally by 10 per cent (i.e. 110 per cent of the central assumptions);

• Mortality/morbidity rates decreased proportionally by 10 per cent (i.e. 90 per cent of the central assumptions);

• Maintenance expenses 10 per cent lower (i.e. 90 per cent of the central assumptions); and

• Expense inflation set to 0 per cent.

The EV as at 30 June 2018 has been further analysed for the following sensitivities:

• Equity prices increased proportionally by 10 per cent (i.e. 110 per cent of the prices at 30 June 2018); and

• Equity prices decreased proportionally by 10 per cent (i.e. 90 per cent of the prices at 30 June 2018).

For the interest rate sensitivities, the investment return assumptions and the risk discount rates were changed by 50 basis points per annum; the projected bonus rates on participating business, the statutory reserving bases at 30 June 2018 and the values of debt instruments held at 30 June 2018 were changed to be consistent with the interest rate assumptions in the sensitivity analysis, while all the other assumptions were unchanged.

As the Group operates in multiple geographical markets in the Asia-Pacific region, the EV results for the Group are translated from multiple currencies to US dollar which is the Group’s presentation currency. In order to provide sensitivity results for EV and VONB of the impact of foreign currency movements, a change of 5 per cent to the US dollar is included.

For the equity price sensitivities, the projected bonus rates on participating business and the values of equity securities and equity funds held at 30 June 2018 were changed to be consistent with the equity price assumptions in the sensitivity analysis, while all the other assumptions were unchanged.

For each of the remaining sensitivity analyses, the statutory reserving bases as at 30 June 2018 and the projected bonus rates on participating business were changed to be consistent with the sensitivity analysis assumptions, while all the other assumptions remain unchanged.

123

3. Sensitivity Analysis (continued)

The sensitivities chosen do not represent the boundaries of possible outcomes, but instead illustrate how certain alternative assumptions would affect the results.

Sensitivity of EV (US$ millions)

Scenario Central value Impact of: 200 bps increase in risk discount rates 200 bps decrease in risk discount rates 10% increase in equity prices 10% decrease in equity prices 50 bps increase in interest rates 50 bps decrease in interest rates 5% appreciation in the presentation currency 5% depreciation in the presentation currency 10% increase in lapse/discontinuance rates 10% decrease in lapse/discontinuance rates 10% increase in mortality/morbidity rates 10% decrease in mortality/morbidity rates 10% decrease in maintenance expenses Expense inflation set to 0%	As at 30 June 2018 (Unaudited) EV Ratio 52,012 (6,304) (12.1)% 10,125 19.5% 783 1.5% (780) (1.5)% 342 0.7% (296) (0.6)% (1,669) (3.2)% 1,669 3.2% (831) (1.6)% 927 1.8% (3,623) (7.0)% 3,620 7.0% 615 1.2% 645 1.2%	As at 31 December 2017
		EV Ratio 50,779 (6,227) (12.3)% 10,052 19.8% 750 1.5% (743) (1.5)% 49 0.1% (456) (0.9)% (1,589) (3.1)% 1,589 3.1% (763) (1.5)% 886 1.7% (3,730) (7.3)% 3,665 7.2% 574 1.1% 605 1.2%

Sensitivity of VONB (US$ millions)

Scenario Central value Impact of: 200 bps increase in risk discount rates 200 bps decrease in risk discount rates 50 bps increase in interest rates 50 bps decrease in interest rates 5% appreciation in the presentation currency 5% depreciation in the presentation currency 10% increase in lapse/discontinuance rates 10% decrease in lapse/discontinuance rates 10% increase in mortality/morbidity rates 10% decrease in mortality/morbidity rates 10% decrease in maintenance expenses Expense inflation set to 0%	Six months ended 30 June 2018 (Unaudited) VONB Ratio 1,954 (481) (24.6)% 816 41.8% 91 4.7% (111) (5.7)% (61) (3.1)% 61 3.1% (100) (5.1)% 111 5.7% (185) (9.5)% 179 9.2% 50 2.6% 33 1.7%	Six months ended 30 June 2017 (Unaudited)
		VONB Ratio 1,605 (464) (28.9)% 889 55.4% 86 5.4% (131) (8.2)% (49) (3.1)% 49 3.1% (85) (5.3)% 90 5.6% (164) (10.2)% 158 9.8% 41 2.6% 26 1.6%

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4. Methodology

The methodology used by the Group for determining the EV results for the period is consistent with that described in Section 4 of the Supplementary Embedded Value Information in the Company’s Annual Report 2017 taking into account the regulatory capital requirements as set out in Section 4.1 below.

4.1 REQUIRED CAPITAL

Each of the Business Units has a regulatory requirement to hold shareholder capital in addition to the assets backing the insurance liabilities. The Group’s assumed levels of required capital for each Business Unit are set out in the table below.

Required capital by Business Unit

Business Unit Required Capital AIA Australia 100% of regulatory capital adequacy requirement AIA China 100% of required capital as specified under the CAA EV assessment guidance AIA Hong Kong 150% of required minimum solvency margin AIA Indonesia 120% of regulatory Risk-Based Capital requirement AIA Korea 150% of regulatory Risk-Based Capital requirement AIA Malaysia 170% of regulatory Risk-Based Capital requirement AIA Philippines 100% of regulatory Risk-Based Capital requirement AIA Singapore 180% of regulatory Risk-Based Capital requirement AIA Sri Lanka 120% of regulatory Risk-Based Capital requirement AIA Taiwan 250% of regulatory Risk-Based Capital requirement AIA Thailand 140% of regulatory Risk-Based Capital requirement AIA Vietnam 100% of required minimum solvency margin

Capital Requirements on Consolidation

The Group has an undertaking to the Hong Kong Insurance Authority (HKIA) to maintain required capital not less than the aggregate of 150% of the Hong Kong statutory minimum solvency margin requirement in respect of AIA Hong Kong and no less than 100% of the Hong Kong statutory minimum solvency margin requirement for branches other than Hong Kong.

AIA International and its subsidiaries hold required capital at no less than 120% of the BMA regulatory capital requirements.

Upon completion of transfer of AIA International’s insurance business in Korea from a branch to a wholly-owned subsidiary on 1 January 2018, AIA Life Insurance Co. Ltd. (AIA Korea) is subject to capital requirements determined internally by the Group for the purpose of consolidation, in addition to the above mentioned capital requirements.

On 16 May 2017, the HKIA and the China Banking and Insurance Regulatory Commission (formerly the China Insurance Regulatory Commission) signed the Equivalence Assessment Framework Agreement on the Solvency Regulatory Regime. As a transitional arrangement, AIA will report under the Hong Kong Insurance Ordinance the capital position of its China branches based on the China local regulatory solvency basis progressively over a 4-year phase-in period to full implementation on 31 March 2022.

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5. Assumptions

5.1 INTRODUCTION

This section summarises the assumptions used by the Group to determine the EV as at 30 June 2018 and as at 31 December 2017 and the VONB for the six months ended 30 June 2018 and 30 June 2017.

Long-term economic assumptions used in the EV basis for the interim results remain unchanged from those shown in Section 5.2 of the Supplementary Embedded Value Information in the Company’s Annual Report 2017. This is consistent with the approach that has been followed since the IPO in 2010.

