What are the initial impacts of IFRS 17 on Zurich?
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Swiss insurer Zurich has reported mixed results using new metrics introduced by IFRS 17 despite some headline figures appearing to be generally lower compared with IFRS 4. But the company’s chief financial officer argues the issue is technical rather than performance-related.
For property and casualty, the group posted a new metric called insurance revenue in the first quarter of the year but continues to report gross written premiums. Insurance revenue reflects the amount of premium Zurich is entitled to in exchange for insurance services provided in the period to its policyholders.
For most P&C and short-term life contracts, the insurance revenue is similar to gross earned premiums.
GWP in P&C rose 10% to $11.9bn (£9.6bn) in the three months ended 31 March, compared with Q1 last year on a like-for-like basis, adjusting for currency movements. The figure rose 6% in US dollar terms, reflecting the stronger dollar against major currencies.
Insurance revenue for P&C rose by 11% to $9bn year-on-year on a like-for-like basis, and 7% in dollar terms.
The growth was attributed to price increases in P&C, with commercial insurance experiencing a 6% increase in rates.
With IFRS 17, Zurich’s life insurance segment now reports new business premiums and the associated incremental contractual service margin for certain contracts. The life business also reports net inflows for investment contracts and insurance revenue for short-term life business.
New business written in the first quarter added $265m of CSM to Zurich’s life business, which will be earned over time and converted into operating profit. The figure was 11% lower on a like-for-like basis compared with Q1 2022 due to a reduced new business margin of 6.4% in Q1 compared with 9% in the prior-year period, mainly driven by a “less-favourable business mix”.
Zurich’s Q1 presentation also reiterated some of 2022 figures.
In 2022, the insurer reported a business operating profit of $6.4bn under IFRS 4 but the figure appeared to be lower under IFRS 17 at $6.1bn. The company said the IFRS 17 figure was in line with IFRS 4 but lower on a reported basis, largely driven by one-off effects related to the adoption of IFRS 17.
Group CFO George Quinn told mallowstreet both earnings were “practically the same numbers” but the figure appeared to be lower under the new standard after factoring in transitional adjustments. These are impacts that would otherwise have been booked to the transition balance sheet.
In addition, in the life business, IFRS 17 business operating profit was lower mainly due to a loss component created where onerous contracts are grouped.
Speaking at Zurich’s Q1 results media call on Wednesday, Quinn said: “You have these one-off negative effects that you won’t see in 2023. It’s a technical issue rather than the performance issue. You won’t see it again this year.”
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