Slide 1: IFRS 17 restatements 2022 FY and HY results
IFRS 17 restatements 2022 FY and HY results 8 June 2023
Slide 2: Disclaimer
Disclaimer This document includes forward-looking statements, assumptions, and information about the Company’s financial condition, results, business, strategy, plans and objectives, including in relation to the Company’s current or future projects. It should be noted that the achievement of these o
Slide 3: What I will cover today
What I will cover today • Key messages and numbers • Income statement and balance sheet IFRS 17 bridge • Discounting • COR under IFRS 17 – Treatment of reinsurance – Reclassification of expenses • Reserves and confidence level • Key take aways 2
Slide 4: IFRS 17 is a new accounting standard
IFRS 17 is a new accounting standard No change to... Strategy Economics of the business Investment result and strategy Reserving philosophy Capital and dividend 3
Slide 5: Key FY 2022 numbers IFRS 4 versus IFRS 17
Key FY 2022 numbers IFRS 4 versus IFRS 17 Group profit before tax ($m) Return on equity (%) Net asset value (¢ per share) 275.6 10.1 764.5 701.2 44.7 1.7 IFRS 4 IFRS 17 IFRS 4 IFRS 17 IFRS 4 IFRS 17 Retail combined ratio (%) London Market combined ratio (%) Re & ILS combined ratio (%) 94.8 * 91.0 84
Slide 6: Growth: overall trend consistent
Growth Overall trend consistent Group ($bn) GWP ICWP • Rate of ICWP growth NWP NICWP not impacted • Two new alternative 5.0 performance measures (APMs) introduced to present written premiums: 4.5 – ICWP* (gross) – NICWP** (net) • ICWP is only slightly 4.0 lower than GWP due to reclassification of: –
Slide 7: Written to earned premiums path
Written to earned premiums path Seasonality impact most prominent for Re & ILS H1 H2 FY 2022 ($m) • No material impact from seasonality on an annual Group Re & ILS* basis, only a half-year phenomenon in big-ticket • Seasonality in earned 19% 180 premiums (i.e. a greater share earned in H2 versus 40%
Slide 8: Income statement bridge
Income statement bridge Discounting of reserves main driver of material increase FY 2022 ($m) • Significant PBT uplift 196 under IFRS 17 as the benefit from discounting claims reserves partially offsets the impact of unrealised mark-to-market losses on the bond portfolio • Seasonality distorts H1 ea
Slide 9: Discounting: principles of calculation
Discounting Principles of calculation Principles* 2022 2023 Step 1: • Net claims discounted at interest rate at • $76m Discount on the time of occurrence • Recognised in insurance service recognition expenses and amounts recoverable from reinsurers for contracts held • Average duration of Group clai
Slide 10: Group combined ratio
Group combined ratio Moved to a ‘net/net’ basis as thinking evolves Rationale for ‘net/gross’ COR • More in keeping with the ‘spirit’ of IFRS 17 by treating reinsurance result as an expense • Can calculate directly from the face of the Rationale for ‘net/net’ COR income statement • Better suited to
Slide 11: Group combined ratio (continued)
Group combined ratio (continued) 3.6 percentage point decrease under IFRS 17 IFRS 4 IFRS 17 • Group COR 3.6 percentage Combined ratio (net) – 100% basis Combined ratio (net) – own share points lower under IFRS 17, of which 2.4 percentage Amounts points is due to discounting Net claims + Expenses Ins
Slide 12: Reinsurance commission treatment
Reinsurance commission treatment Re & ILS - impact on expense and claims ratios Expense ratio $m • No impact on profitability, FY 2022 Expenses 164.8 Reinsurance commission (99.9) deterioration on COR 64.9 presentational only = 25.4% Gross earned premium 924.7 • Reinsurance commissions Outwards RI e
Slide 13: Non-claims expenses
Non-claims expenses Minimal impact on income statement FY 2022 ($m) • Reclassification of expenses decreases IFRS 4 COR by 1.4% due to exclusion of non-attributable expenses Acquisition expenses 1,016 Operating expenses 642 • Expect non-attributable Total 1,658*** expenses growth to lag premium grow
Slide 14: Group claims ratio
Group claims ratio Aligned to new definition of combined ratio IFRS 4 IFRS 17 • Favourable impact Claims ratio (net) – 100% basis Claims ratio (net) – own share driven by – a larger denominator basis Amounts Gross incurred as the allocation of Net claims claims*** - recoverable from reinsurance prem
Slide 15: Group expense ratio
Group expense ratio Higher due to definitional changes IFRS 4 IFRS 17 • Favourable impact from Expense ratio – 100% basis Expense ratio – own share reclassification of non-attributable expenses Attributable out of insurance service Expenses** result partially mitigates expenses*** change in reinsura
Slide 16: Retail combined ratio
Retail combined ratio 4.6 percentage point decrease under IFRS 17 in 2022 †100%, as reported. FY 2022 ††Own share, rebased for new definition. • No change to economics and expected profitability †† • Own share presentation is 94.8%† impacted by business mix with lower weighting of profitable busines
Slide 17: London Market combined ratio
London Market combined ratio Main impact from definitional change †100%, as reported. FY 2022 ††Own share, rebased for new definition. • Impact of definitional changes greater than in Retail for two reasons: ‒ larger outward reinsurance programme †† makes reinsurance commission treatment 84.8%† chan
Slide 18: Re & ILS combined ratio
Re & ILS combined ratio Sizeable impact from third-party capital deployment †100%, as reported. FY 2022 ††Own share, rebased for new definition. • Reinsurance commission treatment has a higher relative impact on expense ratio compared to other segments • Discounting impact lower than London Market †