The non-economic assumptions used are based on those at 30 November 2017, updated to reflect the Group’s view of the latest experience observed. A more detailed description of the assumptions as at 30 November 2017 and as at 31 May 2017 can be found in Section 5 of the Supplementary Embedded Value Information in the Company’s Annual Report 2017 and Interim Report 2017, respectively.

For clarity, the long-term economic assumptions used for the results as at 31 December 2017 and as at 30 June 2017 remain unchanged from those shown in Section 5 of the Supplementary Embedded Value Information in the Company’s Annual Report 2017 and Interim Report 2017, respectively. The non-economic assumptions used for the results as at 31 December 2017 and as at 30 June 2017 are based on those as at 30 November 2017 and as at 31 May 2017, respectively.

Note that the VONB results were calculated based on start-of-period economic assumptions consistent with measurement at the point of sale.

5.2 ECONOMIC ASSUMPTIONS

Investment returns

The Group has set the assumed long-term future returns for fixed income assets to reflect its view of expected returns having regard to estimates of long-term forward rates from yields available on government bonds and current bond yields. In determining returns on fixed income assets the Group allows for the risk of default, and this allowance varies by the credit rating of the underlying asset.

Where long-term views of investment return assumptions differ from current market yields on existing fixed income assets such that there would be a significant impact on value, an adjustment was made to make allowance for the current market yields. In these cases, in calculating the VIF, adjustments have been made to the investment return assumptions such that the investment returns on existing fixed income assets were set consistently with the current market yield on these assets for their full remaining term, to be consistent with the valuation of the assets backing the policy liabilities.

The Group has set the equity return and property return assumptions by reference to the return on 10-year government bonds, allowing for an internal assessment of risk premia that vary by asset class and by territory.

For each Business Unit, the non-linked portfolio is divided into a number of distinct product groups, and the returns for each of these product groups have been derived by considering current and future targeted asset allocations and associated investment returns for major asset classes.

For unit-linked business, fund growth assumptions have been determined based on actual asset mix within the funds at the valuation date and expected long-term returns for major asset classes.

126

5. Assumptions (continued)

5.2 ECONOMIC ASSUMPTIONS (continued)

Risk discount rates

The risk discount rates can be considered as the sum of the appropriate risk-free interest rate, to reflect the time value of money, and a risk margin to make an implicit overall level of allowance for risk.

The table below summarises the current market 10-year government bond yields referenced in EV calculations.

Business Unit AIA Australia AIA China AIA Hong Kong(1) AIA Indonesia AIA Korea AIA Malaysia AIA Philippines AIA Singapore AIA Sri Lanka AIA Taiwan AIA Thailand AIA Vietnam	Current market 10-year government bond yields referenced in EV calculations (%) As at 30 June 2018 As at 31 December 2017 As at 30 June 2017 (Unaudited) (Unaudited) 2.63 2.63 2.60 3.48 3.88 3.57 2.86 2.42 2.33 7.80 6.32 6.83 2.56 2.47 2.21 4.20 3.91 3.93 6.42 5.70 4.67 2.53 2.00 2.09 10.62 11.17 12.71 0.93 0.95 1.08 2.79 2.54 2.56 4.85 5.15 5.65

Note:

(1) The majority of AIA Hong Kong’s assets and liabilities are denominated in US dollars. The 10-year government bond yields shown above are those of US dollar-denominated bonds.

127

5. Assumptions (continued)

5.2 ECONOMIC ASSUMPTIONS (continued)

Risk discount rates (continued)

The table below summarises the risk discount rates and long-term investment returns assumed in EV calculations. The same risk discount rates were used for all the EV results shown in Section 1 and Section 2 of this report. The present value of unallocated Group Office expenses was calculated using the AIA Hong Kong risk discount rate. The investment returns on existing fixed income assets were set consistently with the market yields on these assets. Note that VONB results were calculated based on start-of-quarter economic assumptions consistent with the measurement at the point of sale. The investment returns shown are gross of tax and investment expenses.

Business Unit AIA Australia AIA China AIA Hong Kong(1) AIA Indonesia AIA Korea AIA Malaysia AIA Philippines AIA Singapore AIA Sri Lanka AIA Taiwan AIA Thailand AIA Vietnam	Risk discount rates assumed in EV calculations (%) As at 30 Jun 2018 (Unaudited) As at 31 Dec 2017 As at 30 Jun 2017 (Unaudited) 7.35 7.35 7.35 9.75 9.75 9.55 7.30 7.30 7.00 13.00 13.00 13.50 8.60 8.60 8.60 8.75 8.75 8.75 11.30 11.30 11.00 6.90 6.90 6.90 15.70 15.70 15.70 7.85 7.85 7.85 8.60 8.60 8.60 12.30 12.30 12.80	Long-term investment returns assumed in EV calculations (%)	Long-term investment returns assumed in EV calculations (%)
		10-year government bonds As at 30 Jun 2018 (Unaudited) As at 31 Dec 2017 As at 30 Jun 2017 (Unaudited) 3.00 3.00 3.00 3.70 3.70 3.50 2.80 2.80 2.50 7.50 7.50 8.00 2.70 2.70 2.70 4.20 4.20 4.20 4.80 4.80 4.50 2.50 2.50 2.50 10.00 10.00 10.00 1.60 1.60 1.60 3.20 3.20 3.20 6.50 6.50 7.00	Local equities
			As at 30 Jun 2018 (Unaudited) As at 31 Dec 2017 As at 30 Jun 2017 (Unaudited) 7.50 7.50 7.50 9.30 9.30 9.30 7.60 7.60 7.60 12.00 12.00 12.50 7.20 7.20 7.20 8.80 8.80 8.80 10.00 10.00 9.70 7.00 7.00 7.00 12.00 12.00 12.00 6.60 6.60 6.60 9.00 9.00 9.00 11.80 11.80 12.30

Note:

(1) The majority of AIA Hong Kong’s assets and liabilities are denominated in US dollars. The 10-year government bond assumptions shown above are those of US dollar-denominated bonds.

128

5. Assumptions (continued)

5.3 EXPENSE INFLATION

The assumed net expense inflation rates used by each Business Unit are set out below:

Expense inflation assumptions by Business Unit (%)

Business Unit AIA Australia AIA China AIA Hong Kong AIA Indonesia AIA Korea AIA Malaysia AIA Philippines AIA Singapore AIA Sri Lanka AIA Taiwan AIA Thailand AIA Vietnam	As at 30 June 2018 (Unaudited) 3.0 2.0 2.0 6.0 3.5 3.0 3.5 2.0 6.5 1.2 2.0 5.0	As at 31 December 2017 3.0 2.0 2.0 6.0 3.5 3.0 3.5 2.0 6.5 1.2 2.0 5.0

Unallocated Group Office expenses are assumed to inflate by the weighted average of the Business Unit expense inflation rates.

129

5. Assumptions (continued)

5.4 TAXATION

The projections of distributable earnings underlying the values presented in this report are net of corporate income tax, based on current taxation legislation and corporate income tax rates. The projected amount of tax payable in any year allows, where relevant, for the benefits arising from any tax loss carried forward.

