Harel Insurance Investments & Financial Services Ltd. · TASE:HARL

Harel Insurance Investments & Financial Services — Investor Presentation (December 2024)

42 slides from Harel Insurance Investments & Financial Services's investor presentation, December 2024

  1. Slide 1: IFRS 17

    IFRS 17 December 2024

  2. Slide 2: Contents

    1 Contents 1 IFRS 17 ‫החשבונאי של חברות הביטוח‬ – new ‫בדיווח‬ era ‫חדש‬ in IFRS ‫עידן‬ accounting 17 reporting of insurance companies 2 Today’s focus 3 IFRS 17 – key terms 4 What happens on transition date (January 1, 2024)? 5 CSM 6 P&L under IFRS 17 7 KPI’s 8 How does this affect us?

  3. Slide 3: IFRS 17 – new era in accounting reporting of insurance companies

    2 IFRS 17 – new era in accounting reporting of insurance companies Change in profits Limited impact One time impact recognition in on Non-life on equity at Life and insurance transition Health LT (January 1st 2024) Transition to profits recognition over life of the insurance contracts (CSM) IFRS 17

  4. Slide 4: IFRS 17 – new era in accounting reporting of insurance companies

    3 IFRS 17 – new era in accounting reporting of insurance companies ! No impact on No impact on No impact on non insurance value creation Solvency business ability, growth Capital Ratio, potential and capital Asset Management, cash flows management Credit and other and dividend policy IFRS 17

  5. Slide 5: IFRS 17 – new era in accounting reporting of insurance companies

    4 IFRS 17 – new era in accounting reporting of insurance companies Composition of comprehensive income before tax 1-9/2024 (NIS M) Insurance Asset Management Credit and other ! Life Health Non-life Investment Provident Pension Financial Credit Equity Reported contracts services and other Comprehensi

  6. Slide 6: IFRS 17 – new era in accounting reporting of insurance companies

    5 IFRS 17 – new era in accounting reporting of insurance companies Key changes in presentation in the financial statements, more extensive presentation and disclosure requirements Presentation of underwriting profit separately from investment and financing activities Contributes to increased transpa

  7. Slide 7: Contents

    6 Contents 1 IFRS 17 ‫החשבונאי של חברות הביטוח‬ – new ‫בדיווח‬ era ‫חדש‬ in IFRS ‫עידן‬ accounting 17 reporting of insurance companies 2 Today’s focus 3 IFRS 17 – key terms 4 What happens on transition date (January 1, 2024)? 5 CSM 6 P&L under IFRS 17 7 KPI’s 8 How does this affect us?

  8. Slide 8: Today’s focus

    7 Today’s focus Introduction to the key terms of IFRS 17 Understanding what will happen on transition to IFRS 17 (January 1, 2024) Learning the new structure of the P&L statement under IFRS 17 Presentation of an example illustrating the difference between current accounting and IFRS 17 Definition of

  9. Slide 9: Contents

    8 Contents 1 IFRS 17 ‫החשבונאי של חברות הביטוח‬ – new ‫בדיווח‬ era ‫חדש‬ in IFRS ‫עידן‬ accounting 17 reporting of insurance companies 2 Today’s focus 3 IFRS 17 – key terms 4 What happens on transition date (January 1, 2024)? 5 CSM 6 P&L under IFRS 17 7 KPI’s 8 How does this affect us?

  10. Slide 10: IFRS 17 – Key terms

    9 IFRS 17 – Key terms Best estimate (BE) – best estimate of future cash flows (premiums, claims, expenses) with no ‫חוזי הביטוח‬ conservative margins, discounted at ‫של‬ ‫ ביצועים‬interest risk-free ‫מדידת‬: IFRS plus17an illiquidity premium Risk adjustment (RA) – the compensation an insurer require

  11. Slide 11: Contents

    10 Contents 1 IFRS 17 ‫החשבונאי של חברות הביטוח‬ – new ‫בדיווח‬ era ‫חדש‬ in IFRS ‫עידן‬ accounting 17 reporting of insurance companies 2 Today’s focus 3 IFRS 17 – key terms 4 What happens on transition date (January 1, 2024)? 5 CSM 6 P&L under IFRS 17 7 KPI’s 8 How does this affect us?

  12. Slide 12: On transition date – shift to economic balance sheet

    11 On transition date (January 1, 2024) – shift to economic balance sheet Assets: Balance Sheet - Illustration Liabilities and Equity Assets Measurement of all financial assets at fair value (including Hetz* earmarked bonds and other non- marketable financial assets currently measured at ‫השקעות‬ am

  13. Slide 13: On transition date – shift to economic balance sheet

    12 On transition date (January 1, 2024) – shift to economic balance sheet Balance Sheet - Illustration Liabilities: Liabilities and Equity Assets Measurement of insurance contracts groups in accordance CSM at Insurance transition with the transition approaches set out in the IFRS 17 (Fair Value RA A