Slide 19: Closing balance sheet
Closing balance sheet Discounting favourably impacts closing equity 31 December 2022 ($m) • Discounting has greater impact on closing balance sheet than opening balance sheet due to interest rate increases in 2022 • Other balance sheet changes are presentational reflecting new ‘geography’ under IFRS
Slide 20: Impact on Group net earned reserves
Impact on Group net earned reserves Remain conservatively reserved 31 December 2022 ($m) IFRS 4 best estimate Reserve margin • Key impact is LPT IFRS 17 best estimate Risk adjustment reclassification from earned to unearned reserves • Risk adjustment of $246m replaces IFRS 4 reserve margin, with ENI
Slide 21: Introducing the reserving confidence level
Introducing the reserving confidence level Reserve adequacy unchanged FY 2022 IFRS 4 best estimate Reserve margin • Prudent reserving Confidence level range IFRS 17 best estimate Risk adjustment philosophy remains unchanged • Expect to operate in the 75th-85th confidence level range under normal bus
Slide 22: Key take aways
Key take aways What matters when you cut through complexity... IFRS 4 IFRS 17 IMPACT • None • Required • Reduces volatility of income statement, MTM impact in investment return Discounting is partially offset due to discounting of reserves of claims • A non-cash benefit to profits in 2022 (not recog
Slide 23: Key take aways (continued): 2023 numbers
Key take aways (continued) 2023 numbers Discounting • Estimated unwind: HY: $60m-$65m; FY: $110m–$140m* Growth • No change to growth expectations • No change to Retail growth target COR • Our expectation of ultimate Retail profitability and cashflows remains unchanged • Retail COR target range under
Slide 24: Appendix
a HISCOX Appendix
Slide 25: Line by line analysis Group FY 2022
Line by line analysis Group FY 2022 $m IFRS 17 IFRS 4 ∆% Differences Insurance contract written premium 4,355.4 4,424.9 -2% Reinstatement premiums reclassified into claims main driver of change Insurance revenue 4,273.3 4,313.8 -1% Reinstatement premiums reclassified to claims. Seasonality less of a
Slide 26: Line by line analysis Group FY 2022
Line by line analysis Group FY 2022 IFRS 17 IFRS 4 ∆% Differences Claims ratio 39.1% 44.8% -5.7% Lower from change in RI commissions treatment and discounting Expense ratio 49.6% 45.8% 3.8% Reverse impact of reinsurance commission reclassification drives increase Combined ratio 88.7% 90.6% -1.9% Sli
Slide 27: Line by line analysis Retail FY 2022
Line by line analysis Retail FY 2022 $m IFRS 17 IFRS 4 ∆% Differences Insurance contract written premium 2,273.1 2,272.1 0% Minimal impact means growth targets broadly unaffected Insurance revenue 2,218.0 2,216.8 0% Written premium largely translates to earnings on a linear basis Insurance service e
Slide 28: Line by line analysis London Market FY 2022
Line by line analysis London Market FY 2022 $m IFRS 17 IFRS 4 ∆% Differences Insurance contract written premium 1,114.7 1,114.9 0% Broadly unchanged with minimal deviation due to reinstatement premium reclass Net insurance contract written premium 789.2 735.1 7% Impact of reinstatement premium recla
Slide 29: Line by line analysis Re & ILS FY 2022
Line by line analysis Re & ILS FY 2022 $m IFRS 17 IFRS 4 ∆% Differences Insurance contract written premium 967.6 1,037.9 -7% Large impact of reclassification of reinstatement premiums Net insurance contract written premium 365.0 268.1 36% Impact of reinstatement premium reclassifications and offset
Slide 30: Group balance sheet as at 31 December 2022
Line by line analysis Group balance sheet as at 31 December 2022 $m Assets IFRS 4 Reclassification Remeasurement IFRS 17 Other assets* 480.0 480.0 • Increase in equity largely Deferred tax assets 53.7 (15.5) 38.2 driven by discounting benefit on claims reserves Deferred acquisition costs 450.1 (450.
Slide 31: Onerous contracts - loss component net of recovery
Onerous contracts - loss component net of recovery Group impact immaterial FY 2022 ($m) • Onerous contracts are not necessarily loss making • Net gain in P&L for FY 22 due to favourable unwind of prior period component • Rate increases and continued disciplined underwriting enhance expected claims r
Slide 32: Return metrics
Return metrics Equity and profit changes impact metrics Basic earnings per share Return on equity Net asset value per share • Transitional impacts on profit and equity drive material increase to Shareholders’ metrics, though the benefit Profit after tax Profit after tax equity of discounting on prof
Slide 33: Transitional opening balance sheet
Transitional opening balance sheet Restatement of shareholders’ equity minimal 1 January 2022 ($m) • Marginal increase in shareholders’ equity on transition of $24m to $2,563 at 1 January 2022 • Discounting is the main driver of increase *Includes FX, seasonal earnings, adjustment to reserves, non-p
Slide 34: Discount rates
Discount rates Rates at 31 December 2022 Year 1 2 3 4 5 6 7 8 9 10 USD 4.90% 4.52% 4.24% 4.08% 4.00% 3.95% 3.92% 3.90% 3.90% 3.91% GBP 4.59% 4.67% 4.64% 4.59% 4.55% 4.51% 4.48% 4.45% 4.44% 4.43% EUR 3.12% 3.27% 3.28% 3.29% 3.31% 3.33% 3.35% 3.37% 3.39% 3.42% CAD 4.66% 4.32% 4.03% 3.84% 3.74% 3.84% 3
Slide 35: Glossary of IFRS 17 terms
Glossary of IFRS 17 terms Terminology Descriptions Attributable expenses Expenses that are attributable to fulfilling obligations towards the policyholders i.e., underwriting and claims handling activities. Confidence level A degree of conservatism in reserving. The actual percentage shows the proba