The local corporate income tax rates used by each Business Unit are set out below:

Local corporate income tax rates by Business Unit (%)

Business Unit AIA Australia AIA China AIA Hong Kong AIA Indonesia AIA Korea AIA Malaysia AIA Philippines AIA Singapore AIA Sri Lanka AIA Taiwan AIA Thailand AIA Vietnam	As at 30 June 2018 (Unaudited) 30.0 25.0 16.5 25.0 27.5(1) 24.0 30.0 17.0 28.0 20.0 20.0 20.0	As at 31 December 2017 30.0 25.0 16.5 25.0 24.2 24.0 30.0 17.0 28.0 17.0 20.0 20.0

Note:

(1) From fiscal years 2018 to 2020, AIA Korea is subject to an assumed corporate income tax of 27.5%, which includes an Accumulated Earnings Tax following the subsidiarisation of AIA Korea. Based on current regulations, the corporate income tax rate will revert to 24.2% from fiscal year 2021.

The tax assumptions used in the valuation reflect the local corporate income tax rates set out above. Where applicable, tax payable on investment income has been reflected in projected investment returns.

The EV of the Group as at 30 June 2018 is calculated after deducting any remittance taxes payable on the anticipated distribution of both the ANW and VIF.

6. Events after the Reporting Period

In September 2017, the Group reached an agreement to acquire Commonwealth Bank of Australia’s (CBA) life insurance business in Australia and life and health insurance businesses in New Zealand. The transaction includes 20-year strategic bancassurance partnerships with CBA in Australia and ASB Bank Limited in New Zealand. On 2 July 2018, the Group completed the acquisition of 100 per cent of share capital of 6 subsidiaries under CBA in New Zealand while the acquisition of CBA’s life insurance business in Australia remains in progress, subject to securing all necessary regulatory and governmental approvals. The transaction will expand the Group’s distribution capabilities and customer reach in Australia and New Zealand markets. As announced on 21 September 2017, the total gross consideration to be paid with respect to the proposed transaction is expected to be approximately US$3.0 billion payable in cash on completion of the proposed transaction and subject to certain adjustments at completion. After taking into account the expected proceeds from reinsurance agreements and the expected free surplus of the acquired business, the final net cash outlay by AIA is expected to be approximately US$1.5 billion.

On 24 August 2018, a Committee appointed by the Board of Directors declared an interim dividend of 29.20 Hong Kong cents per share (six months ended 31 May 2017: 25.62 Hong Kong cents per share).

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CONDENSED BUSINESS AND FINANCIAL REVIEW FOR THE SEVEN MONTHS ENDED 30 JUNE 2018

The Company has changed its financial year-end to 31 December with the first set of interim condensed consolidated financial statements adopting the new year-end date for the seven months ended 30 June 2018. To facilitate a meaningful comparison of our performance in 2018 and 2017, we are also reporting supplementary financial information on a calendar year basis covering the six months ended 30 June 2018 for the current period and the six months ended 30 June 2017 for the prior period, and these are set out in note 27 to the interim financial statements. The financial information in the Financial and Operating Review as set out on page 2 to page 19 has been prepared on a like-for-like basis, that also covers the six months period from 1 January 2018 to 30 June 2018 for the current period and the six months period from 1 January 2017 to 30 June 2017 for the prior period.

This set of management discussion and analysis below covers the financial results for the seven months period from 1 December 2017 to 30 June 2018 for the current period and for the six months period from 1 December 2016 to 31 May 2017 for the prior period. When reporting the Group’s consolidated figures, there is currency translation effect as we report in US dollars. We have provided growth rates and commentaries on our key operating performance on a CER basis unless otherwise stated, as this provides a clearer picture of the performance of the underlying businesses.

BUSINESS REVIEW FOR THE SEVEN MONTHS ENDED 30 JUNE 2018

US$ millions, unless otherwise stated	Seven months Six months ended ended YoY YoY 30 June 2018 31 May 2017 CER AER
VONB VONB margin ANP Operating profit after tax	2,066 1,753 13% 18% 58.1% 54.2% 3.3pps 3.9pps 3,512 3,196 7% 10% 3,039 2,262 29% 34%

VONB increased by 13 per cent to US$2,066 million. All of our reportable market segments delivered positive VONB growth. Agency distribution remains our main source of new business and accounted for 71 per cent of the Group’s total VONB for the seven months ended 30 June 2018. The disciplined execution of our Premier Agency strategy has enabled us to deliver the 19 per cent VONB growth. VONB from partnership distribution remained stable, building on the exceptionally strong performance in our Hong Kong retail IFA channel for the six months ended 31 May 2017 as previously highlighted.

ANP grew by 7 per cent to US$3,512 million and VONB margin was up by 3.3 pps to 58.1 per cent.

IFRS OPAT grew by 29 per cent for the seven months ended 30 June 2018, primarily due to the additional one-month of profit relative to the result for the six months ended 31 May 2017, the new business growth over time and the proactive management of our portfolio.

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New Business Performance

VONB, ANP AND MARGIN BY SEGMENT

US$ millions, unless otherwise stated	Seven months ended 30 June 2018 VONB VONB Margin ANP	Six months ended 31 May 2017 VONB VONB Margin ANP	VONB Change YoY CER YoY AER
Hong Kong Thailand Singapore Malaysia China Other Markets	847 61.3% 1,348 229 70.7% 324 181 59.3% 305 133 60.3% 218 579 90.1% 642 216 31.9% 675	828 47.9% 1,696 173 74.7% 232 135 72.0% 187 104 61.8% 167 434 91.7% 474 184 41.1% 440	2% 2% 20% 32% 27% 34% 15% 28% 24% 33% 16% 17%
Subtotal Adjustment to reflect consolidated reserving and capital requirements After-tax value of unallocated Group Office expenses	2,185 61.5% 3,512 (31) n/m n/m (88) n/m n/m	1,858 57.5% 3,196 (27) n/m n/m (78) n/m n/m	13% 18% n/m n/m n/m n/m
Total	2,066 58.1% 3,512	1,753 54.2% 3,196	13% 18%

VONB grew by 13 per cent to US$2,066 million for the seven months ended 30 June 2018, building on a very strong performance of 42 per cent growth in VONB for the six months ended 31 May 2017. The result for the six months ended 31 May 2017 included an exceptional performance in the Hong Kong retail IFA channel.

ANP was higher by 7 per cent to US$3,512 million. VONB margin increased by 3.3 pps to 58.1 per cent and present value of new business premium (PVNBP) margin remained stable at 10 per cent compared with the six months ended 31 May 2017.

Agency distribution remains our main source of new business and accounted for 71 per cent of the Group’s total VONB for the seven months ended 30 June 2018. The disciplined execution of our Premier Agency strategy has enabled us to deliver a 19 per cent VONB growth. VONB from partnership distribution remained stable, building on the exceptionally strong performance in the Hong Kong retail IFA channel for the six months ended 31 May 2017.

Hong Kong delivered VONB growth of 2 per cent to US$847 million for the seven months ended 30 June 2018 with a very strong performance in both agency and bancassurance channels. Sales of higher-margin products resulted in lower ANP of US$1,348 million but with an increased VONB margin of 61.3 per cent.

AIA’s wholly-owned operation in China delivered VONB growth of 24 per cent to US$579 million for the seven months ended 30 June 2018, predominantly from higher sale volumes as we continued to focus on quality recruitment and ongoing productivity enhancement through the disciplined execution of our Premier Agency strategy.

Thailand reported VONB growth of 20 per cent to US$229 million for the seven months ended 30 June 2018. Sales momentum strengthened during the period as we continued to enhance and expand our Financial Adviser programme to drive the transformation of our agency force in Thailand.

