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
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