IFRS 17 Impact and OPAT Analysis

• Definitions and Notes (Cont.) AIA General measurement model (GMM) defines the recognition and measurement of insurance contracts under IFRS 17. Please refer to the content of this information pack and note 2.3.1 to the FY22 consolidated financial information for details. IFRS operating profit includes the expected long-term investment return for equities and real estate. Insurance contract services are the services that the Group provides to a policyholder of an insurance contract: (a) coverage for an insured event (insurance coverage); (b) for insurance contracts without direct participation features, the generation of an investment return for the policyholder, if applicable (investment-return service); and (c) for insurance contracts with direct participation features, the management of underlying items on behalf of the policyholder (investment-related service). Insurance finance reserve comprises the cumulative insurance finance income or expenses recognised in other comprehensive income under IFRS 17. Insurance service result is a new consolidated income statement line item under IFRS 17, comprising insurance revenue, insurance service expenses and net expenses from reinsurance contracts held. Investment return and composition of investments exclude unit-linked contracts and consolidated investment funds, unless otherwise stated. Investments include financial investments, investment property, property held for own use, and cash and cash equivalents. Investment property and property held for own use are at fair value. Leverage ratio under IAS 39 and IFRS 4 is total borrowings expressed as a percentage of the sum of total borrowings and total equity. Leverage ratio under IFRS 9 and IFRS 17 is total borrowings expressed as a percentage of the sum of total borrowings, total equity and CSM net of reinsurance and taxes. Net contractual service margin (net CSM) is the contractual service margin net of reinsurance, taxes and non-controlling interests. Net finance income or expenses from insurance contracts is a new consolidated income statement line item under IFRS 17. Please refer to note 7A to the FY22 consolidated financial information for details. Net investment result is a new consolidated income statement line item under IFRS 17, comprising investment return, net finance income or expenses from insurance contracts and reinsurance contracts held, movement in investment contract liabilities and movement in third-party interests in consolidated investment funds. New business contractual service margin (NB CSM) represents the contractual service margin initially recognised in the period. Non-participating (non-par) business includes all insurance liabilities under the GMM model, covering traditional protection, unit-linked with significant protection benefits, universal life and other participating business without distinct portfolios. Participating (par) business referring to participating funds and other participating business with distinct portfolios, with investment experience reflected within insurance contract liabilities. Premium allocation approach (PAA) simplifies the recognition and measurement of insurance contracts under IFRS 17. Please refer to the content of this information pack and note 2.3.7 to the FY22 consolidated financial information for details. Risk adjustment or RA represents the compensation the Group requires for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk as the Group fulfils insurance contracts under IFRS 17. It is determined separately from estimates from the present value of future cash flows, using the confidence level technique. Applying a confidence level technique, AIA estimates the probability distribution of the expected present value of the future cash flows from insurance contracts at each reporting date and calculates the risk adjustment for non-financial risk as the excess of the value at risk at the 75th percentile (the target confidence level) over the expected present value of the future cash flows. Shareholders' allocated equity under IAS 39 and IFRS 4 is the total equity attributable to shareholders of the Company less fair value reserve. Shareholders' allocated equity under IFRS 9 and IFRS 17 is the total equity attributable to shareholders of the Company less fair value reserve and insurance finance reserve. Transition date is 1 January 2022, representing the start of the comparative financial period when AIA adopted the new accounting standards of IFRS 9 and IFRS 17 from 1 January 2023. TWPI consists of 100% of renewal premiums, 100% of first year premiums and 10% of single premiums, before reinsurance ceded. Variable fee approach (VFA) modifies the general measurement model for the recognition and measurement of insurance contracts under IFRS 17. Please refer to the content of this information pack and note 2.3.1 to the FY22 consolidated financial information for details. VIF is the present value of projected after-tax statutory profits by business units emerging 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. VONB for the Group is after unallocated Group Office expenses and the adjustment to reflect consolidated reserving and capital requirements. The total reported VONB for the Group excludes VONB attributable to non-controlling interests. VONB includes pension business. 20

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