Singapore delivered VONB growth of 27 per cent mainly driven by 53 per cent growth in ANP for the seven months ended 30 June 2018. VONB margin was lower at 59.3 per cent as a result of lower profitability from our HealthShield business and a shift in product mix.

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Malaysia reported VONB growth of 15 per cent to US$133 million for the seven months ended 30 June 2018. New business performance for the period was affected by reduced consumer activity relating to the country’s general election and ahead of changes to Goods and Services Tax (GST).

Other Markets reported VONB growth of 16 per cent. Highlights included strong performances from Indonesia, Korea, the Philippines, Taiwan and Vietnam. ANP grew by 52 per cent to US$675 million and VONB margin reduced to 31.9 per cent. The reported results for Other Markets were affected by the uneven timing of large group insurance schemes in Australia.

VONB is reported after a US$119 million total deduction for the consolidated reserving and capital requirements over and above local statutory requirements and for the present value of unallocated Group Office expenses.

IFRS FINANCIAL REVIEW FOR THE SEVEN MONTHS ENDED 30 JUNE 2018

OPAT[(1)] BY SEGMENT

OPAT(1) BY SEGMENT
US$ millions, unless otherwise stated	Seven months Six months ended ended YoY YoY 30 June 2018 31 May 2017 CER AER
Hong Kong Thailand Singapore Malaysia China Other Markets Group Corporate Centre	1,066 836 28% 28% 562 413 23% 36% 314 235 27% 34% 183 119 36% 54% 505 305 53% 66% 438 349 24% 26% (29) 5 n/m n/m
Total	3,039 2,262 29% 34%

Note: (1) Attributable to shareholders of the Company only excluding non-controlling interests.

OPAT for the seven months ended 30 June 2018 was US$3,039 million, up by 29 per cent as compared with the six months ended 31 May 2017 primarily due to the additional one-month of profit for June 2018, the growth in new business over time and the proactive management of our portfolio.

Hong Kong delivered strong result reflecting growth in our business and an improvement in claims experience, which was partly offset by a shift in product mix towards participating business. China achieved excellent growth, primarily supported by the growing scale of our business and reflecting our high-quality sources of earnings.

Thailand and Singapore also had strong OPAT in line with business growth. OPAT in Malaysia increased as a result of improved claims and lapse experience for the seven months ended 30 June 2018. Other Markets delivered strong OPAT growth with strong performances in most of our operating markets.

Annualised operating ROE for the seven months ended 30 June 2018 was 14.1 per cent compared with 14.2 per cent for the six months ended 31 May 2017, reflecting strong OPAT growth offset by a higher average shareholders’ allocated equity for the seven months ended 30 June 2018.

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TWPI BY SEGMENT

TWPI BY SEGMENT
US$ millions, unless otherwise stated	Seven months Six months ended ended YoY YoY 30 June 2018 31 May 2017 CER AER
Hong Kong Thailand Singapore Malaysia China Other Markets	6,132 4,507 36% 36% 2,140 1,594 22% 34% 1,560 1,143 28% 36% 1,209 875 23% 38% 2,436 1,509 50% 61% 3,518 2,765 24% 27%
Total	16,995 12,393 31% 37%

TWPI increased to US$16,995 million for the seven months ended 30 June 2018 compared with the six-month period ended 31 May 2017 due to business growth.

IFRS OPERATING PROFIT INVESTMENT RETURN

US$ millions, unless otherwise stated	Seven months Six months ended ended YoY YoY 30 June 2018 31 May 2017 CER AER
Interest income Expected long-term investment return for equities and real estate	3,508 2,635 27% 33% 1,125 767 40% 47%
Total	4,633 3,402 30% 36%

IFRS operating profit investment return increased to US$4,633 million for the seven months ended 30 June 2018 compared with US$3,402 million for the six months ended 31 May 2017. The growth was primarily driven by an increased level of investments over the period.

OPERATING EXPENSES

OPERATING EXPENSES
US$ millions, unless otherwise stated	Seven months Six months ended ended YoY YoY 30 June 2018 31 May 2017 CER AER
Operating expenses	1,218 936 25% 30%

Operating expenses grew to US$1,218 million for the seven months ended 30 June 2018 mainly due to the additional one-month result for June 2018. Expense ratio for the seven months ended 30 June 2018 was 7.2 per cent compared with 7.6 per cent for the six months ended 31 May 2017.

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NET PROFIT[(1)]

NET PROFIT(1)
US$ millions, unless otherwise stated	Seven months Six months ended ended YoY YoY 30 June 2018 31 May 2017 CER AER
OPAT Short-term fluctuations in investment return related to equities and real estate, net of tax(2) Reclassification of revaluation gain for property held for own use, net of tax(2)(3) Other non-operating investment return and other items, net of tax(3)	3,039 2,262 29% 34% (520) 773 n/m n/m (177) (20) n/m n/m (114) (90) n/m n/m
Total	2,228 2,925 (26)% (24)%

Notes:

(1) Attributable to shareholders of the Company only excluding non-controlling interests.

(2) Short-term fluctuations in investment return include the revaluation gain for property held for own use. This amount is then reclassified out of net profit to conform to IFRS measurement and presentation.

(3) The comparative information has been adjusted to conform to current period presentation.

IFRS NON-OPERATING MOVEMENT

AIA’s IFRS net profit definition includes mark-to-market movements from our equity portfolio. Equity markets declined significantly for the seven months ended 30 June 2018, compared with large gains reported previously in 2017. Consequently, IFRS net profit decreased to US$2,228 million driven by negative short-term fluctuations in investment returns of US$520 million for the seven months ended 30 June 2018 compared with positive movements of US$773 million for the six months ended 31 May 2017. Other non-operating items of negative US$114 million for the seven months ended 30 June 2018 included tax expenses of US$94 million in relation to the subsidiarisation of AIA Korea.

MOVEMENT IN SHAREHOLDERS’ ALLOCATED EQUITY

US$ millions, unless otherwise stated	Seven months ended 30 June 2018 Year ended 30 November 2017 Six months ended 31 May 2017
Opening shareholders’ allocated equity Net profit Purchase of shares held by employee share-based trusts Dividends Revaluation (losses)/gains on property held for own use Foreign currency translation adjustments Other capital movements	35,658 29,632 29,632 2,228 6,120 2,925 (7) (10) (5 (1,140) (1,376) (983 (6) 78 32 (462) 1,061 502 57 153 93
Total movement in shareholders’ allocated equity	670 6,026 2,564
Closing shareholders’ allocated equity	36,328 35,658 32,196
Average shareholders’ allocated equity	36,855 32,645 31,848

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The movement in shareholders’ allocated equity is shown before fair value reserve movements. AIA believes this provides a clearer reflection of the underlying movement in shareholders’ equity over the period, before the IFRS accounting treatment of market value movements in available for sale bonds.

Average shareholders’ allocated equity increased by US$5,007 million to US$36,855 million for the seven months ended 30 June 2018 compared with US$31,848 million for the six months ended 31 May 2017 as a result of the strong capital market performance in 2017.

Shareholders’ allocated equity grew to US$36,328 million at 30 June 2018 reflecting net profit of US$2,228 million for the period partly offset by the negative foreign exchange translation movements of US$462 million and the payment of shareholder dividends of US$1,140 million. The negative movement in foreign currency translation for the seven months ended 30 June 2018 was concentrated in the month of June 2018.

