Momentum Group Limited · JSE:MTM
Momentum — Investor Presentation (July 2023)
37 slides from Momentum's investor presentation, Jul 21, 2023
Slide 1: IFRS 17: Insurance Contracts
IFRS 17: Insurance Contracts Investor Presentation 21 July 2023
Slide 2: Disclaimer
In this presentation, Momentum Metropolitan Holdings (“MMH” “the Group”), its subsidiaries and, where applicable, its joint ventures and associates are referred to as “we”, “us”, “our”, “MMH” and the “Company”. Forward-looking statements Disclaimer In this presentation, we make certain statements (i
Slide 3: Agenda
Agenda 1 Overview of IFRS 17 2 Key accounting choices 3 IFRS 17 impacts 4 Readiness & conclusion
Slide 4: Overview of IFRS 17
Overview of IFRS 17 T 1B qo 0 a8 pe FEEL SSR SHEsman:
Slide 5: What does IFRS 17 mean for MMH?
What does What is not changing What is changing IFRS 17 mean for • Underlying cash flows and • Timing of earnings recognition MMH? economics of our insurance may accelerate for protection policies contracts, but likely be deferred for annuity business • Reinvent & Grow strategy • Granularity of cont
Slide 6: Expected impact on key metrics
Expected • Small negative impact on overall earnings level impact on Earnings • Lower new business strain (positive for earnings) key metrics • Lower release of margins from existing contracts (negative for earnings) • Net increase in equity (prudence in IFRS 4 liabilities released) Equity • Lower r
Slide 7: Technical implications
Technical • Targets a meaningful revenue number aligned with claims and costs recognition implications • Revenue components relate to: Revenue • Expected cash flows to fulfil contracts (i.e. expected claims and expenses) recognition • Compensation for risk (i.e. release of Risk Adjustment) • Contrib
Slide 8: Key Accounting Choices
Key Accounting Choices
Slide 9: Principles guiding our accounting choices
Principles guiding our Economic reality accounting • Reflecting the underlying economics of insurance contracts as closely choices as possible • The confidence level of the Risk Adjustment should result in a CSM that is a fair representation of the economic value added by insurance contracts Stable
Slide 10: Key accounting choices
MMH’s choice Rationale SA peer group Key accounting Discount rates Illiquidity premium applied Ensures consistency with Some extent of choices to non-profit annuities MMH’s approach to Asset convergence Liability Matching Coverage units Discounted coverage Providing a smoother In line with SA Legend
Slide 11: Key accounting choices
MMH’s choice Rationale SA peer group Key accounting Fulfilment cash Mainly unallocated Expenses that are not Some extent of choices flows expenses are excluded required to fulfill convergence policyholder obligations Only taxes directly are the exception charged to the policyholder are included Lege
Slide 12: IFRS 17 Impacts
IFRS 17 Impacts
Slide 13: Expected MMH earnings impact
Expected MMH earnings R’million impact Pre-IFRS 17 Momentum Momentum Metropolitan Momentum Africa Post-IFRS 17 NHE target Life Investments Life Corporate NHE
Slide 14: Expected earnings impact by business unit
Expected Momentum Momentum Metropolitan Momentum earnings Africa MMH R’million Life Investments Life Corporate impact by Margin release (50) - (50) - (100) (200) business unit Return on surplus 150 (50) 50 - 50 200 New business 150 (150) - - - - Variances and assumption - - - - - - changes Out of st
Slide 15: Expected earnings impact: margin release
Expected earnings R’million Momentum Momentum Metropolitan Momentum Africa MMH impact: Life Investments Life Corporate margin Margin release (50) - (50) - (100) (200) release Sources of earnings IFRS 4 treatment IFRS 17 treatment IFRS 4 to IFRS 17 impact Margin releases Tier 1 and 2 margins CSM and
Slide 16: Expected earnings impact: new business
Expected earnings R’million Momentum Momentum Metropolitan Momentum Africa MMH impact: Life Investments Life Corporate new New business 150 (150) - - - - business Sources of earnings IFRS 4 treatment IFRS 17 treatment IFRS 4 to IFRS 17 impact New business earnings Taken through More future profits L
Slide 17: Expected earnings impact: variances and assumption changes
Expected earnings impact: variances and Sources of earnings IFRS 4 treatment IFRS 17 treatment IFRS 4 to IFRS 17 impact assumption Underwriting variances Taken through earnings Taken through Range of impacts due to future cash changes earnings flow impact not going to earnings (future service impact
Slide 18: Expected earnings impact: variances and assumption changes
Expected earnings impact: variances and Sources of earnings IFRS 4 treatment IFRS 17 treatment IFRS 4 to IFRS 17 impact assumption Investment variances Absorbed by Taken through Overall lower volatility expected on changes and economic available Investment earnings for GMM protection business due to
Slide 19: Expected earnings impact: out-of-standard items
