Cathay Financial Holding (2882) Investor update summary

IFRS 17 transition overview and impact

• IFRS 17 was adopted on January 1, primarily impacting the life insurance subsidiary with a significant one-off equity decline but higher adjusted equity post-transition; P&C saw limited impact and other subsidiaries were unaffected.

• CSM (Contractual Service Margin) is now a key driver of future profitability, with a group CSM balance of TWD 524.2 billion at transition, NT$511.9 billion for the life subsidiary, and NT$1.0 billion for P&C.

• Adjusted equity plus after-tax CSM is higher than under IFRS 4, reflecting improved economic value and exceeding previous equity levels.

• Liability interest costs declined to 2.2%-2.3%, supporting a more stable positive spread and ROE around 10%.

• Earnings predictability and stability are enhanced under IFRS 17, especially for the life subsidiary.

Balance sheet, asset allocation, and ALM changes

• Insurance liabilities are now measured at current market discount rates, with BEL at TWD 6.6 trillion and RA at TWD 60 billion.

• Financial asset redesignation under IFRS 9 and reclassification of policy loans impacted total assets, now TWD 8.7 trillion, and improved alignment with liabilities, reducing earnings volatility.

• Asset redesignation to FVOCI and FVTPL increased, while amortized cost positions reduced post-transition.

• Equity increased by over TWD 150 billion since transition, supported by strong markets and lower U.S. Treasury yields.

• Strengthened ALM and risk management reduce equity volatility and currency mismatch, with asset allocation shifting toward fixed income and NTD-denominated assets.

Earnings and profitability outlook

• Earnings are now driven by CSM release and recurring spread, making them more predictable and stable, with CSM release expected to grow at a 10% CAGR over five years.

• Underwriting profit will become a larger contributor as CSM release rate is around 6% and CSM balance is expected to grow 8%-10%.

• Product strategy focuses on CSM accumulation and capital contribution, with health insurance and U.S. dollar-denominated products as key drivers.

• Strong distribution channels and a health ecosystem support high-quality new business CSM generation and customer engagement.

• Asset allocation strategy prioritizes recurring income and asset-liability matching, especially for U.S. and Taiwan dollar portfolios.