AIA expands new business as weak yuan fuels Chinese demand

* CEO says has seen strong growth in first 2 months of 2017

* Value of new business rose to $2.75 billion in 2016

* Hong Kong value of new business grew by 42 pct

* Announces 25 pct increase in dividend payments (Adds CEO comments on business outlook)

By Sumeet Chatterjee and Aparajita Saxena

Feb 24 (Reuters) - Insurer AIA Group Ltd sees strong growth in 2017 after new business grew 28 percent last year on strong demand in Hong Kong, with Chinese seeking overseas investment opportunities to cushion the impact of a weakening yuan.

AIA's value of new business in Hong Kong grew by 42 percent in 2016, driven mainly by higher demand from its local clients as well as increased purchases from mainland Chinese customers, the world's third-largest life insurer by market value said.

The Hong Kong life insurance market has seen very strong demand from customers in mainland China in the last one year, despite some curbs imposed on purchase of insurance by Chinese visitors to the southern territory.

In the first nine months of 2016, mainland Chinese visitors contributed to 37 percent of total regular first-year premiums sold in Hong Kong, compared with 22 percent in the same period a year ago, according to brokerage Daiwa Capital Markets.

This resulted in Chinese authorities tightening norms for such purchases to curb capital outflows. In the latest move, use of China's hugely popular and state-backed UnionPay cards to pay for saving-type insurance products was prohibited in October.

AIA Chief Executive Mark Tucker declined to comment on the curb imposed on usage of UnionPay cards, but said the company offered a range of premium payment options including bank draft, direct debit, wire transfers and cheques.

"It's important to note that we've made an excellent start to 2017 with strong value of new business in the first two months of our financial year. This demonstrates that the momentum continues," he said.

AIA's financial year ends in November.

"When you look at the size of insurance sales to mainland customers (in Hong Kong) it's very small," Tucker said, adding out of 32 million mainland visitors to Hong Kong in the first nine months of 2016, less than 1 percent policies were sold for the entire industry.

While insurance analysts have also said there were other ways for mainland Chinese buyers to pay for insurance purchases in Hong Kong, worries about more regulatory tightening measures to curb such purchases have weighed on investor sentiment.

AIA shares dropped 15 percent in the December quarter, and were down 6 percent for 2016. It was their first annual decline since the insurer's market debut in Hong Kong in 2010. The stock was down 1.3 percent on Friday in a weak broader market.

The insurer's value of new business, which measures expected profit from new premiums and is a key indicator of growth, rose to $2.75 billion for the year ended Nov. 30, from $2.20 billion the previous year, the company said in a statement.

Annualised new premiums rose 32 percent to $5.12 billion in 2016.

China and Hong Kong together accounted for about half of new business growth globally at AIA.

AIA's other major markets include Thailand, Singapore, and Malaysia - the Southeast Asian countries that have become a battleground for foreign insurers attracted by the region's lower insurance penetration levels.

The company said it would pay dividends of 63.75 Hong Kong cents per share, an increase of 25 percent. Operating profit after tax rose 15 percent to $3.98 billion. (Reporting by Aparajita Saxena in Bengaluru and Sumeet Chatterjee in Hong Kong; Editing by Stephen Coates)