Aia Group Limited · HKEX:1299
Aia — Investor Presentation (June 2023)
35 slides from Aia's investor presentation, Jun 15, 2023
Slide 1: IFRS 17 Update
aN HEALTHIER, LONGER, 4 I p BETTER LIVES IFRS 17 UPDATE 15 June 2023
Slide 2: Disclaimer
Disclaimer This document (“document”) has been prepared by AIA Group Limited (the “Company”, and together with its subsidiaries, “AIA” or the “Group” or “AIA Group”) solely for use at the presentation held in connection with the voluntary announcement of the Group’s consolidated special purpose fina
Slide 3: Agenda
Agenda Today’s Presentation ▪ Overview of IFRS 17 adoption ▪ Key IFRS metrics for FY 2022 ▪ Understanding new disclosures ▪ Conclusion Virtual Q&A Session ▪ Scheduled at 5:00 to 6:00 p.m. on 15 June 2023 (Hong Kong Time) 2023 Interim Results ▪ 1H 2023 results will be reported under IFRS 9 and IFRS 1
Slide 4: AIA's Successful Growth Strategy is Unchanged Post IFRS 17
AIA’s Successful Growth Strategy is Unchanged Post IFRS 17 ▪ Continued focus on delivering Growth, Earnings and Cash ‒ Growth: Significant opportunity for profitable new business growth at attractive returns, active in-force management ‒ Earnings: Sustained growth in OPAT and shareholders’ allocated
Slide 5: All Key IFRS Metrics Improved in 2022 Under IFRS 17
All Key IFRS Metrics Improved in 2022 Under IFRS 17 Shareholders’ Shareholders’ Leverage OPAT Net Profit FY22 FY22 Allocated Equity Equity Ratio(1) As at 31 Dec 2022 As at 31 Dec 2022 As at 31 Dec 2022 IFRS 4 $6.4b $0.3b $44.8b $38.1b 22.5% IFRS 17 $6.4b $3.3b $47.2b $44.7b 11.4% Impact 1% $3.0b 5%
Slide 6: OPAT Higher Under IFRS 17 vs IFRS 4 in 2022
OPAT OPAT Higher Under IFRS 17 vs IFRS 4 in 2022 OPAT ($m) Sources of Earnings 6,409 6,370 6,421 Return on 5,942 5,689 Net Worth(1) CAGR 5,298 15% +11%4,635 3,981 3,556 3,248 Spread 11% 58% 74% 2,839 IFRS 17 Non-par Insurance 2,244 2,441 FY22 OPBT and 1,900 Contract Fee- based Services 16% Par 2010
Slide 7: CSM Release is the Core Driver of $6.4b OPAT
OPAT CSM Release is the Core Driver of $6.4b OPAT FY22 OPAT Composition ($b) 2 $3.3b Net Investment Result + 3.3 8.8 + 0.0 (1.0) (0.4) 1 $5.5b Insurance Service Result (1.1) 6.4 + 0.3 $(1.0)b Other Revenue 5.1 + 0.1 3 and Expenses CSM Operating Risk Adjustment Net OPAT Before Net Other Fees Non-attr
Slide 8: AIA's Growth Strategy Has Delivered a Large Stock of Future Profits
1. Insurance Service Result AIA’s Growth Strategy Has Delivered a Large Stock of Future Profits Insurance Contract Liabilities Net of Reinsurance ($b) As at 1 Jan 2022 (Transition Date) ▪ Contractual Service Margin (CSM) of $52.9b represents a large stock of expected future profits from in-force bus
Slide 9: New Business Drives Increasing CSM and Future OPAT Growth
1. Insurance Service Result New Business Drives Increasing CSM and Future OPAT Growth FY22 CSM Movement, Net of Reinsurance ($b) +15.9% + 2.4 61.3 (3.9) 9.3% + 6.0 CSM Release Rate(1) (2.1) 55.3 (5.1) 52.9 50.2 Opening New Business Expected CSM Variances Exchange Closing CSM CSM Closing CSM CSM Retu
Slide 10: $3.3b Net Investment Result from Non-Par and Surplus Assets
2. Net Investment Result $3.3b Net Investment Result from Non-Par and Surplus Assets FY22 Net Investment Result ($b) Non-Par and Surplus Assets From Non-Par and Surplus Assets By Asset Type 5.3 (1.8) Cash & Others Expected Return Real Estate for Equities and 1.2 5% Real Estate Equities 3% (0.3) 10%
Slide 11: High-Quality Sources of Earnings
3. Other Revenue and Expenses High-Quality Sources of Earnings FY22 Operating Profit Before Tax Composition ($b) Non-Attributable Expenses Under IFRS 17 + 3.3 + 0.0 (0.6) (0.3) Sources of Earnings (0.4) 7.5 Return on 15% Net Worth(3) 5.5 $(1.0)b Other Revenue and Expenses 11% Spread 16% Par 58% 74%
Slide 12: Balanced Earnings Across Markets
OPAT Balanced Earnings Across Markets FY22 OPAT ($b) FY22 OPAT by Market Segment (IFRS 17 vs IFRS 4 % Change) 6.4 6.4 Hong Kong Mainland China Thailand Hong Kong 35% 34% $2.2b $1.6b $1.0b (1)% +9% +25% Mainland China 22% 24% Singapore Malaysia Other Markets Thailand 12% 15% Singapore 12% $0.7b $0.4b
