KLSE (MYR): ALLIANZ (1163)
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13.90 - 14.08
Despite declaring an interim dividend of 16 sen for the first time recently, the final dividend of 69 sen is still higher than 63 sen in FY21. Full year dividend 85 sen is 35% higher than last year. The dividend yield is 6.1% at today closing price! It's even higher for ICPS. However on the flip side, does it also mean less growth prospect since less capital is needed?
One can manufacture profits with creative accounting and dubious accounting standards. I've invested in some companies that have massive reserves accumulated over years of profitability. Shareholders however suffer with share price stunted and microscopic dividends.
Dividends is proof of real and not just paper profits.
Generous dividends is proof of real and large profits!
Kudos to the management of Allianz!!
Over the past 10 years, Allianz (life) is still on rapid growing phase, where capital required is much more intensive, vs its yearly profit. Obviously as of now, as the 4th largest life insurer, it will no longer have this issue. AFAIK, Pru and AIA will pay maximum amount of dividend that is allowed under RBC framework yearly.
*Dividend is not depending on IFRS17 profit, even though profit is expected to spike under IFRS17, dividend will still still be in similar range, 85sen + 10-20% growth yearly.
**IFRS17 implementation cost is expensive (easily >10mil/year, over ~200mil PBT), but it will go away in 2023.
Suspect Vincent Tan new target is also a life insurance company. That means, it will be third life insurance that change owner in recent 1 year.
EPF disposed for the first time
Almost all time high now
I've sold my entire stake.
I reasoned that it must be an irrational exuberance for fantastic dividends that has pushed its share price to such heights.
Actually pan-Asia insurance stock all rise to xx-weeks high now, e.g. PRU (HKSE).
Is there an irrational exuberance? It depends on whether the current level of dividend is sustainable.
I'm not sure whether there is a metric that indicates the level of cash that can be prudently returned to shareholders, something like free cash flow. AIA publishes its Free Surplus and Underlying Free Surplus Generation (UFSG) figures. However Allianz's disclosure is rather limited.
Therefore I will rely on the payout ratio (though earning may not be representative of the true picture, , at least before IFRS17).
We already know that 2022 full year dividend is about 177*0.85 + 169*1.02 = RM323m.
During 2019-21 period, net profit was about RM500m per year. I forecast 2022 full year profit to be around RM450m. So the 2022 payout ratio will be in the range of 65% to 70%.
Such payout level means the company is unlikely to be fast growing in the future as it sets aside less capital to fund its growth. However 65% to 70% is not excessive either. Given the stability of the business, current dividend level should be sustainable.
At today closing price of RM14.64, TTM dividend yield is 0.85/14.64 = 5.8% (ICPS is even higher). As long as dividend is sustainable, current share price from dividend yield perspective is still attractive. Other valuation measures we discussed before like embedded value, P/B and M&A all lead to similar conclusion.
I continue to hold my shares. I focus more on the dividend and will not be too bother with the share price for now.
I'm not done yet. Hoping to swoop in if and when there's a bigger than expected drop. Only issue is that investors have to wait a year to reap the gains. The lack of trading liquidity makes this a boring stock to trade.
For me, I foresee a spike in earning & share price in HY23 (August 23), and then YE23 (Feb 24), then will enter a stabilize phase, unless any major change in market share.
Allianz Life MY should already have internal projection readily available, just whether if they will disclosure it. Don't be surprised by a 50-100%, or even 200% spike in earning on the Life side.
Spike in 2023 earnings due to IFRS17 adoption, or also driven by real business outperformance?
I think a significant spike in earnings will come from the increased yields of debt instruments - fixed deposits, new purchases of bonds etc. As wsb indicated, it's positive for all insurance companies.
close at all time high now, despite EPF stop buying
I sold some pref but still have some bullets left.
Aaron Fryer, Regional Chief Financial Officer, Allianz Asia Pacific, said: “In a year of uncertainty and amid a turbulent global economy, our core businesses have displayed resilience and performed in line with expectations, achieving a 17 percent increase in operating profits in Asia in FY2022.
“The Life & Health (L/H) business saw robust growth, with operating profit up 20 per cent to EUR 532 million, primarily due to profit increases in Taiwan, Malaysia, and China.
