Harel Insurance Investments & Financial Services (HARL) IFRS 17 presentation summary

IFRS 17 accounting changes

• Long-term life and health profits are recognized over the contract life through the CSM; non-life has limited impact, while non-insurance activities are unaffected.

• Underwriting profit is presented separately from investment and financing activities, with expanded disclosures intended to improve transparency and comparability.

• Changes in actuarial assumptions are deferred in the CSM and recognized over the contract life, reducing volatility in underwriting profitability.

Transition on January 1, 2024

• Financial assets shift to fair value measurement and deferred acquisition costs are written off; insurance groups are measured under IFRS 17 transition approaches and supervisory regulations.

• Transition increased equity by NIS 300m, around 3% of capital, leaving equity nearly unchanged.

• Existing long-term life and health portfolio had estimated CSM of ~NIS 16bn and RA of ~NIS 3bn, net of reinsurance and before tax; estimated future profit was NIS 19bn.

CSM and profit recognition

• Best estimate represents discounted future premiums, claims and expenses without conservative margins; RA compensates for insurance risk, while CSM is expected contract profit released over the coverage period.

• New business adds to CSM; actuarial assumption changes adjust it, interest accretes, and CSM is released to profit over the contract life. Release varies by coverage units and is not necessarily linear.

• In a three-year illustration, total profit remained 35 under both accounting methods, but IFRS 17 recognized 11.67 in each year versus IFRS 4 profit of (5), 20 and 20.