Slide 13: Net Profit Higher and Less Volatile
Net Profit Net Profit Higher and Less Volatile FY22 Reconciliation of OPAT to Net Profit $b IFRS 4 IFRS 17 OPAT 6.4 6.4 Short-term fluctuations in equities/real estate and ▪ Mark-to-market on equities and real estate in par business absorbed (2.3) (1.1) within the CSM discount rates Non-operating mo
Slide 14: $53.0b Shareholders' Allocated Equity Before Shareholder Returns
Shareholders’ Allocated Equity $53.0b Shareholders’ Allocated Equity Before Shareholder Returns IFRS 17 Shareholders’ Allocated Equity Movement ($b) + 3.3 (1.6) 53.0 (2.3) 51.3 +5% (3.6) 47.2 44.8 Allocated Equity Net Profit Exchange Rates Allocated Equity Dividend Share Allocated Equity Allocated E
Slide 15: Shareholders' Equity Higher and Less Volatile
Shareholders’ Equity Shareholders’ Equity Higher and Less Volatile Reconciliation of IFRS Shareholders’ Equity from IFRS 4 to IFRS 17 ($b) +6.6 Other Comprehensive Income (OCI) is smaller and + 4.2 (0.7) 44.7 less volatile going forward + 3.0 38.1 ▪ Continues to include mark-to-market on fixed incom
Slide 16: Comprehensive Equity of $86.4b; Leverage Ratio of 11.4%
Leverage Ratio Comprehensive Equity of $86.4b; Leverage Ratio of 11.4% Comprehensive Equity ($b) As at 31 Dec 2022 86.4 Comprehensive equity of $86.4b as at 31 Dec 2022 41.7 Net CSM ▪ Comprehensive equity defined as shareholders’ equity plus net CSM 38.1 ▪ Net CSM is after allowing for reinsurance,
Slide 17: IFRS 17 Reinforces Prudence in AIA's Embedded Value
IFRS 17 Reinforces Prudence in AIA’s Embedded Value IFRS 17 Comprehensive Equity IFRS 17 New Business CSM to EV Equity ($b) to VONB ($b) As at 31 Dec 2022 FY 2022 VONB, EV and free surplus more representative of shareholder value 2.0x ▪ Value of future distributable cash flows 86.4 6.0 to shareholde
Slide 18: Profitable Growth Strategy Driving Shareholder Value
Profitable Growth Strategy Driving Shareholder Value ▪ Focus on strong profitable new business growth at attractive returns ▪ OPAT and shareholders’ allocated equity remain key metrics under IFRS 17 ‒ Strong OPAT and high-quality sources of earnings ‒ Net profit and shareholders’ equity higher for 2
Slide 19: Definitions and Notes
Definitions and Notes ▪ Throughout the entire presentation, IFRS 9 impacts are included when referring to IFRS 17 figures, and IAS 39 impacts are included when referring to IFRS 4 figures. ▪ In the context of our reportable segments, Hong Kong refers to operations in the Hong Kong Special Administra
Slide 20: Definitions and Notes (Cont.)
Definitions and Notes (Cont.) ▪ General measurement model (GMM) defines the recognition and measurement of insurance contracts under IFRS 17. Please refer to the content of this information pack and note 2.3.1 to the FY22 consolidated financial information for details. ▪ IFRS operating profit includ
Slide 21: Appendix
aN HEALTHIER, LONGER, p BETTER LIVES Al APPENDIX
Slide 22: Overview of IFRS 9 and IFRS 17 Accounting Standards
Overview of IFRS 9 and IFRS 17 Accounting Standards Assets Liabilities and Equity IFRS 9 Financial Instruments IFRS 17 Insurance Contracts(1) ▪ Measurement mostly at fair value Insurance ▪ Best Estimate Liabilities (BEL) Contract Invested ▪ Impairment model: Expected Credit Losses and Other ▪ Risk A
Slide 23: Invested Assets Better Aligned to Insurance Contract Liabilities
Invested Assets Better Aligned to Insurance Contract Liabilities Total Assets ($b) As at 1 Jan 2022 Invested Assets Invested Classification ▪ Deferred acquisition costs (DAC) eliminated Assets(1) By Line of Fixed Equities & 28.5 Business Income Real Estate(2) ▪ Goodwill and intangibles unchanged DAC
Slide 24: CSM by Class of Business and Geography
CSM by Class of Business and Geography Measurement Model Class of Business Included in CSM CSM VFA By General ▪ Non-par protection and savings 41% Measurement Measurement ▪ Universal life Model GMM Model ▪ Unit-linked (protection) 59% (GMM) ▪ Other par without distinct portfolios Variable Fee ▪ Part
