Cathay Financial Holding (2882) Investor update summary

IFRS 17 transition overview and impact

• IFRS 17 adopted on January 1, mainly impacting the life insurance subsidiary, with limited effect on P&C and none on banking, securities, or asset management.

• Significant one-off reduction in reported equity, but adjusted equity plus after-tax CSM is higher than under IFRS 4, with group CSM at TWD 524.2 billion at transition.

• Cathay Life's adjusted equity increased to TWD 514 billion, with liability interest costs declining to 2.2%-2.3%.

• CSM release is expected to grow at a 10% CAGR over five years, supporting future earnings and stabilizing break-even asset yield.

• Earnings predictability and stability are enhanced under IFRS 17, especially for Cathay Life.

Balance sheet and asset allocation changes

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

• Total assets at transition were TWD 8.7 trillion, reflecting asset redesignation and policy loan reclassification.

• Financial assets for USD liabilities mostly redesignated to FVOCI; Taiwan dollar assets partially remain at amortized cost.

• Asset yield improved from 3.8% to 5.2% with upgraded credit quality, reducing expected credit loss exposure.

• Amortized cost position reduced from 63% to 41%, FVOCI equity rose from 2% to 9%, and FVTPL increased to 8%.

Equity and earnings impact

• IFRS 17 equity at TWD 504.5 billion; adjusted equity plus after-tax CSM at TWD 914 billion, with an equity-to-asset ratio of 12%.

• Equity increased by over TWD 150 billion post-transition, supported by strong markets and lower US Treasury yields.

• Earnings now driven by CSM release and recurring spread, leading to more predictable and stable profitability.

• Underwriting profit's share of earnings will increase as CSM release rate is around 6% and CSM balance grows 8%-10%.

• CSM balances at transition are NT$524.2bn for the group, NT$511.9bn for Cathay Life, and NT$1.0bn for Cathay Century.