IFRS Earnings per Share (EPS)

Basic EPS based on IFRS OPAT attributable to shareholders increased to 25.29 US cents as a result of OPAT growth for the seven months ended 30 June 2018.

Basic EPS based on IFRS net profit attributable to shareholders, including mark-to-market movements from our equity and investment property portfolios, decreased to 18.54 US cents for the seven months ended 30 June 2018.

IFRS EPS – BASIC

IFRS EPS – BASIC
	Net Profit(1) OPAT(1) Seven months Six months Seven months Six months ended ended ended ended 30 June 2018 31 May 2017 30 June 2018 31 May 2017
Profit (US$ millions) Weighted average number of ordinary shares (millions) Basic earnings per share (US cents)	2,228 2,925 3,039 2,262 12,017 11,989 12,017 11,989 18.54 24.40 25.29 18.87

IFRS EPS – DILUTED

IFRS EPS – DILUTED
	Net Profit(1) OPAT(1) Seven months Six months Seven months Six months ended ended ended ended 30 June 2018 31 May 2017 30 June 2018 31 May 2017
Profit (US$ millions) Weighted average number of ordinary shares(2)(millions) Diluted earnings per share(2) (US cents)	2,228 2,925 3,039 2,262 12,050 12,012 12,050 12,012 18.49 24.35 25.22 18.83

Notes:

(1) Attributable to shareholders of the Company only excluding non-controlling interests.

(2) Diluted earnings per share including the dilutive effects, if any, of the awards of share options, restricted share units, RSPUs and RSSUs granted to eligible directors, officers, employees and agents under the share-based compensation plans as described in note 38 to the financial statements in our Annual Report 2017.

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IFRS Balance Sheet

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

US$ millions, unless otherwise stated	As at As at Change 30 June 2018 30 November 2017 AER
Assets Financial investments Investment property Cash and cash equivalents Deferred acquisition and origination costs Other assets	178,135 176,220 1% 4,720 4,365 8% 3,013 2,289 32% 23,473 21,847 7% 11,379 10,970 4%
Total assets Liabilities Insurance and investment contract liabilities Borrowings Other liabilities	220,720 215,691 2% 164,285 156,979 5% 5,421 3,958 37% 12,123 12,382 (2)%
Less total liabilities Equity Total equity Less non-controlling interests	181,829 173,319 5% 38,891 42,372 (8)% 385 378 2%
Total equity attributable to shareholders of AIA Group Limited	38,506 41,994 (8)%
Shareholders’ allocated equity	36,328 35,658 2%

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MOVEMENT IN SHAREHOLDERS’ EQUITY

		Seven	months		Year ended	Six months
			ended	30 November		ended
US$ millions, unless otherwise stated		30 June 2018			2017	31 May 2017
Opening shareholders’ equity			41,994		34,984	34,984
Net profit			2,228		6,120	2,925
Fair value (losses)/gains on assets			(4,158)		984	766
Purchase of shares held by employee
share-based trusts			(7)		(10)	(5)
Dividends			(1,140)		(1,376)	(983)
Revaluation (losses)/gains on property
held for own use			(6)		78	32
Foreign currency translation adjustments			(462)		1,061	502
Other capital movements			57		153	93
Total movement in shareholders’ equity			(3,488)		7,010	3,330
Closing shareholders’ equity			38,506		41,994	38,314
TOTAL INVESTMENTS
		As at			As at
	30 June		Percentage		30 November	Percentage
US$ millions, unless otherwise stated		2018	of total		2017	of total
Total policyholder and shareholder	163,993			87%	160,327	87%
Total unit-linked contracts and
consolidated investment funds		23,732		13%	24,231	13%
Total investments	187,725			100%	184,558	100%

The investment mix remained stable for the seven months ended 30 June 2018 as set out below:

UNIT-LINKED CONTRACTS AND CONSOLIDATED INVESTMENT FUNDS

US$ millions, unless otherwise stated	As at 30 June 2018 Percentage of total As at 30 November 2017 Percentage of total
Unit-linked contracts and consolidated investment funds Debt securities Loans and deposits Equities Cash and cash equivalents Derivatives	4,601 19% 4,704 19% 100 – 107 1% 18,473 78% 18,953 78% 556 3% 456 2% 2 – 11 –
Total unit-linked contracts and consolidated investment funds	23,732 100% 24,231 100%

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POLICYHOLDER AND SHAREHOLDER INVESTMENTS

US$ millions, unless otherwise stated	As at 30 June 2018 Percentage of total As at 30 November 2017 Percentage of total
Participating funds Government and government agency bonds Corporate bonds and structured securities Loans and deposits	10,750 7% 9,585 6% 10,574 7% 11,089 7% 2,090 1% 2,037 1%
Subtotal – Fixed income investments Equities Investment property and property held for own use Cash and cash equivalents Derivatives	23,414 15% 22,711 14% 6,766 4% 6,822 4% 472 – 468 1% 188 – 249 – 46 – 73 –
Subtotal participating funds Other policyholder and shareholder Government and government agency bonds Corporate bonds and structured securities Loans and deposits	30,886 19% 30,323 19% 46,928 29% 46,447 29% 59,631 36% 59,343 37% 5,421 3% 5,829 4%
Subtotal – Fixed income investments Equities Investment property and property held for own use Cash and cash equivalents Derivatives	111,980 68% 111,619 70% 12,418 8% 10,941 7% 6,105 4% 5,581 3% 2,269 1% 1,584 1% 335 – 279 –
Subtotal other policyholder and shareholder	133,107 81% 130,004 81%
Total policyholder and shareholder	163,993 100% 160,327 100%

ASSETS

Total assets increased by US$5,029 million to US$220,720 million at 30 June 2018, compared with US$215,691 million at 30 November 2017.

Total investments including financial investments, investment property, property held for own use, and cash and cash equivalents increased by US$3,167 million to US$187,725 million at 30 June 2018, compared with US$184,558 million at 30 November 2017.

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Of the total US$187,725 million investments at 30 June 2018, US$163,993 million were held in respect of policyholders and shareholders and the remaining US$23,732 million were backing unit-linked contracts and consolidated investment funds.

Fixed income investments, including debt securities, loans and term deposits held in respect of policyholders and shareholders, totalled US$135,394 million at 30 June 2018 compared with US$134,330 million at 30 November 2017. The average credit rating of the fixed income portfolio of A remained consistent with the position at 30 November 2017.

Government and government agency bonds represented 43 per cent of fixed income investments at 30 June 2018, compared with 42 per cent at 30 November 2017. Corporate bonds and structured securities accounted for 52 per cent of fixed income investments at 30 June 2018 and 30 November 2017.

Equity securities held in respect of policyholders and shareholders totalled US$19,184 million at 30 June 2018, compared with US$17,763 million at 30 November 2017. The US$1,421 million increase in carrying value was mainly attributable to new purchases offset by negative mark-to-market movements. Within this figure, equity securities of US$6,766 million were held in participating funds.

Cash and cash equivalents increased by US$724 million to US$3,013 million at 30 June 2018 compared with US$2,289 million at 30 November 2017. The increase largely reflected positive net cash inflows from our operating business, net proceeds of the issuance of medium-term notes in April 2018 of US$991 million and the short-term bank loans of US$970 million, partly offset by the redemption of medium-term notes of US$500 million upon maturity and the payment of shareholder dividends of US$1,140 million.

