It will not fully cancel out another. Actually in fact, 69mil as impact of assumption change is very immaterial. CSM release % from 6% (HY23) to 9.2% (Q3) also not a material change.
Expected growth in the CSM is coming from the discount rate (risk free). Imagine you will earn 100 in Dec 2023. Initially in Dec 2022, you will PV for one full year, say PV(m0) Then in Jun 2023, you will PV for half year, say PV(m6) , and this number will bigger than PV(m0). That is the expected growth. This will present as a cost actually in P/L, and to be offset with actual investment return, for GMM. For VFA, this will be slightly difference.
AmIB directly use CSM to value Allianz Life. A couple of issue: 1. 3.3bil CSM is gross RI, gross tax 2. net CSM is much lower at 2bil 3. future profit is actually CSM + RA. RA is estimated around 15% of CSM for Allianz. 4. VNB should be included
Break 18 tomorrow? expecting Q3 result to announce today, but apparently still no. Anyways, positive catalyst from IFRS17 will last until Feb 24 (when full year IFRS17 is available, and much clearer and concrete).
Next potential positive is the medical repricing, another round of mass medical repricing is coming, which will increase absolute profit.
Codeblue reported many health reform initiatives by Anwar, supposedly effective next year.
If success, a significant health cost will transfer to M40/T20, great demand for health insurance. Only 7.5% of health financing currently from insurance, 46% from gov, 34% from private out-of-pocket.
If fail, like the recent lack of manpower in government hospital, government will have to transfer patients to private hospital (New Madani Medical Scheme), good for KPJ/IHH. And if the chaos persists, heath insurance demand might also increase.
Honestly, personally opinion, any form of heath reform going to be a chaos, like in many other countries.
Vet through all the takaful companies H1 report, only STMB and another recorded a drop in equity upon transition. Looking at the number, STMB probably has the economic of scale vs many others Takaful (not conventional) , but its profit confirm will on downwards trend over the next 3 years.
There are some Takaful products, where the policyholders do not participate in risk sharing. Surplus in risk fund will be shared between shareholders and charity. This is the type of products that very hard to fulfill VFA requirements.
Crossed check with Etiqa financial statement, my understanding probably just 70% right, but is definitely related to investment service result for GMM.
GMM = general measurement model, default model for IFRS17, it assumes company owns all the assets backing liabilities, where it is not the case for investment linked and takaful. Hence for investment linked, it will usually be another model (VFA), and for takaful, most of the products will be VFA. If one measures ILP or takaful with GMM, the results will definitely be weird and not reflective of actual economics.
There are multiple funds under STMB (life risk fund, GI risk fund, ILP unit funds etc.), economically only investment return in shareholder fund belongs to STMB. However, since MRTA is measured under GMM, risk fund for MRTA likely "classified" as shareholder fund under IFRS17 (but not economically), and hence higher investment return vs IFRS4. Not sure, need wait for full year end report to understand.
Under IFRS4: investment income = 44mil (attributable to shareholder only), 138mil (total), 32% This is more representative, but then, SHF typically invested in bonds, unit funds typically in equities, so investment income doesn't represent anything, still very subjecting to market movement.
There is a possibility that SMTB is stating higher transition CSM (with FVA approach), than what it supposed to have if assumed IFRS17 always exists (FRA approach). With the fast release, there might not be any CSM growth. Growth in CSM release doesn't indicate growth in CSM balance. Without any new business, CSM release will converging to 100% (100% in final policy year, ~50% before final policy year).
Nothing is static yet, number will still change, STMB tweaked down the transition CSM by 7%, in Q2. Most likely will continue play with the number to come out with a more balance P/L. What's weird is the investment service, amount that attributable to shareholder by right should be consistent. I will guess that investment income from assets backing GMM block (MRTA), is now also classified as attributable to shareholder, which seems weird because economically it doesn't work that way. If purely look at insurance service, P/L in IFRS4 = 184, P/L in IFRS17 = 137, still a 25% drop.