  14. Slide 14: Measurement of assets and insurance contracts will affect equity at transition

    13 Measurement of assets and groups of insurance contracts will affect equity at the transition date (January 1, 2024) – one time impact The difference between the balances (assets and liabilities) based on the new and old measurement rules is recognized in capital ! ! Liabilities and Equity Assets

  15. Slide 15: At the transition date, no significant change in equity of Harel Investments

    14 At the transition date (January 1, 2024), there is no significant change in the equity of Harel Investments NIS 300 M increase in capital is about 3% of the capital of Harel Investments 16 NIS B 3 NIS B Equity IFRS 4 Decline in Recognition of Recognition of Other Equity IFRS 17 insurance liabilit

  16. Slide 16: For the first time, within Q3.24 Board of Directors Report we published IFRS 17 data

    15 For the first time, within Q3.24 Board of Directors Report we published IFRS 17 quantitative data for the transition date (January 1, 2024) related to IFRS 17 RA CSM Equity Existing portfolio of life and health Existing portfolio of life and health At transition LT at transition LT at transition

  17. Slide 17: Contents

    16 Contents 1 IFRS 17 ‫החשבונאי של חברות הביטוח‬ – new ‫בדיווח‬ era ‫חדש‬ in IFRS ‫עידן‬ accounting 17 reporting of insurance companies 2 Today’s focus 3 IFRS 17 – key terms 4 What happens on transition date (January 1, 2024)? 5 CSM 6 P&L under IFRS 17 7 KPI’s 8 How does this affect us?

  18. Slide 18: CSM – new business (new sales from 2024 onwards)

    17 CSM – new business (new sales from 2024 onwards) Best Estimate - BE Present value of positive cash flows (premiums) Present value of negative cash flows (claims and expenses) BE – RA = CSM ! Risk Adjustment CSM RA – the compensation an CSM – the profit from the Best estimate (BE) – best estimate

  19. Slide 19: The CSM is a significant component of underwriting profitability

    18 The CSM (existing and new portfolio) is a significant component of underwriting profitability CSM evolution over time: illustration The CSM reflects an estimated future profit from New business the insurance contract that is expected to be Existing business released over life of insurance contrac

  20. Slide 20: CSM development

    19 CSM development New business Existing business 1 Profit from a new business sold in the period increases the CSM balance 2 Changes in actuarial assumptions are recognized in full in the CSM 3 Accretion of interest on the CSM balance based on the interest rate used on recognition of the CSM CSM fr

  21. Slide 21: Contents

    20 Contents 1 IFRS 17 ‫החשבונאי של חברות הביטוח‬ – new ‫בדיווח‬ era ‫חדש‬ in IFRS ‫עידן‬ accounting 17 reporting of insurance companies 2 Today’s focus 3 IFRS 17 – key terms 4 What happens on transition date (January 1, 2024)? 5 CSM 6 P&L under IFRS 17 7 KPI’s 8 How does this affect us?

  22. Slide 22: Structure of the P&L under IFRS 17

    21 Structure of the P&L under IFRS 17 Profit (loss) from insurance services + Profit (loss) from investment activities Presentation of underwriting profit + separately from investment and financing activities contributes to Profit (loss) from financing activities increased transparency and improved

  23. Slide 23: Structure of the P&L under IFRS 17

    22 Structure of the P&L under IFRS 17 Profit (loss) from insurance services + Investment profits from the nostro portfolio and profit-sharing Profit (loss) from investment activities portfolio. Nostro profits and profit-sharing profits are presented separately + Changes in insurance liabilities aris

  24. Slide 24: Structure of the P&L under IFRS 17 – insurance service result

    23 Structure of the P&L under IFRS 17 – insurance service result CSM release (new and existing business) for the insurance services provided Reflects the compensation for assuming the insurance risk RA release – released when the insurance service is rendered and the risk diminishes Differences betw

  25. Slide 25: Numerical example – differences between current accounting and IFRS 17

    24 Numerical example – to illustrate the differences between current accounting and IFRS 17 3-years insurance contract with variable increasing annual premium and expectation of increase in cost of Expected claims. Actual = expected Year 1 Year 2 Year 3 BE Best Estimate - BE Premiums 5 35 60 100 Cla

  26. Slide 26: Numerical example – differences between current accounting and IFRS 17

    25 Numerical example – to illustrate the differences between current accounting and IFRS 17 3-years insurance contract with variable increasing annual premium and expectation of increase in cost of claims. Actual = expected IFRS 4 Year 1 Year 2 Year 3 BE Premiums income 5 35 60 100 Actual claims )10

  27. Slide 27: Numerical example – differences between current accounting and IFRS 17

    26 Numerical example – to illustrate the differences between current accounting and IFRS 17 3-years insurance contract with variable increasing annual premium and expectation of increase in cost of claims. Actual = expected IFRS 17 Year 1 Year 2 Year 3 Total Premiums 100 CSM release in the period 10

  28. Slide 28: Numerical example – differences between current accounting and IFRS 17

    27 Numerical example – to illustrate the differences between current accounting and IFRS 17 Composition of cumulative profit under the current accounting and IFRS 17 ! 35 35 23.34 Total cumulative profit remains unchanged, but 15 timing of profit recognition 11.67 changes (5) Year 1 Year 2 Year 3 IF

  29. Slide 29: Contents

    28 Contents 1 IFRS 17 ‫החשבונאי של חברות הביטוח‬ – new ‫בדיווח‬ era ‫חדש‬ in IFRS ‫עידן‬ accounting 17 reporting of insurance companies 2 Today’s focus 3 IFRS 17 – key terms 4 What happens on transition date (January 1, 2024)? 5 CSM 6 P&L under IFRS 17 7 KPI’s 8 How does this affect us?