Slide 25: Net Profit and Shareholders' Equity Less Volatile Going Forward
Net Profit and Shareholders’ Equity Less Volatile Going Forward Illustrative Net Profit and Shareholders’ Equity Under IFRS 17 1 ▪ Non-par business(3) and surplus assets only OPAT ‒ Mark-to-market on equities and real estate Short-term market fluctuations(1) ‒ Discount rate changes on insurance cont
Slide 26: Participating Business (VFA) Accounting Treatment
Participating Business (VFA) Accounting Treatment Participating Business (VFA) Accounting Treatment of Insurance Contract Liabilities and Invested Asset Movements Insurance Contract Liabilities Invested Assets Assumption Changes Mark-to-Market Movement Implications Fixed Equities & Operating Discoun
Slide 27: Non-Participating Business (GMM) Accounting Treatment
Non-Participating Business (GMM) Accounting Treatment Non-Participating Business (GMM) Accounting Treatment of Insurance Contract Liabilities and Invested Asset Movements Insurance Contract Liabilities Invested Assets Assumption Changes Mark-to-Market Movement Implications Fixed Equities & Operating
Slide 28: Shareholders' Allocated Equity Stable at Transition
Shareholders’ Allocated Equity Stable at Transition Shareholders’ Allocated Equity as of 1 Jan 2022 ($b) Hong Kong Mainland China Thailand Shareholders’ Allocated Equity 4.8 6.6 15.0 4.7 as of 1 Jan 2022 ($b) 14.9 (14)% 5.7 +1% +2% Group 52.1 (2)% 51.3 IFRS 4 IFRS 17 IFRS 4 IFRS 17 IFRS 4 IFRS 17 ▪
Slide 29: IFRS 17 OPAT Stable vs IFRS 4
IFRS 17 OPAT Stable vs IFRS 4 FY 2022 OPAT ($b) Hong Kong Mainland China Thailand 2.2 2.2 1.6 1.0 FY 2022 OPAT ($b) 1.4 0.8 (1)% +9% +25% Group 6.4 6.4 +1% IFRS 4 IFRS 17 IFRS 4 IFRS 17 IFRS 4 IFRS 17 ▪ Faster emergence for profit of ▪ Lower opening shareholders’ non-par business under IFRS 17 alloc
Slide 30: 1H 2022 OPAT Under IFRS 17
1H 2022 OPAT Under IFRS 17 1H22 OPAT Composition ($b) 2 $1.6b Net Investment Result + 1.6 4.5 (0.1) (0.4) (0.2) (0.5) 1 $2.9b Insurance Service Result 3.4 + 0.2 + 0.1 $(0.5)b Other Revenue 3 2.6 and Expenses CSM Operating Risk Adjustment Net OPAT Before Net Other Fees Non-attributable Finance Tax OP
Slide 31: 2H 2022 OPAT Under IFRS 17
2H 2022 OPAT Under IFRS 17 2H22 OPAT Composition ($b) 2 $1.7b Net Investment Result 4.3 + 0.1 + 1.7 (0.5) (0.2) (0.6) 1 $2.6b Insurance Service Result 3.1 2.5 (0.1) + 0.1 $(0.5)b Other Revenue 3 and Expenses CSM Operating Risk Adjustment Net OPAT Before Net Other Fees Non-attributable Finance Tax OP
Slide 32: Expected Credit Losses
Expected Credit Losses Description Expected Credit Losses (ECL) Under IFRS 17 $m Stage 1 Stage 2 Stage 3 Total Stage 1 Financial assets that have low credit risk at reporting date or have not had a significant Loss allowance as at 1 Jan 2022 152 29 26 207 increase in credit risk since initial recogn
Slide 33: IFRS 17 Reinforces Prudence in AIA's Embedded Value
IFRS 17 Reinforces Prudence in AIA’s Embedded Value IFRS 17 Comprehensive Equity to EV Equity ($b) IFRS 17 New Business CSM to VONB ($b) 86.4 + 2.8 (4.3) 6.0 (1.2) (13.6) + 0.4 (0.3) 71.2 (1.8) Net CSM 3.1 Shareholders’ Equity IFRS 17 Risk Cost of Valuation EV Equity FY22 Tax Risk Cost of Valuation
Slide 34: Estimated Sensitivity Analysis Under IFRS 17
Estimated Sensitivity Analysis Under IFRS 17 Estimated Sensitivity of CSM ($b) Estimated Sensitivity of Profit before Tax ($b) As at 31 Dec 2022 For the year ended 31 Dec 2022 50.2 4.1 10% 50 basis 50 basis 10% 10% 50 basis 50 basis 10% decrease points points increase decrease points points increase
Slide 35: IFRS 17 Discount Rates and Illiquidity Premium
IFRS 17 Discount Rates and Illiquidity Premium Spot Rates as at 31 Dec 2022 1 year 5 years 10 years 15 years 20 years With With With With With Risk free illiquidity Risk free illiquidity Risk free illiquidity Risk free illiquidity Risk free illiquidity premium premium premium premium premium % USD 4