STMB H2 2022 (IFRS4) PBT = 228mil PAT = 156mil Breakdown of PBT: Surplus (recurring) = 18mil (note 24) Wakalah fee = 566mil Comm/ME = 400mil *Wakalah fee - Comm/ME = one-off, will defer under IFRS17 investment income = 44mil (attributable to shareholder only), 138mil (total, not relevant in P/L)
STMB H2 2022 (IFRS17) PBT = 210mil PAT = 142mil Breakdown of PBT: Insurance service = 137mil (CSM release 109mil, RA release 17mil) Investment service = 70mil (Investment income 125mil (total), finance exp -55mil) Other income = 3mil
Equity/CSM IFRS4 Dec 2022 Equity = 2019mil IFRS17 Dec 2022 Equity = 1443mil (-576mil) in Q2 FS restated again after Q1 IFRS17 Dec 2022 Equity = 1380mil (-639mil) in Q1 FS Transition CSM = 1035mil in Q2 FS Transition CSM = 1117mil in Q2 FS ^CSM release (6 months) = 109, CSM release rate (annual) ~ 19% (vs Allianz = 12%)
For comparison, Allianz Equity IFRS4 = 4230mil IFRS17 = 4677mil
Unlikely Conventional, Takaful P/L is much clearer under IFRS4. Real income is mainly 3 components, wakalah fee (net expenses) 166mil, inv income 44mil and surplus sharing (bonus) of 18mil. By setting a high CSM (at the expense of lower equity), STMB can then maintain the same yearly P/L.
*~30% of Family business and ~95% of General takaful measured under PAA (measurement model that has minimal impact under IFRS17), but seems like these business has minimal contribution to P/L anyways (pre and post IFRS17), key source of earning is still MRTA and ILP
KUALA LUMPUR: Allianz Malaysia Bhd's net profit increased by 11 per cent to RM166.67 million for the second quarter ended June 30, 2023 from RM150.08 million registered a year ago, due to its life insurance segment.
Revenue rose to RM1.16 billion from RM1.08 billion in 2022, the company said in a filing to Bursa Malaysia today.
In the first half to June 30, Allianz Malaysia posted a net profit of RM339.4 million, up 12.9 per cent from RM300.6 million. Revenue rose 8.4 per cent to RM2.3 billion versus RM2.1 billion last year.
US is too extreme case, where there is no single price for everything. In Malaysia, I think there is still single price for everything, but insurers will also negotiate discount, e.g. room & board RM200, insurers get 10% discount.
Cashless admission and even claim and reimburse later, will definitely lead to unnecessary procedures than self funded cash admission.
You need real expertise to manage insurance, which is much harder to understand than banking. ALM in insurance is like decades ahead of banking.
Then there are also evolving development with treatment for Participating fund, where insurers will require experience from UK as well, e.g. recently on estate treatment.
Malaysia is lucky to have BNM, which shamelessly just copy regulation from Singapore and UK (which actually is very good and smart way as a regulator), and also less political interference in insurance development (except the 70% ownership thing). For comparison, insurance regulation in Indonesia/Vietnam/India are really lax, with loopholes etc.
Oh, and Malaysia has slowly became a global outsourcing center for insurance talents. Berkshire Hathaway and Cigna both have operation office here in KL, despite not selling any business in Malaysia.
Unit fund (subject to market movement, new business, lapse, withdrawal): Prudential YE2022, 22.0bil, up from 21.1bil (+0.9bil, +4.3%) GE YE2022, 12.6bil, up from 11.7bil (+0.9bil, +7.2%) AIA HY2022, 12.5bil, up from 12.5bil (no change) HLA HY2022, 4.83bil, up from 4.35bil (+0.5bil, +11%) Allianz YE2022, 3.2bil, up from 2.7bil (+0.5bil, +18.5%) Etiqa YE2022, 2.44bil, up from 2.37bil (+0.07bil, +2.95%)
Allianz currently with highest growth in ILP, Allianz used to be very aggressively selling ILP pre-covid. For a standard ILP (with medical rider), it will beat all competitor quote, but actually by giving a lower sustainability (age 70), instead of 100. However, AIA and Prudential have already follow the same pricing method, to quote premium up to age 70 to retain market share.
Now, the key focus is actually HNW ILP (sum assured 1mil+), mass market ILP with medical is not the sole key focus anymore.