Investment property and property held for own use in respect of policyholders and shareholders totalled US$6,577 million at 30 June 2018 compared with US$6,049 million at 30 November 2017.

Deferred acquisition and origination costs increased to US$23,473 million at 30 June 2018 compared with US$21,847 million at 30 November 2017, largely reflecting new business growth.

Other assets increased to US$11,379 million at 30 June 2018 compared with US$10,970 million at 30 November 2017, reflecting an increase in reinsurance recoveries, accrued interest and prepayments.

LIABILITIES

Total liabilities increased to US$181,829 million at 30 June 2018 from US$173,319 million at 30 November 2017.

Insurance and investment contract liabilities grew to US$164,285 million at 30 June 2018 compared with US$156,979 million at 30 November 2017, reflecting the underlying growth of the in-force portfolio offset by negative mark-to-market movements on equities backing unit-linked and participating policies and negative foreign exchange translation.

Borrowings increased to US$5,421 million at 30 June 2018, due to the net proceeds of the issuance of medium-term notes in April 2018 of US$991 million and the short-term bank loans of US$970 million, partly offset by the redemption of medium-term notes of US$500 million upon maturity. Medium-term notes issued in 2014 will mature in March 2019 as disclosed in note 18 to the interim financial statements.

Other liabilities were US$12,123 million at 30 June 2018, compared with US$12,382 million at 30 November 2017.

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INFORMATION FOR SHAREHOLDERS

REVIEW OF FINANCIAL STATEMENTS

The Audit Committee of the Company has reviewed the Group’s unaudited interim condensed consolidated financial statements for the seven months ended 30 June 2018.

INTERIM DIVIDEND

The Board has declared an interim dividend of 29.20 Hong Kong cents per share for the seven months ended 30 June 2018 (six months ended 31 May 2017: 25.62 Hong Kong cents per share).

The interim dividend will be payable on Friday, 28 September 2018 to shareholders whose names appear on the register of members of the Company at the close of business on Tuesday, 11 September 2018.

Relevant Dates for the 2018 Interim Dividend Payment

Ex-dividend date 10 September 2018 Record date 11 September 2018 Payment date 28 September 2018

RECORD DATE

In order to qualify for the entitlement of the interim dividend, all properly completed transfer forms, accompanied by the relevant share certificates, must be lodged for registration with the Company’s share registrar, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong, not later than 4:30 p.m. on Tuesday, 11 September 2018.

SHARE REGISTRAR

If you have any enquiries relating to your shareholding, please contact the Company’s share registrar with the contact details set out below:

Computershare Hong Kong Investor Services Limited 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong Telephone: + 852 2862 8555 Email: hkinfo@computershare.com.hk (for general enquiries) aia.ecom@computershare.com.hk (for printed copies of the Company’s corporate communications)

Website: www.computershare.com

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INTERIM REPORT

This Interim Report is printed in English and Chinese and is available on the website of the Company. If you would like to have a printed version of this Interim Report, please contact the Company’s share registrar using the contact details provided in this Interim Report.

The Company makes every effort to ensure consistency between the Chinese and English versions of this Interim Report. In the event of any inconsistency, however, the English version shall prevail.

For environmental and cost reasons, shareholders are encouraged to elect to receive the Company’s corporate communications (as defined in the Listing Rules) electronically. You may at any time send written notice to the Company c/o the Company’s share registrar or via email at aia.ecom@computershare.com.hk specifying your name, address and request to change your choice of language or means of receipt of all corporate communications.

INVESTMENT COMMUNITY AND NEWS MEDIA

Enquiries may be directed to:

Investment Community Lance Burbidge +852 2832 1398 Feon Lee +852 2832 4704 Rachel Poon +852 2832 4792	News Media
	Stephen Thomas +852 2832 6178 Emerald Ng +852 2832 4720

BOARD OF DIRECTORS

The Board comprises:

Independent Non-executive Chairman and Independent Non-executive Director: Mr. Edmund Sze-Wing Tse

Executive Director, Group Chief Executive and President: Mr. Ng Keng Hooi

Independent Non-executive Directors:

Mr. Jack Chak-Kwong So, Mr. Chung-Kong Chow, Mr. John Barrie Harrison, Mr. George Yong-Boon Yeo, Mr. Mohamed Azman Yahya, Professor Lawrence Juen-Yee Lau, Ms. Swee-Lian Teo, Dr. Narongchai Akrasanee and Mr. Cesar Velasquez Purisima

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FORWARD-LOOKING STATEMENTS

This document may contain certain forward-looking statements relating to the Group that are based on the beliefs of the Group’s management as well as assumptions made by and information currently available to the Group’s management. These forward-looking statements are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to the Group’s business prospects, future developments, trends and conditions in the industry and geographical markets in which the Group operates, its strategies, plans, objectives and goals, its ability to control costs, statements relating to prices, volumes, operations, margins, overall market trends, risk management and exchange rates.

When used in this document, the words “anticipate”, “believe”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may”, “ought to”, “plan”, “project”, “seek”, “should”, “will”, “would” and similar expressions, as they relate to the Group or the Group’s management, are intended to identify forwardlooking statements. These forward-looking statements reflect the Group’s views as of the date hereof with respect to future events and are not a guarantee of future performance or developments. You are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. Actual results and events may differ materially from information contained in the forward-looking statements as a result of a number of factors, including any changes in the laws, rules and regulations relating to any aspects of the Group’s business operations, general economic, market and business conditions, including capital market developments, changes or volatility in interest rates, foreign exchange rates, equity prices or other rates or prices, the actions and developments of the Group’s competitors and the effects of competition in the insurance industry on the demand for, and price of, the Group’s products and services, various business opportunities that the Group may or may not pursue, changes in population growth and other demographic trends, including mortality, morbidity and longevity rates, persistency levels, the Group’s ability to identify, measure, monitor and control risks in the Group’s business, including its ability to manage and adapt its overall risk profile and risk management practices, its ability to properly price its products and services and establish reserves for future policy benefits and claims, seasonal fluctuations and factors beyond the Group’s control. Subject to the requirements of the Listing Rules, the Group does not intend to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, forwardlooking events and circumstances discussed in this document might not occur in the way the Group expects, or at all. Accordingly, you should not place reliance on any forward-looking information or statements. All forward-looking statements in this document are qualified by reference to the cautionary statements set forth in this section.

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GLOSSARY

active agent

An agent who sells at least one policy per month.

active market

A market in which all the following conditions exist:

• the items traded within the market are homogeneous;

• willing buyers and sellers can normally be found at any time; and

• prices are available to the public.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

• adjusted net worth or ANW ANW is the market value of assets in excess of the assets backing the policy reserves and other liabilities of the life (and similar) business of AIA, plus the IFRS equity value of other activities, such as general insurance business, less the value of intangible assets. It excludes any amounts not attributable to shareholders of AIA Group Limited. ANW for AIA is stated after adjustment to reflect consolidated reserving requirements. ANW by market is stated before adjustment to reflect consolidated reserving requirements, and presented on a local statutory basis.