“The Property & Casualty (P/C) business in the region showed continuous growth, with operating profit up 8 per cent to EUR 141 million, while total revenues rose 17 per cent to EUR 1.7 billion, driven particularly by strong growth in China, Malaysia, Singapore, and Thailand (including the acquisition of Aetna Thailand).
Thanks for the sharing. It's encouraging.
Thanks wsb_investor. The year of IFRS17 has arrived finally.. Hopefully Life's reported profit will not tremendously affected by the bond yield again..
YE2022, PBT +12.6%, PAT -1.2% due to Prosperity Tax. Life core profit for past 4 years = 273, 270, 267, 325; GI profit for past 4 years = 362, 432, 437, 462.
The life insurance is still not doing well in Malaysia. The management wrote that "While life insurance segment annualized new business declined by 3.8% for the year ended 31 December 2022, this has outperformed the industry’s decline of 8.8% ..."
Looking into the details, page 20 of QR shows that life insurance block persistency ratio has dropped to 81.2% (versus 88.8% in 4Q21). It's quite a drop, as block persistency ratio used to be in the high 80% or even 90%.
Does it mean more policyholders surrender their policies? I hope this is not the start of a trend.
On the general insurance side, page 20 of analyst presentation shows Takaful GWP growth is 21.1%, more than double the growth rate of conventional!
Quoted from the link:
"Generally, the impact of guaranteed products is more significant in the increase of the margin, which means property and casualty insurers may benefit more as they offer more guaranteed products than those of life insurers that usually sell savings-type products."
Is Allianz ILP regarded as a type of saving-type product?
2 months ago
AIA FY2022 report:
Overall expected positive impact of IFRS 9 and IFRS 17 compared with IAS 39 and IFRS 4
Under IFRS 4, mark-to-market movements on derivative financial instruments are reflected in net profit but these are not fully offset by the corresponding change in the value of the liabilities. The adoption of IFRS 17 will eliminate this non-economic accounting mismatch that is created between assets and liabilities in the Group’s consolidated financial statements under IFRS 4. Non-operating movements on derivative financial instruments for participating business was negative US$2,003 million in 2022 as shown below. For clarity, this figure would have been zero under IFRS 17. Including this effect, net profit will be at least US$2 billion higher than net profit under IFRS 4.
2 months ago
@wsb_investor, thanks for the sharing. Does it mean we can look forward to higher IFRS17 profit too for Allianz Malaysia?
I looked up AIA results. AIA's VONB (Value of New Business) in Malaysia grew to USD308m in 2022 from USD283m in 2021, which is 9% YoY growth. The growth has come from higher VONB margin (as ANP actually declined to USD440m from USD491m)
In comparison, Allianz Malaysia NBV declined to RM677m from RM717m.
It looks like AIA Malaysia still outpaces Allianz in terms of growth.
2 months ago
AmInvestment Bank published an insurance sector report today. It maintains Neutral on the sector. Buy call for Allianz.
It sees “Allianz Malaysia (Allianz) to benefit the most from a reduced volatility of interest rate movements on earnings after adopting FRS 17 commencing 1 Jan 2023.
Allianz focusses strongly on investment-linked (IL) products for their life business … more than 90% of the group’s life insurance contracts will be measured under VFA (Variable Fee Approach)
The adoption of FRS 17 will see the movement in interest rates on the securities portfolio backing VFA contracts to have lesser volatility on their earnings under the P&L. This is due to interest rate impacts on securities portfolio under FRS 17 being now adjusted from contractual service margin (CSM), which will then be spread out over time through the contracted period of the IL policies. Prior to this under FRS 4, the full impact of fair value changes on securities or investments backing VFA contacts flows through the P&L of Allianz, hence impacting earnings.”
