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.

Singapore had similar issue and took similar initiative as well, and they use 4.25%.
https://www.lia.org.sg/tools-and-resources/illustrated-investment-rate-of-return-for-par-policies/

It used to be like each companies will use own historical return to project the future return for ILP/Par saving, but now is regulated to 2%/5% (if not mistaken).

To be fair, KLCI has been performing very badly, especially since 2018, and ILP/Par invested heavily in KLCI. You can't really blame insurers for not able to achieve projected return.

*there are limitation on how much local insurers are allowed to invest overseas (8% I think), however, heavily invested in overseas also not a good idea.
https://www.bloomberg.com/news/articles/2023-07-26/us-rate-hikes-haunt-taiwan-s-1-trillion-life-insurance-industry

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.

https://www.prudentialplc.com/~/media/Files/P/Prudential-V13/news-releases/2023/ifrs17-briefing-presentation.pdf

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.

record high 15.8 for Allianz-PA, but low volume.

satisfied with their 20+% return in 2 years time already ba?

州选后若重呈医改 国民健保料成重头戏 https://www.sinchew.com.my/20230704/%e5%9b%bd%e6%b0%91%e5%81%a5%e4%bf%9d%e6%96%99%e6%88%90%e9%87%8d%e5%a4%b4%e6%88%8f/

AGM slide:
https://www.allianz.com.my/content/dam/onemarketing/azmb/wwwallianzcommy/pdf/investor-updates/2023/Annexure1_49thAGMPresentation.pdf

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.

Many secret arrangement (or scandal) between GE/AIA/Pru and our government.
GE donated 2bil in 2018
AIA
https://www.spglobal.com/marketintelligence/en/news-insights/trending/4zrc31t1740qjcfahdm9na2
Prudential
https://theedgemalaysia.com/article/newsbreak-prudential-goes-court-over-stake-malaysian-licensee

Tokio Marine taps Goldman, Jefferies to sell US$1bln Southeast Asia life insurance unit-sources

Prudential just shared on insta that out of 2.04bil claims paid in 2022, medical = 1.46bil (71.6%).

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.

Of course, again IFRS4 profit is quite meaningless, since you cant see the breakdown.

On the other hands, despite near 220mil profit from investment margin, Prudential annual profit is only 448mil (2022), 739mil (2021), 545mil (2020). Insurance margin (say average of 3 years, minus 220mil = 357mil) for Prudential is barely as much as Allianz (core profit 325mil in 2022, 267mil in 2021), despite much bigger block of business.

Anyways, need to have basic understanding on ILP to judge Allianz ILP fund size.
ILP fund size subject to market movement, if equity price up 10%, then fund size will +10% as well.
Policyholder can withdraw from ILP fund.
Policyholder can stop paying premium for ILP policies.
Allocation into ILP is very low in early years, and increasing after that. (e.g. only ~60% of premium paid will invest into unit funds in Y1, but 100% premium will invest into unit funds in Y11), can google for minimum allocation rate (MAR).
In reality, you will still have COI deduction (and other deduction), after the allocation, say if COI is ~30% premium at Y1, and ~40% premium at Y11 (COI is increasing yearly), net growth in unit fund is ~30% premium in Y1 and ~60% premium in Y11).
Investment margin on unit fund is ~1%-1.2% (Insurers charge policyholder ~1.5% management fee, but net incurred cost is ~0.3%). 3.2bil unit fund converts to 32mil investment margin yearly (and growing).

Actually can look for "Net asset value attributable to unitholders" in financial statement
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%)

Surprised, thought GE is half dead on ILP and AIA is promising, but seems like reverse.
Also thought Etiqa is faster growing vs HLA, but it is reverse as well.
But clear winner (growth) is still Allianz.

Insurance management is very unlike banking. For banking, local players can shine easily, and foreign banks are not anyhow better than local banks in Malaysia. Insurance is very different. Many local insurers failed 20 years ago, many Indo/Vietnam/India insurers still fail today, even local GI insurer in Taiwan province almost bankrupt due to covid insurance.