AER Actual exchange rates. AIA or the Group AIA Group Limited and its subsidiaries. AIA Co. AIA Company Limited, a company incorporated in Hong Kong and a subsidiary of the Company. AIA International AIA International Limited, a company incorporated in Bermuda and an indirect subsidiary of the Company. AIA Vitality A science-backed wellness programme that provides participants with the knowledge, tools and motivation to help them achieve their personal health goals. The programme is a partnership between AIA and Discovery Limited, a specialist insurer headquartered in South Africa. ALC The AIA Leadership Centre located in Bangkok, Thailand.

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amortised cost	The amount at which the financial asset or financial liability is measured
	at initial recognition minus principal repayments, plus or minus the
	cumulative amortisation using the effective interest method of any
	difference between the initial amount and the maturity amount, and
	minus any reduction for impairment or uncollectibility.
annualised new	ANP represents 100 per cent of annualised first year premiums and
premiums or ANP	10 per cent of single premiums, before reinsurance ceded. It is an
	internally used measure of new business sales or activity for all entities
	within AIA. ANP excludes new business of pension business, personal
	lines and motor insurance. For group renewable business, it includes
	any premium payable on existing schemes that exceeds the prior year’s
	premiums.
ASPP	Agency Share Purchase Plan, adopted by the Company on 23 February
	2012, a share purchase plan with matching offer to facilitate and
	encourage AIA share ownership by agents.
available for sale (AFS)	Financial assets that may be sold before maturity and that are used
financial assets	to back insurance and investment contract liabilities and shareholders’
	equity, and which are not managed on a fair value basis. Non-derivative
	financial assets that are designated as available for sale or are not
	classified as loans and receivables or as at fair value through profit or
	loss. Available for sale financial instruments are measured at fair value,
	with movements in fair value recorded in other comprehensive income.
bancassurance	The distribution of insurance products through banks or other financial
	institutions.
Board	The board of Directors.
CER	Constant exchange rates. Change on constant exchange rates is
	calculated using constant average exchange rates for the current period
	and for the prior period other than for balance sheet items that use
	constant exchange rates as at the end of the current period and as at
	the end of the prior year.
Company	AIA Group Limited, a company incorporated in Hong Kong with limited
	liability, whose shares are listed on the Main Board of the Hong Kong
	Stock Exchange (stock code: 1299).
consolidated investment	Investment funds in which the Group has interests and power to direct
funds	their relevant activities that affect the return of the funds.
Corporate Governance	Corporate Governance Code set out in Appendix 14 to the Listing
Code	Rules.

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• cost of capital or CoC CoC is calculated as the face value of the required capital as at the valuation date less the present value of the net-of-tax investment return on the shareholder assets backing the required capital and the present value of projected releases from the assets backing the required capital. Where the required capital may be covered by policyholder assets such as surplus assets in participating funds, there is no associated cost of capital included in the VIF or VONB. CoC for AIA is stated after adjustment to reflect consolidated capital requirements. CoC by market is stated before adjustment to reflect consolidated capital requirements, and presented on a local statutory basis.

Dealing Policy Directors’ and Chief Executives’ Dealing Policy of the Company.

• deferred acquisition Acquisition costs are expenses of an insurer which are incurred in costs or DAC connection with the acquisition of new insurance contracts or the renewal of existing insurance contracts. They include commissions and other variable sales inducements and the direct costs of issuing the policy, such as underwriting and other policy issue expenses. These costs are deferred and expensed to the consolidated income statement on a systematic basis over the life of the policy. Such assets are tested for recoverability at least annually.

• deferred origination Origination costs are expenses which are incurred in connection costs or DOC with the origination of new investment contracts or the renewal of existing investment contracts. For contracts that involve the provision of investment management services, these include commissions and other incremental expenses directly related to the issue of each new contract. Origination costs on contracts with investment management services are deferred and recognised as an asset in the consolidated statement of financial position and expensed to the consolidated income statement on a systematic basis in line with the revenue generated by the investment management services provided. Such assets are tested for recoverability.

Director(s) The director(s) of the Company.

• embedded value or EV An actuarially determined estimate of the economic value of a life insurance business based on a particular set of assumptions as to future experience, excluding any economic value attributable to future new business. EV for AIA is stated after adjustments to reflect consolidated reserving and capital requirements and the after-tax value of unallocated Group Office expenses. EV by market is stated before adjustments to reflect consolidated reserving and capital requirements and unallocated Group Office expenses, and presented on a local statutory basis.

EPS

Earnings per share.

• equity attributable to EV Equity is the total of embedded value, goodwill and other intangible shareholders of the assets attributable to shareholders of the Company.

• Company on the embedded value basis or EV Equity

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ESPP	Employee Share Purchase Plan, adopted by the Company on 25 July
	2011 (as amended), a share purchase plan with matching offer to
	facilitate and encourage AIA share ownership by employees.
ExCo	The Executive Committee of the Group.
fair value through profit or	Financial assets that are held to back unit-linked contracts and
loss or FVTPL	participating funds or financial assets and liabilities that are held for
	trading. A financial asset or financial liability that is measured at fair
	value in the statement of financial position with gains and losses arising
	from movements in fair value being presented in the consolidated
	income statement as a component of the profit or loss for the period.
first half	The six months from 1 January to 30 June.
first quarter	The three months from 1 January to 31 March.
first year premiums	First year premiums are the premiums received in the first year of a
	recurring premium policy. As such, they provide an indication of the
	volume of new policies sold.
free surplus	ANW in excess of the required capital. Free surplus for AIA is
	stated after adjustment to reflect consolidated reserving and capital
	requirements.
group insurance	An insurance scheme whereby individual participants are covered by a
	master contract held by a single group or entity on their behalf.
Group Office	Group Office includes the activities of the Group Corporate Centre
	segment consisting of the Group’s corporate functions, shared services
	and eliminations of intragroup transactions.
HKFRS	Hong Kong Financial Reporting Standards.
HKIA	Insurance Authority established under the Insurance Companies
	(Amendment) Ordinance 2015 or prior to 26 June 2017, the Office of
	the Commissioner of Insurance.
HKICPA	Hong Kong Institute of Certified Public Accountants.
Hong Kong	The Hong Kong Special Administrative Region of the PRC; in the
	context of our reportable segments, Hong Kong includes Macau.
Hong Kong Companies	Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as
Ordinance	amended from time to time.

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Hong Kong Insurance Insurance Ordinance (Chapter 41 of the Laws of Hong Kong), as Ordinance or HKIO amended from time to time. It provides a legislative framework for the prudential supervision of the insurance industry in Hong Kong. Hong Kong Stock The Stock Exchange of Hong Kong Limited. Exchange or HKSE

IAIS International Association of Insurance Supervisors. IAS International Accounting Standards. IASB International Accounting Standards Board. IFA Independent financial adviser. IFRS Standards and interpretations adopted by the IASB comprising:

• International Financial Reporting Standards;

• IAS; and

• Interpretations developed by the IFRS Interpretations Committee (IFRS IC) or the former Standing Interpretations Committee (SIC).

• interactive Mobile iMO is a mobile office platform with a comprehensive suite of Office or iMO applications that allow agents and agency leaders to manage their daily activities from lead generation, sales productivity and recruitment activity through to development training and customer analytics.

• interactive Point of iPoS is a secure, mobile point-of-sale technology that features a Sale or iPoS paperless sales process from the completion of the customer’s financial-needs analysis to proposal generation with electronic biometric signature of life insurance applications on tablet devices. It is part of iMO.

• investment experience Realised and unrealised investment gains and losses recognised in the consolidated income statement.