  30. Slide 30: Ratio between new business CSM and CSM released this year

    29 Ratio between new business CSM and CSM released this year New Business Existing Business ! CSM opening New Business Changes in Interest rate Release to P&L CSM closing balance assumptions balance The ratio reflects the Company's ability to continue generating future profits KPI’s

  31. Slide 31: Ratio between new business CSM and present value of new business premiums

    30 Ratio between new business CSM and present value of new business premiums The information will be provided with breakdown into segments ! The ratio reflects the future profitability from new sales KPI’s

  32. Slide 32: Contents

    31 Contents 1 IFRS 17 ‫החשבונאי של חברות הביטוח‬ – new ‫בדיווח‬ era ‫חדש‬ in IFRS ‫עידן‬ accounting 17 reporting of insurance companies 2 Today’s focus 3 IFRS 17 – key terms 4 What happens on transition date (January 1, 2024)? 5 CSM 6 P&L under IFRS 17 7 KPI’s 8 How does this affect us?

  33. Slide 33: For the first time, within Q3.24 Board of Directors Report we published IFRS17 data

    32 For the first time, within Q3.24 Board of Directors Report we published IFRS17 quantitative data for the transition date (January 1, 2024) related to IFRS 17 NIS B Harel Phoenix Migdal Clal Impact on equity at +0.3 (0.4-0.8) (1.7-2.2) (0.95-1.55) transition CSM 16 9.5-10 11-11.5 8.4-9.2 RA 3 1.5-

  34. Slide 34: The profit in life insurance and health insurance changes

    33 The profit in life insurance and health insurance changes Composition of comprehensive income before tax 1-9/2024 (NIS M) Insurance Asset Management Credit and other ! Life Health Non-life Investment Provident Pension Financial Credit Equity Reported contracts services and other Comprehensive Inc

  35. Slide 35: The CSM composition of the existing portfolio at the transition date

    34 The CSM composition of the existing portfolio at the transition date (January 1, 2024) ~16 10.5-11 • Risk of death • Medical expenses ! 67% of the CSM balance is from risk products ! • Critical illness NIS B Before tax, net of reinsurance 70% of the CSM balance 3-3.5 • Long-term care • Yield guar

  36. Slide 36: CSM evolution of the existing portfolio on transition

    35 CSM evolution of the existing portfolio ( life and health long term) on transition CSM evolution over time: illustration The CSM balance will be released to P&L gradually and recognized as profit from insurance services. This may Existing portfolio result in an increase in the Company's profit co

  37. Slide 37: What’s next?

    36 What’s next? The Q1 2025 statements are the first financial statements to be prepared in accordance with IFRS 17 These statements will include comparative figures of the corresponding quarter and of the annual financial statements for 2024 and they will be in IFRS 17 format 2024 Annual financial

  38. Slide 38: Q&A Is there a link between income from insurance services and premiums?

    37 Q&A Is there a link between income from insurance services recognized in profit or loss and premiums received in the period? No. Income from insurance services includes several components, mainly the periodic release of the CSM and RA. The total premiums received in the period do not appear in th

  39. Slide 39: Q&A Why Harel’s equity on transition remains almost unchanged?

    38 Q&A Why Harel’s equity on transition remains almost unchanged? At the transition date, we shift to an economic balance sheet. As such, on the assets side, all financial assets will be measured at fair value and deferred acquisition costs (DAC) will be written off. On the liabilities side, insuran

  40. Slide 40: Q&A Why Harel’s CSM from Long-term care amounts to NIS 3-3.5 billion?

    39 Q&A Why Harel’s CSM from Long-term care amounts to NIS 3-3.5 billion? • The CSM reflects the prudence margin that a market participant sees for this product due to its long duration, and accordingly, sees higher liabilities compared with the BE, which derives the CSM - the estimated future profit

  41. Slide 41: Q&A What is the reason for Harel's high CSM on transition?

    40 Q&A What is the reason for Harel's high CSM on transition – NIS 16 billion? • The portfolio mix has a direct impact on the CSM balance. • Harel is a long-standing leader in risk products (life and health long- term). • 67% of the CSM balance is attributable to risk products and 70% of the CSM bal

  42. Slide 42: Disclaimer on adoption of IFRS 17

    41 Disclaimer on adoption of IFRS 17 It should be noted that the recognition rate and the actual CSM amounts recognized in profit or loss subsequent to transition are uncertain and depend, among other things, on changes in developments and actuarial estimates for future service. Additionally, the to

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