Of course not all foreign insurers are equal, it depends on whether the regional office has any intention to really invest in Malaysia market. You can guess it from the parent company report. E.g. in AIA/Pru, Malaysia is always being mentioned. Allianz occasionally will report Malaysia market. Some other Switzerland/Canada/US/Japan based insurers, Malaysia is never really their focus.

Etiqa GROWTH FUND - 384mil
GROWTH FUND - 1004.5mil

Previously, there will always be a default fund (typically local equity), which agent will just set to 100% for any new customers. Only recently, choices of funds increased, with more "fancy" funds to select, especially for Pru and AIA.

AIA EQUITY PLUS FUND - 3004mil
PRULink Equity Fund - 7612mil
Allianz Life Master Equity Fund - 1237mil

Allianz ILP is popular (and cheaper, on purpose to gain market share previously). In fact, if just look at ILP alone, top 3 players should be AIA, Prudential, Allianz. You can actually get a sense of the "size" of ILP business by summing up all their ILP fund size, is public info.

Growth potential of insurance depends on regulation and economic growth. Malaysia economic growth is almost non existent since 2018, but we have great regulation on insurance.

almost all time high again

EV calculation will not be a catalyst to Allianz, since EV doesn't change under IFRS17 (some impacts from IFRS9 but is not significant). EV also been there for a long time, and no one seems to care or understand.

Immediate catalyst will be Takaful shareholder run away and invest in Allianz (hopefully), and if someone noticed Allianz growing dividend. Immediate threat will be upcoming RBC2 in 2024 (another regulatory change, unknown impact).

Allianz products are still selling very well, despite lower NBV. Not sure with their medical portfolio now, hopefully another round of repricing to bump up the EV / future profit.

Core profit exists previously because market movement will impact P/L a lot under IFRS4. Now it will not impact that much (partly will absorb by CSM, for VFA business), and anyone can easily split out the impact (insurance service results/investment service results) to exclude any market movement impact.

Yup, acq exp definitely increases.

Wait for HY23 financial statement for details breakdown.

I believe the NBV previous is based on MCEV (post tax), and NBV now directly take from IFRS17 CSM (gross tax). However, RA is also source of profit.

NBV previously is on best estimate basis, but now is on 75th percentile. More accurate way is to compare NBV with NB CSM + RA.

CSM release rate, annualized 12.4%, much higher than what I expected, but spike in profit is lower than my expectation, was expecting +50%.

Now can wait for STMB's Q1 and its poor result due to focus on single premium product.

Market share increases, but NBV drop due to paying more commission. PBT lower vs Q1 2022, it said due to claims, suspect is due to the release in claims reserve (set up during covid to defer profit) in 2022.

Q1 CSM amortization (key source of profit) = 95mil, full year should be ~400mil. i.e. FY2023 number will be much higher than FY2022 (377.5 IFRS17 basis or 287.2 IFRS4 basis)

For insurance contracts issued, the Group has adopted the standard using the full retrospective approach for all currently modelled products in annual cohorts 2014 or later. For modelled products in annual cohorts prior to 2014, the modified retrospective approach will be applied.

Unlike Manulife, Allianz doesn't go for shortcut!

For life, profit before tax lower to 96.5 from 131.5 (IFRS17 basis), Q1 2022 IFRS4 PBT = 67.7 (core profit = 100.7). No more core profit now under IFRS17.

Restated YE22 profit higher 31% under IFRS17 basis (life only), total company level, higher 24%.

Yes, just present value of distributable profit + net asset

Release future profit because already accounted for in equity.
Imagine equity now = 0, PV profit = 1000.
Next year release 100 profit, PV profit = 900, equity increase to 100.

expected return on EV = profit release

MCEV/TEV logic actually can trace back to option pricing (i.e. the famous Black–Scholes model). Under TEV/real-world, you are expecting to earn bond spread/illiquidity premium/credit spread/equity risk premium etc, and discount with a weighted average rates that reflect your risk. It is very hard to do it right, to explain and also to compare. For example, Prudential might use 10% equity return, but AIA might use 9% equity return, yet both might use same discount rate. It will get super complex real fast when you have much more assets type, especially the non-traditional assets, across multiple currency/countries etc. MCEV/risk-neutral/market-consistent will resolve it to revert both earn/discount rate to risk free/risk free + IP/MA etc.