• investment income Investment income comprises interest income, dividend income and rental income.

investment return Investment return consists of investment income plus investment experience.

IPO Initial Public Offering.

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Listing Rules	Rules Governing the Listing of Securities on The Stock Exchange of
	Hong Kong Limited.
Mandatory Provident Fund	MPF is a compulsory savings scheme (pension fund) for the retirement
or MPF	of residents in Hong Kong. Most employees and their employers are
	required to contribute monthly to Mandatory Provident Fund Schemes
	provided by approved private organisations, according to their salaries
	and the period of employment.
Million Dollar Round	MDRT is a global professional trade association of life insurance
Table or MDRT	and financial services professionals that recognises significant sales
	achievements and high service standards.
Model Code	Model Code for Securities Transactions by Directors of Listed Issuers
	set out in Appendix 10 to the Listing Rules.
net funds to Group	In presenting net capital in/(out) flows to reportable segments, capital
Corporate Centre	outflows consist of dividends and profit distributions to the Group
	Corporate Centre segment and capital inflows consist of capital
	injections into reportable segments by the Group Corporate Centre
	segment. For the Group, net capital in/(out) flows reflect the net amount
	received from shareholders by way of capital contributions less amounts
	distributed by way of dividends.
n/a	Not available.
n/m	Not meaningful.
operating profit after	Operating profit is determined using, among others, expected long-term
tax or OPAT	investment return for equities and real estate. Short-term fluctuations
	between expected long-term investment return and actual investment
	return for these asset classes are excluded from operating profit. The
	investment return assumptions used to determine expected long-
	term investment return are based on the same assumptions used by
	the Group in determining its embedded value and are disclosed in the
	Supplementary Embedded Value Information.
operating return on EV or	Operating return on EV is calculated as EV operating profit, expressed
operating ROEV	as a percentage of the opening embedded value.
operating return on	Operating return on shareholders’ allocated equity is calculated as
shareholders’ allocated	operating profit after tax attributable to shareholders of the Company,
equity or operating ROE	expressed as a percentage of the simple average of opening and
	closing shareholders’ allocated equity.
OTC	Over-the-counter.

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participating funds Participating funds are distinct portfolios where the policyholders have a contractual right to receive at the discretion of the insurer additional benefits based on factors such as the performance of a pool of assets held within the fund, as a supplement to any guaranteed benefits. The Group may either have discretion as to the timing of the allocation of those benefits to participating policyholders or may have discretion as to the timing and the amount of the additional benefits.

• persistency The percentage of insurance policies remaining in force from month to month in the past 12 months, as measured by premiums.

• Philam Life The Philippine American Life and General Insurance (PHILAM LIFE) Company, a subsidiary of AIA Co.; in the context of the Supplementary Embedded Value Information, Philam Life includes BPI-Philam Life Assurance Corporation.

• policyholder and Investments other than those held to back unit-linked contracts as well shareholder investments as assets from consolidated investment funds. pps Percentage points.

PRC The People’s Republic of China. PVNBP margin VONB excluding pension business, expressed as a percentage of present value of new business premiums (PVNBP). PVNBP margin for AIA is stated after adjustments to reflect consolidated reserving and capital requirements and the after-tax value of unallocated Group Office expenses. regulatory minimum capital Net assets held to meet the minimum solvency margin requirement set by the HKIO that an insurer must meet in order to be authorised to carry on insurance business in or from Hong Kong. renewal premiums Premiums receivable in subsequent years of a recurring premium policy. Risk-Based Capital or RBC RBC represents an amount of capital based on an assessment of risks that a company should hold to protect customers against adverse developments. RMF Risk Management Framework. RSPUs Restricted stock purchase units. RSSUs Restricted stock subscription units.

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RSU Scheme	Restricted Share Unit Scheme, adopted by the Company on 28
	September 2010 (as amended), under which the Company may award
	restricted share units to employees, directors (excluding independent
	non-executive directors) or officers of the Company or any of its
	subsidiaries.
second half	The six months from 1 July to 31 December.
second quarter	The three months from 1 April to 30 June.
SFO	Securities and Futures Ordinance (Chapter 571 of the Laws of Hong
	Kong), as amended from time to time.
share(s)	For the Company, shall mean ordinary share(s) in the capital of the
	Company.
shareholders’ allocated	Shareholders’ allocated equity is total equity attributable to shareholders
equity	of the Company less fair value reserve.
Singapore	The Republic of Singapore; in the context of our reportable segments,
	Singapore includes Brunei.
single premium	A single payment that covers the entire cost of an insurance policy.
SO Scheme	Share Option Scheme, adopted by the Company on 28 September 2010
	(as amended), under which the Company may award share options to
	employees, directors (excluding independent non-executive directors) or
	officers of the Company or any of its subsidiaries.
solvency	The ability of an insurance company to satisfy its policyholder benefits
	and claims obligations.
solvency ratio	The ratio of the total available capital to the regulatory minimum capital
	applicable to the insurer pursuant to relevant regulations.
takaful	Islamic insurance which is based on the principles of mutual assistance
	and risk sharing.
Tata AIA	Tata AIA Life Insurance Company Limited.
total weighted premium	TWPI consists of 100 per cent of renewal premiums, 100 per cent
income or TWPI	of first year premiums and 10 per cent of single premiums, before
	reinsurance ceded. As such it provides an indication of AIA’s longer-
	term business volumes as it smoothes the peaks and troughs in single
	premiums.

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• unit-linked products Unit-linked products are insurance products where the policy value is linked to the value of underlying investments (such as collective investment schemes, internal investment pools or other property) or fluctuations in the value of underlying investment or indices. Investment risk associated with the product is usually borne by the policyholder. Insurance coverage, investment and administration services are provided for which the charges are deducted from the investment fund assets. Benefits payable will depend on the price of the units prevailing at the time of death of the insured or surrender or maturity of the policy, subject to surrender charges.

• value of in-force VIF is the present value of projected after-tax statutory profits emerging business or VIF in the future from the current in-force business less the cost arising from holding the required capital (CoC) to support the in-force business. VIF for AIA is stated after adjustments to reflect consolidated reserving and capital requirements and the after-tax value of unallocated Group Office expenses. VIF by market is stated before adjustments to reflect consolidated reserving and capital requirements and unallocated Group Office expenses, and presented on a local statutory basis.

• value of new business or VONB is the present value, measured at the point of sale, of projected VONB after-tax statutory profits emerging in the future from new business sold in the period less the cost of holding the required capital in excess of regulatory reserves to support this business. VONB for AIA is stated after adjustments to reflect consolidated reserving and capital requirements and the after-tax value of unallocated Group Office expenses. VONB by market is stated before adjustments to reflect consolidated reserving and capital requirements and unallocated Group Office expenses, and presented on a local statutory basis.

• VONB margin VONB excluding pension business, expressed as a percentage of ANP. VONB margin for AIA is stated after adjustments to reflect consolidated reserving and capital requirements and the after-tax value of unallocated Group Office expenses. VONB margin by market is stated before adjustments to reflect consolidated reserving and capital requirements and unallocated Group Office expenses, and presented on a local statutory basis.

• working capital Working capital comprises debt and equity securities, deposits and cash and cash equivalents held at the Group Corporate Centre. These liquid assets are available to invest in building the Group’s business operations.

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AIA Group Limited 友邦保險控股有限公司 AIA.COM

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