Expected earnings Momentum Momentum Metropolitan Momentum R’million Life Investments Life Corporate Africa MMH impact: out-of- Out-of-standard (50) - (150) - - (200) standard items items Sources of earnings IFRS 4 treatment IFRS 17 treatment IFRS 4 to IFRS 17 impact Out-of-standard cash Included/cap
Slide 20: SA & Africa life insurance by IFRS 17 measurement model
SA & Africa life Insurance liability Insurance revenue insurance by F2022: R119 billion F2022: R21 billion IFRS 17 measurement model 3 43 13 67 9 5 GMM PAA VFA GMM PAA VFA • June 2022 IFRS 17 liabilities ~ 20% of MMH total balance sheet liability • June 2022 IFRS 17 insurance revenue ~ 40% of MMH to
Slide 21: Expected shareholder equity impact - MMH
Expected R’billion shareholder 6 equity 20 4 impact - MMH 1 1 1 16 3 29 25 - + + - - + + - Opening Intangibles IFRS 4 Tier 1 IFRS 4 Tier 2 Other Treasury Tax Opening IFRS 17 Risk IFRS 17 Equity: margins margins valuation shares Equity: Adjustment CSM Pre-IFRS 17 differences Post-IFRS 17 • Expected i
Slide 22: CSM on transition
CSM on transition Transition approaches Fully Fair value Total 1 July 2022 retrospective approach approach R’billion General measurement model 11 2 13 Variable fee approach - 3 3 Total 11 5 16
Slide 23: Group KPIs
KEY METRICS HIGH LEVEL IMPACT Group KPIs Expect c.R200m decrease in NHE and thus Normalised headline earnings likely to see NHE targets adjusted accordingly VNB metric sees modest changes Growth and sales Value of new business VNB targets unchanged Present value of new business PVNBP metric and targ
Slide 24: IFRS 17 Readiness & Conclusion
IFRS 17 Readiness & Conclusion
Slide 25: IFRS 17 readiness and conclusion
IFRS 17 readiness and IFRS 17 is not 1 2 3 conclusion Well positioned to expected to adopt IFRS 17 for immediately We will continue with the interim results change our our EV reporting period ending strategy, solvency 31 December 2023 or dividends Thank you and 4 5 The 1QF2024 well done to the opera
Slide 26: Investor communication timeline
Investor communi- cation F2023 Results timeline Interim F2023 (Mar 2023) (Sep 2023) • Key expected Today • Transitional note impacts included in AFS • Selected Q&A • Include agreed impact on KPIs in Integrated Report July 2023 F2024 Interim (Mar 2024) • Expected balance sheet impact (unaudited) • F2
Slide 27: Thank you
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Slide 28: FAQs
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Slide 29: Frequently asked questions
Frequently asked Question Answer questions Impact on pattern of cash IFRS 17 is not expected to have an impact on free cash flow earnings (business level as generation opposed to product level) Impact on dividend policy No change in dividend policy. Impact on earnings is small enough that the curren
Slide 30: Changes to income statement presentation
Illustration of income statement Changes to income IFRS 4 IFRS 17 Notes statement Revenue Insurance revenue 1 presentation Gross premiums Insurance service expense 2 Premiums ceded to reinsurers Insurance service result before reinsurance contract held Net premiums Allocation of reinsurance premiums
Slide 31: Components of insurance profits
Components of insurance 1. Insurance revenue 2. Insurance service expenses profits Long-term insurance business revenue includes: • Recognition of CSM • Actual incurred claims and directly attributable • Release of Risk Adjustment for risk expired expenses • Release of expected incurred claims and d
Slide 32: Meaningful revenue number
Meaningful revenue Insurance revenue vs premiums received number 1 2 3 4 5 Revenue Premiums Difference would have previously been included in change in liabilities line item
Slide 33: Expected profit
Expected profit Insurance profit = revenue - service expense 1 2 3 4 5 Revenue Insurance service (claims and expenses) Expected difference = Risk Adjustment release (compensation for risk) + CSM release (expected profit after allowing for risk)
Slide 34: Simplified example: 10-year term assurance policy
Simplified Net cash flow vs (CSM and RA) release example: IFRS 4 insurance revenue recognised as premiums received 10-year term IFRS 17 insurance revenue recognised as service is assurance provided, and comprises of: policy • Expected claims and renewal expenses (service provided) • Amortisation of
Slide 35: Glossary
Glossary
Slide 36: IFRS 17 glossary
IFRS 17 17 IFRS glossary glossary Term Abbreviation Description Fulfilment cash FCF The fulfilment cash flows of a group of insurance contracts are flows equal to the current estimate of future cash flows (related to future and past service) plus the Risk Adjustment (RA) for non-financial risk (cove
Slide 37: IFRS 17 glossary (continued)
IFRS 17 glossary Term Abbreviation Description (continued) Loss component LC A negative CSM is not permitted for insurance contracts – where this is applicable for a group of insurance contracts, a nil CSM is included for measurement and an LC is recognised immediately as an expense in the income st