PBT is IFRS4 basis, not EV basis. Closing EV = Opening EV + NBV - profit released + unwind impact (discounting). You also need to consider discounting impact.

Example:
Profit 100 yearly, 10% discount rate, 5 years.
PV profit (Y0) = 100/1.1 + 100/1.1^2 + ... 100/1.1^5 = 379
PV profit (Y1) = 100/1.1 + 100/1.1^2 + ... 100/1.1^4 = 317
Cashflow release = 100
A simple closing EV (317) will not same as opening EV (379) - profit release (100).
In this case, the discounting impact is 37.9, i.e. opening EV 379 * 10%.

In theory and conceptually, market consistent and real world should yield the same results.

It is not just the profit that being discounted, but all future cashflows. You cannot assume that all cashflows are same sign (i.e. profit). On top of that, the earning rate is different as well, where for market consistent, you will also use risk free earning rate, which will give you lower absolute amount, before discounting.

For ILP business, due to compounding effect, Allianz's MCEV is more conservative than AIA's TEV.

Imagine your unit value, growing 4% yearly in Allianz, vs AIA 10%. At 10th year, AIA project unit value will be 175% of Allianz (before other lapse/death assumptions). Fund management charge, which is a key source of income for ILP, will different greatly between AIA and Allianz (in absolute amount). Insurance margin will be the same, assuming same sustainability. However, sustainability will not be the same as well. In Allianz projection, policies more likely assumed to be lapse (due to negative unit fund) before age 70, while AIA projection, policies are more likely to sustain to age 100.

It depends on product type and other assumptions, transition CSM with fair value approach ("FVA"), the shortcut, or full retrospective approach ("FRA") can have very big difference, even up to 1000% (10x, yes). FVA is just formula based, with optional adjustments, while FRA has a strict process to follow (assuming IFRS17 always exists).

Yes, CSM + RA will roughly similar with EV. EV has additional component (e.g. cost of capital) to be more reflective of actual business, to represent cost of holding reserve/capital, this is not applicable under IFRS17. EV is designed for life insurance, while IFRS17 is for all insurance. Another key difference is the assumptions used. IFRS17 must use market consistent (i.e. risk free rates) for all cashflows projection, while EV (in Asia, but not Allianz) typically will use a real world return (and discounting) for cashflows projection.

For old block of business before 2023, you will need to calculate a one-off CSM, assuming IFRS17 always exists. This part got many rooms to play with the number. e.g. some companies will calculate a proper way, go back 10+ years to calculate CSM, or you can just take a shortcut and report a lower CSM.

For Manulife:
"For calculating the contractual service margin (“CSM”), the fair value approach is used for all in-force policies sold before 2021, and the full retrospective approach is used for all policies sold in 2021 onwards."

For this transition CSM (opening balance), it is unrelated to RA.

On your second question, both CSM and RA represent future unearned profit, difference being CSM = 75th percentile, while CSM + RA = best estimate (50th percentile). So it should be 320mil (market cap), vs 241 CSM + 232 RA = 473 gross tax, or 360 net tax.

Manulife also "intentionally" set a low CSM, but might also due on its business nature (not sure what's it saving/protection mix). If Allianz (primary protection business) didn't intentionally set a low CSM, spike in operating profit should be very substantial (much higher than Manulife 11.6%)

Manulife disclosed its CSM = 241mil, RA = 232mil, net tax ~ 360mil, vs its market cap of 420mil (inclusive of asset management business).

Globally Manulife mainly focus on HNW saving products (e.g. Manulife SG is top 3 ranked by APE), and indeed Manulife also has a HNW subsidiary in Malaysia (one of its kind), but Manulife itself quite limited branding in Malaysia, with poor agency channel and banca channel (Alliance bank).

Tuneprotect also released its IFRS17 Q1 result, but nothing to see there, since minimal change to General insurance.

IFRS17 impacts the most on conventional life. Maybank has multiple subsidiaries (conventional/takaful x life/general). By product type, IFRS17 also has different impacts on regular premium/single premium (e.g. STMB), and protection / saving.

Allianz Life has relatively minimal saving products, but this is not the case for Etiqa Life.

Q1 result confirm bad, I will guess at least a -50% impact to profit (exclude any fair value related)