IFRS 17 at Zurich
An introductory guide for investors and analysts
September 27, 2022
Investor presentation
Zurich Insurance Group
GROUP
Key messages
No major impact given nature of our business
Shareholders' equity
impacts
Limited changes for P&C
Improved Life disclosures
Farmers largely unaffected
Cash and capital generation remain strong
© Zurich
Adoption of IFRS 17 not expected to significantly change the Group's earnings;
~75% of Group BOP is either unaffected or subject to the simplified approach (PAA)
Classification of risk adjustment and Contractual Service Margin (CSM) as liabilities, partially offset by other adjustments
P&C accounting will primarily be based on the PAA, with limited changes versus IFRS 4, bringing better comparability across lines of business
Overall earnings level remains largely unchanged. However, profit signatures may vary from IFRS 4. IFRS 17 will improve visibility on profit emergence
Farmers' fee business unaffected by IFRS 17; Farmers Life and Farmers Re will be treated consistently with the Group's Life and P&C businesses, respectively
No impact on cash remittances and SST ratio. No change to dividend policy
September 27, 2022 | IFRS 17 at Zurich | 2 |
GROUP
Roadmap to IFRS 9 / 17 at Zurich
FY-22 IFRS 4 results reporting | HY-23 results: | FY-23 results: | ||
(Discussion of IFRS 17 transition impacts) | 1st full IFRS 17 reporting | full IFRS 17 reporting |
Early communication with
analysts/investors
Investor day including | Q1-23 results: News release only | |||||
Early communication with | 2023-25 financial | (FY-22 IFRS 17 financial | Q3-23 results: News | |||
rating agencies | targets on IFRS 17 basis | information to follow shortly after) | release only | |||
Q1-22 | Q2-22 | Q3-22 | Q4-22 | Q1-23 | Q2-23 | Q3-23 | Q4-23 | Q1-24 |
IFRS 17 parallel runs and transition balance sheet (Jan 1, 2022)
Auditor alignment / Peer alignment on KPIs
IFRS 17 financial planning | IFRS 17 financial planning | |
© Zurich
September 27, 2022 | IFRS 17 at Zurich | 3 |
GROUP
Choice of measurement model based on qualitative considerations and eligibility assessment
APPROACH
GROUP'S GENERAL RULE:
EXCEPTIONS CONSIDERED BASED ON:
ELIGIBILITY ASSESSMENT:
P&C insurance
Life insurance2
PAA1
Used for ~99% of P&C GWP
BBA/VFA1
Used for ~75% of Life reserves and investment liabilities
- Contract boundary
- Management approach & KPIs
- Current accounting practice and actuarial methods/tools
- Materiality and operational considerations
- Not needed for BBA approach (IFRS 17 default model)
- Needed in order to adopt the simplified approach (PAA)
EXAMPLES
JAPAN P&C: | NORTH AMERICA P&C: | LATIN AMERICA LIFE: | AUSTRALIA LIFE: | ||||||
PERSONAL ACCIDENT | WORKERS' COMP | SANTANDER JV PROTECTION | PROTECTION | ||||||
BBA | PAA | PAA | BBA | ||||||
© Zurich
- PAA: Premium Allocation Approach; BBA: Building Block Approach; VFA: Variable Fee Approach.
- Excluding Life investment contracts, which are accounted based on IFRS 9. A modification of the BBA approach (i.e., Variable Fee Approach, or VFA) is discussed in the Life section of this document.
September 27, 2022 | IFRS 17 at Zurich | 4 |
GROUP
We have chosen options that reflect underlying economics and provide stability of earnings to the greatest extent possible
Stability of earnings | Operational simplification | Recognition of underlying economics | ||
KEY ACCOUNTING CHOICES | RATIONALE | |||
• Bottom-up approach: risk free rate plus illiquidity premium1 | ||||
DISCOUNT RATES/ | ||||
• | December 2021 forward curve used for historical years pre-2015 in P&C2 | |||
OCI3 OPTION | ||||
• | Disaggregation of impact of changes in discount rates between P&L and OCI3 | |||
RISK ADJUSTMENT
EQUITIES FVTPL4
LEVEL OF AGGREGATION
TRANSITION
APPROACH
- Percentile approach, based on SST target level of ≥160%, with a periodical review of cost of capital
- Disaggregation of impact of changes in risk adjustment for non-financial risk between P&L and OCI3
- We will not use the option to designate equity securities at fair value through OCI3, with consequent impact on NIAS
- Application of annual cohorts for traditional savings business (mainly in Continental Europe)
- Fully retrospective approach for recent cohorts; modified retrospective approach preferred alternative
- >80% of CSM based on retrospective approach, <20% on fair value approach
Optional exemption not applicable outside of the EU
1 | Illiquidity premium not applied for onerous contracts. | |
Zurich© | 2 | December 2021 forward curve for pre-2014 claims for North America P&C. Depending on transition approach, different dates apply for certain Life portfolios. |
4 | Fair Value Through Profit and Loss. | |
3 | Other Comprehensive Income. |
September 27, 2022 | IFRS 17 at Zurich | 5 |
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Zurich Insurance Group AG published this content on 27 September 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 September 2022 05:20:02 UTC.