AmInvestment also says
“We stay NEUTRAL on the insurance sector premised on the following considerations:
i. Continued liberalisation which will exert pressure on the pricing for fire and motor products on general insurance and takaful operators (ITOs) moving forward. Also, gradual detarrification could impact the contract liabilities (reserving) of ITOs;
ii. Slower demand for general and life insurance products in line with the slowdown in global growth rate. Economic uncertainties and volatile markets are likely to lead consumers to defer purchasing longer term insurance plans in the near term. We have seen smaller ticket-sized life insurance policies sold by certain insurance companies of late. Our economists have forecast a lower GDP growth of 4.5% in 2023 compared to 8.7% in 2022;
iii. Uncertainties surrounding the day 1 impact of FRS 17 implemented on 1 Jan 2023. These include the changes to revenue recognition and the retrospective adjustments to ITOs’ retained earnings, and
iv. Potentially higher medical claims on life/family takaful businesses in 2023. Cost for medical expenses are expected to rise due to inflationary pressures. “
2 months ago
Integrity. Intelligent. Industrious. 3iii (iiinvestsmart)$â¬Â£Â¥
Security LastPr PE DY% Divcts ROE ttm-marg
ALLIANZ (Insurance) 13.88 5.22 6.1 85 11.18 7
1 month ago
1. The combined effect on the Group’s consolidated statement of financial position on transition to MFRS 9 and MFRS 17 as at 1 January 2022 is to improve total equity measured under MFRS 17 by approximately 8%
100% Eq @ YE22 = 4.2bil, 8% = 336 mil
2. For insurance contracts issued, the Group intends to adopt the standard using the full retrospective approach for all currently modelled products in annual cohorts 2014 or later. (Generally longer FRA period = higher transition CSM = more future profit)
3 weeks ago
Great Eastern Holdings G07 0.00% , a member of the OCBC Group, reported earnings of $244.0 million for the 1QFY2023 ended March 31, 10.9% higher than the earnings of $220.0 million in the 1QFY2022.
For the current quarter, the earnings were reported on the SFRS(I) 17 insurance contracts basis while the earnings for the 1QFY2022 were reported based on SFRS(I) 4 insurance contracts principles. The impact of the new method of reporting will be disclosed in the group’s 1HFY2023 results.
*NBEV - 11%, but ifrs17 profit higher 10%
3 weeks ago
Great Eastern's NBEV in Malaysian market grew at 3%. Meanwhile AIA reported double-digit VONB increase in Malaysia.
Given the Malaysian market has recovered, let's see if Allianz can finally deliver some growths after four quarters of decline.
3 weeks ago
Maybank published its results today. Not sure if I've missed something. The effects of MFRS17 adoption have been rather muted.
Group insurance & Takaful contributed RM238m to Maybank's total operating profit of RM2,979m (Note A30). The effects of MFRS17 adoption was to increase operating profit by a mere RM2.8m i.e. 1% only (Note A40 i)
Maybank has a balanced insurance portfolio. Based on total operating income, life/ family takaful/ general takaful/ general & others are RM350m/ RM171m/ RM93m/ RM57m respectively (Note 38a)
Does Maybank's experience with MFRS17 has any bearing on other insurers?
4 days ago
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.
3 days ago
Tuneprotect also released its IFRS17 Q1 result, but nothing to see there, since minimal change to General insurance.
2 days ago
Manulife just annouced its results. Note 2b shows effects of MFRS9 and 17 adoption, where total shareholders’ equity increased from RM955m to RM1,186m
Note B3 mentions
"Life insurance business – Operating revenue of life insurance business increased by RM13.0 million or 11.6% mainly due to higher contractual service margin (“CSM”) amortisation and risk adjustment release as a result of higher inforced business."
Manulife revenue and profit have been rather stagnant over the years. It seems the company is not doing too well. Any idea why?
2 days ago
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).
1 day ago
Manulife disclosed its CSM = 241mil, RA = 232mil, net tax ~ 360mil, vs its market cap of 420mil (inclusive of asset management business).
1 day ago
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%)
1 day ago
I have a question on "intentionally" setting a low CSM.
Based on what I read, for group of profitable contracts,
PV of cash inflows = CSM + RA (risk adjustment) + PV of cash outflows.
Therefore if Manulife, being conservative, sets a low CSM, it will have a correspondingly higher RA to reflect the greater risk perceived.
However, if the risk does not "materialise", the RA will still be "released" along with CSM at the end of period.
Refer Manulife Note A13, the insurance revenue is made up of RM11m of "CSM recognised for service provided", as well as RM8.7m of "Change in risk adjustment for non-financial risk expired"
What I tried to say is, if we suspect Manulife is being "too conservative", can we treat its true CSM as not only the reported CSM of RM241m, but also to include part of its RA of RM232m?
