(Bloomberg) -- AIA Group Ltd. posted a 27% jump in new business value in the first quarter, while pledging to boost share buybacks and acknowledging it used a broker that relied on unlicensed agents to sell insurance policies. 

The measure of future profitability of new policies sold surged to $1.3 billion, from $1.05 billion a year earlier, the Asia insurer said in a statement Monday. The growth factors in exchange rate fluctuations. 

The firm’s shares rallied on announcements of an additional $2 billion in share buybacks, taking the total amount since 2022 to $12 billion. It also set a fresh target to pay out 75% of its annual net free surplus generation, which will result in a higher distribution to shareholders.

Its shares in Hong Kong jumped more than 7% by 1:34 p.m., the most since November 2022. Annualized new premiums jumped 23% to $2.4 billion. 

“These actions underscore our commitment to systematically return capital that is excess to our needs, whilst continuing to deliver organic new business growth at attractive returns,” Group Chief Executive Lee Yuan Siong said in the statement. 

The additional repurchase is expected to be completed in about 12 months.

While the company acknowledged its usage of an unidentified broker raided by regulators recently, Chief Financial Officer Garth Jones stressed that the firm only contributed about 3% of new business value for AIA’s Hong Kong unit in the first quarter.

Stripping out the effect of exchange rate fluctuations, new business value surged 31% while annualized new premiums rose 26%. Its Hong Kong business new business value jumped 43%, while in mainland China, the measure expanded 38%, on constant exchange rate basis.

AIA operates in 18 Asia-Pacific markets, while counting its home base of Hong Kong and mainland China as the largest contributors of new business and policy sales by a wide margin. The year-ago quarter provided a low base for comparison, as the two markets were just emerging from Covid-era disruptions, such as mandatory quarantine for cross-border travelers and other social-distancing measures.

By the first quarter, mainland Chinese visitor arrivals in Hong Kong had recovered to 71% of the 2018 level, Citigroup Inc. analysts led by Michelle Ma wrote in a note last week. Mainland Chinese visitors and local residents contributed “broadly similar” shares to the unit’s new business value growth in the three months, the company said.

Popularity Rises

In mainland China, insurance was also gaining popularity as a wealth management tool, while bancassurance profitability has improved, the Citigroup analysts wrote. AIA’s success of selling tax-deferred pension savings products in mainland China continued into the first quarter, Michael Chang, CGSI Securities Ltd. head of Asian financials, wrote on Apr. 24. The Citigroup analysts also expected Thailand new business value to grow 18% on sales increases, stripping out exchange rate fluctuations. AIA described the Thailand growth as “double-digit.”

“Importantly, the results directly addressed many investor concerns,” Chang said in a note Monday. He cited the increased share buyback and clarity on future capital management policy, including the shareholder payout ratio. 

Regulator Inquiries 

AIA’s shares have been under pressure, down 25% in two years. That’s even with new business value growth of 30% last year and a $7.2 billion buyback that cut outstanding shares by 6% over the 21 months through December. 

Its price-to-embedded value ratio of about one time was the lowest since its 2010 initial public offering, and about 40% below its three-year average, Bloomberg Intelligence analyst Steven Lam wrote on Apr. 23.

Investors are still assessing recent regulatory clampdowns on the industry. Hong Kong’s Insurance Authority raided the offices of a licensed insurance broker and a referral company, regulators announced on Apr. 11. The broker was suspected of using unlicensed referrers to help advise and sell insurance. 

AIA said more than 60% of its Hong Kong unit’s new business value from mainland Chinese visitors were generated by its own agents in the first quarter. On top of that, it works with more than 100 brokers, Jones said in a telephone interview. 

“We have very strict compliance in place,” Jones said.

(Updates with company share price. A previous version of this story corrected the spelling of CFO’s name)

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