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Investor Presentaiton

KPI impacts: for most (not all) insurers, operating profit should be similar or lower under IFRS 17 while the level of Shareholders' Equity (SHE) is generally expected to go down Limited quantitative disclosure regarding the impact on KPIs has been provided. During their presentations, insurers focused on educating the analyst community on the direction of travel, and the impact of the standard on transition and future profitability or volatility: Operating profit Operating profit is generally expected to be similar or lower compared to IFRS 4. The reported reduction varies from 5% to 25% compared to the IFRS 4 operating profit, mostly driven by the Life business. However, more than 50% of insurers did not disclose an expected quantitative impact. Level of Shareholders' Equity This is expected to decrease at transition date for most life and composite insurers, with reported reduction varying from 5% to 50%. Some insurers noted that excluding OCI from equity, or adding CSM to equity, would result in equity remaining more or less stable on transition. Several insurers mention that the reduction of SHE is due to setting up a CSM. Contractual Return on Equity Service Margin Depending on previous practices, the ROE targets will remain unchanged or will be improved. Indeed, in the past, some insurers were excluding OCI from the ROE calculation where others were not. Since part of the amounts previously in OClare now included in the CSM, the ROE of the latters will be mechanically improved. This is presented as gross, net of tax, or net of tax and projected non- attributable expenses. This latter view is perceived to provide a more direct view on the net-income impact of the release of CSM. Risk adjustment This could present varying levels of calibration depending on the risk appetite of the groups. Some insurers plan to use the cost of capital approach, whereas others are using value at risk. Insurers reported the expected percentile range of the risk adjustment to vary between 62.5% and 90%. Release of Contractual Service Margin The indication of pattern of release helps analysts to anticipate expected future profitability. Insurers reported an expected release of CSM ratio (release divided by CSM before release) between 4% and 12% per annum depending on the type of business. 8 Market updates on impact of IFRS 17 and IFRS 9 EY
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