1 day ago
I've done a simple exercise on Manulife valuation.
The asset management services generated annual PBT of RM18m in both 2021 and 2022 (refer page 177 of 2022 Annual Report). Assume after tax profit of RM14m, and assume 7 times PE, the asset management business is worth about RM100m.
After deducting this RM100m from Manulife market cap of RM420m, the life insurance business is value at about RM320m.
This is more than its CSM of RM241m. RM320m is equal to 100% of CSM (at RM241m) + 34% of RA (=0.34 * RM232m = RM79m).
Is this the way to look at the valuation?
1 day ago
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 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.
21 hours ago
Thanks for the explanation. It’s very useful!
How much leeway do insurance companies have in calculating CSM for old block of business? Are we talking about an under estimation by 10% - 20%, or could be a lot more?
19 hours ago
You mentioned that CSM + RA = future unearned profit, before tax (241m + 232m = 473m)
Next, by applying a standard tax rate of 24%, you worked out the sum of future net profits (473m * 0.76 = 360m).
My next question is, will this after-tax unearned profit (i.e. CSM + RA, after tax) be roughly similar to Embedded Value (EV)?
After all, EV is the PV of future profits, after accounting for tax effects.
I wonder whether it is possible to (roughly) cross check the EV based on published CSM and RA figures.
19 hours ago
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.
13 hours ago
You mentioned "IFRS17 must use market consistent (i.e. risk free rates) for all cashflows projection".
I'm not sure if my interpretation is correct.
From a shareholder's stand point, usually future earnings are discounted based on the cost of equity, which is higher than the risk free rate (10Y MGS yield is ~4%).
If the unearned profits as estimated from CSM + RA are discounted based on risk free rate, the value will be too large (to be used as a proxy of a life insurer's valuation)
Maybe it's still useful as a valuation proxy of general insurers. The discounting effect is smaller for general insurer since their insurance policy tenures are within a year.
Is this a fair comment?
7 hours ago
About EV, as mentioned in Allianz Malaysia 2022 Annual Report,
"ALIM computes the Embedded Value using market consistent embedded value approach whereby the Embedded Value is the present value of future shareholders distributable profits after tax discounted at the risk free yield curve with volatility adjustment plus the Net Assets Value."
I don't understand what it mean by "risk free yield curve with volatility adjustment plus the Net Assets Value". But if future profits are discounted based on risk free rate at about 4%, by similar arguement, the resulting EV will be too large (from a shareholder's valuation point of view).
In this case, is ALIM actually worth less than the RM3.5b (which is the EV as of 31 Dec 2021)? Of course, for simplicity we ignore the extra value associated with NBV growth.
As comparison, I believe AIA uses Traditional EV approach.
As explained in AIA Annual Report, "AIA Group Limited, together with its subsidiaries use a traditional deterministic discounted cash flow methodology for determining its EV and value of new business (VONB) for all entities other than Tata AIA Life Insurance"
AIA's 2022 annual result presentation mentions it uses a risk discount rate of 8.92% for Malaysia business (4.5% of long term 10year government bond + 4.42% risk premium).
AIA Malaysia EV as of 31 Dec 2021 is USD3,274m.
Given that AIA uses a higher discount rate, can I say that the EV presented by AIA is more "prudent" or "conservative" than Allianz Malaysia?
7 hours ago
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.
1 hour ago
Zurich Insurance Group AG has emerged as the frontrunner to buy a majority stake in the Malaysian insurance business of US insurer MetLife Inc and Kuala Lumpur-listed AMMB Holdings Bhd, according to people with knowledge of the matter.
A deal could value AmMetLife Insurance Bhd at about US$400 million and would need approval from the Malaysian central bank, said the people, who asked not to be identified as the process is private. Singaporean insurer Great Eastern Holdings Ltd also remains interested in buying the roughly 70% stake, the people said.
Allianz size (from financial statement) is ~3x-4x of AmMetLife, but reputation wise and future new business sales are much more promising vs AmMetLife. 1.7bil MYR * 3 is already higher than Allianz market cap (with GI).