Assets: Allianz Life = 4x of AmMetlife Premium: Allianz Life = 6x of AmMetlife Claims: Allianz Life = 6x of AmMetlife IFRS4 profit: Allianz Life = 2.6x of AmMetlife ILP unit fund: Allianz Life = 16x of AmMetlife
it really depends on product type, there are products that insurers will profit from early surrender (e.g. Y3/Y4), typical all non-ILP, there are also some that insurers will loss from early surrender, typically ILP. BNM got a rule that penalty can only apply up to a level where insurer can recoup back upfront cost, but this typically only for Par saving plan. Due to competition, there is usually no such penalty for protection ILP (except for those saving type ILP).
definitely less than half, probably already more than half policyholders drop off in first 5 years. it depends on the product type, for some, say protection type ILP, early lapse will forfeit future profit (company don't really earn much in first 5 years for ILP, due to lower premium, high commission). total commission in first 6 years ~200% of total premium, plus about 300-400 fixed expenses per policy sold. ILP typically will have negative cashflows to the company in first 1-2 years, and any lapse in this period, will lead to actual loss, on top of forfeiting future profit.
If not mistaken, the 2% is always there, to illustrate to policyholders a low return scenario, but the 5% previously was historical return/expected return, which much higher than 5% (it was 9% in my policy document, 100% equity fund).
There is already nothing wrong here, there is a best estimate scenario, and a low return scenario. However, due to numerous complaints, and the continuously underperforming KLCI (5Y FBM100 return is now -20%), BNM finally instructed insurers to show 5% return only.
AGM QA: In the Life segment, growth plays a vital role as it brings in NBV for Allianz Life. The term "Coming of Age" refers to the point at which Allianz Life's business reaches maturity and that the in-force profit on the life business will continue to emerge. Subject to meeting regulatory solvency requirements, the Management aspires to elevate performance and enhance dividend payments.
Insurance is probably more regulated than the banks in Malaysia (and all other advanced regions). Everything from pricing to commission to illustration to policy wording, all required approval from BNM.
PETALING JAYA: Singapore insurer Great Eastern Holdings Ltd is reportedly in talks to buy MetLife Inc’s Malaysian venture, according to people familiar with the matter.
The subsidiary of Oversea-Chinese Banking Corporation (OCBC) is conducting due diligence on AmMetLife Insurance Bhd and seeking regulatory approval to clinch the deal, the people said.
A transaction could value AmMetLife, which US-based MetLife jointly owns with Kuala Lumpur-listed AMMB Holdings Bhd, at between US$250 million (RM1.12 billion) and US$300 million (RM1.34 billion), the people said.
Prudential IFRS17 investor presentation shows a clearer picture on IFRS17 impact on different countries/regions (probably the first that publicly available). Typically, insurance has a very heavy investment elements in advanced countries/regions (e.g. UK, EU, HK), which IFRS17 impact on profit is negative, but insurance with very high protection elements, IFRS17 impact will be positive (exclude single premium). You can observe very high positive IFRS17 impact in Indonesia (+50%) and Malaysia (+33%). For Singapore, which insurance is usually sold as investment, suspect is due to Prudential Sg's Medical Shield business, not familiar with business split of Prudential Sg.
You still can't stop if the board/management wants to pro-US, e.g. in the case of HSBC vs Huawei.
Fire and PA business (or any high severity, low probability insurance) are always lucrative (but small premium), regardless if conventional/takaful. In fact, by concept, takaful will be more expensive (to policyholder) and less profitable (to insurer).
In my opinion, not much point for Allianz to explore takaful license. Takaful business will not be profitable in first 5-10 years. Previously BNM allowed for takaful window operation, but now I don't think it is allowed anymore.
Allianz will almost never dispose Allianz Malaysia, as it already hit critical mass. You can observe that insurers that keep changing ownership, e.g. UNIASIA > GBSN > FWD, Tahan > AXA Affin Life > Generali, all are just small players, that struggle to sustain.
Prudential used to talk with KWAP for the 30% issue. Personally I feel KWSP/KWAP/ASNB etc should indeed explore to invest in insurance, even without push from government. We really cannot allow foreigner to control our hospitals and insurance. We need foreign talents, yes, but we must in control. So far, except the 30% issue, BNM/government still has a strong control over insurance companies.
BNM regulate how much dividend is allowed to repatriate overseas, that is why insurance in Malaysia is very well regulated. ILP is a very well designed product, take away investment risk that insurer scare, pass on to policyholder that willing to bear the risk. Almost everyone knows equity is risker, but almost everyone will select equity fund for their ILP policies. If the product is not ILP (say designed as a standalone), then insurers will only invest in fixed income + some equities instead. No special allowance that I aware of.