Baloise Holding AG (HBAN.SW) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Bâloise IFRS 17/9 Transition Information Analyst Audio Webcast and Conference Call. I am Sandra, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Markus Holtz, Head of Investor Relations. Please go ahead, sir.

Yes, thank you. Good morning, and welcome to Bâloise's conference call on our IFRS 17/9 transition information. On our call today, we have our designated group CEO, Michael Muller; and our group CFO, Carsten Stolz. And with that, I would like to hand over to you, Michael, for some introductory remarks.

Thank you very much. Dear ladies and gentlemen, I am happy to welcome you together with Carsten Stolz, our Group CFO, to today's presentation about our accounting transition from IFRS 4 and IAS 39 to IFRS 17 and 9. As I will be taking over the responsibility as the group CEO at the beginning of July, we thought that today's presentation is a good moment to meet you all. [Technical Difficulty]

Ladies and gentlemen, please hold the line. We lost connection with the speakers. [Operator Instructions] Ladies and gentlemen, the connection with the speaker has been set up again. Please go ahead, gentlemen.

Yes. Sorry for the delay. We will welcome you again. Good morning. Welcome to our conference call on our IFRS 17/9 transition information. In our call today, we have our designated group CEO, Michael Muller; and our Group CFO, Carsten Stolz. And with that, I would like to hand over to you, Michael, for some introductory remarks.

Thank you, Markus. Dear, ladies and gentlemen, I am happy to welcome you together with Carsten Stolz, our Group CFO, to today's presentation about our accounting transition from IFRS 4 and IAS 39 to IFRS 17 and 9. As I will be taking over the responsibility as the group CEO at the beginning of July, we thought that today's presentation is a good moment to meet you all. While the changes following the introduction of IFRS 17 and 9 has no direct impact on our underlying business, financial reporting is an important instrument of how our business is perceived from a capital markets perspective. And it is important for us to provide our perspective on the transition impact during the meeting today. This transition has been a major effort, not only for us but also for the entire industry, no doubt. And I hope to thank all people involved at Bâloise working hard hours over the past years to make it possible. Despite the effort, it is clear that the standards will evolve and practices are yet to emerge in the market and comparability is by nature at the beginning, difficult. It is aggravating for Bâloise that the transition moment is within a year like 2022 of financial turmoil and historic interest rate movement. The meaningfulness of these numbers for just one reporting year are somewhat limited. Nonetheless, we will explain the shifts of result streams due to the new classification. We at Bâloise we learned and adopted along side the industry and did our best to provide you with meaningful financial information and KPIs. We will, with our Simply Safe strategy, be more focused on operational excellence in the following years, a key strength of Bâloise for many decades. Operational excellence and also sharpening our focus around cost is key for our cash generation today and tomorrow. I am proud of what Bâloise has achieved over the past decade. And I am certain that we will deliver an excellent service to our clients and to our dear shareholders, provide strong cash flow seen from a solid and future growth insurance business. On March 9, 2023, we shared first of the application of IFRS 17/9 with you. Today, we inform you about our transition to IFRS 17/9 based on unaudited and preliminary figures for the opening balance sheet and the comparative period 2022. After a rather brief introduction and some key messages, we will look on a consolidated level as to the opening balance sheet and profit and loss, OCI and CSM. We will continue with a look at, four, the Life business; and five, the Non-Life business on the business segment level. Finally, we will look at our group key performance indicators, KPIs, before rounding up with concluding remarks. First of all, the IFRS 17/9 figures confirm the high economic value and balance sheet strength. Comprehensive equity, that means the sum of equity and of the post-tax CSM is 70% larger than the IFRS 4 equity as of year-end 2022 and amounts to CHF 169 per share at transition. The CSM, that means the future profit pool from our Life business is substantial and saves us CHF 5.4 billion at the year-end 2022. Yes, the timing of profits and the allocation between profit and loss, OCI and CSM changes. In addition, in Non-life, the comparative earnings value for 2022 have been strongly negatively affected by 2022 specifics, FX and transition impact. [Technical Difficulty] more detail. Cash remittance and business economics are, all other things being equal, not affected by IFRS. This particularly holds true for our dividend policy. And for 2023, we are confident to expect a strong cash remittance again. With this, I would like to hand over to Carsten.

Thank you, Michael. The nature of insurance is shock absorption. Thus, insurance is, by its very nature, a balance sheet business. IFRS 17 and 9 shows how market value changes equal to shock or maybe better volatility absorption ultimately affects shareholders' equity. On the asset side, there are more market value-based valuations and reduced accounting mismatches. Reducing accounting mismatches has been one of our key design principles when implementing the 2 new standards. And that is why we classified assets backing the Life business predominantly as fair value through profit and loss, whereas we classified assets backing the Non-life business, mainly as fair value through OCI. Let me highlight 2 aspects on the asset side. Fixed interest securities are valued by CHF 1.3 billion higher, mainly since formally held-to-maturity classified bonds are now valued at fair value. The introduction of the expected credit loss method had a small effect of CHF 33 million, reflecting the quality of our bond portfolio. By and large, there are no material changes on the asset side. On the liability side, there is a contractual service margin of CHF 6.0 billion at transition included in the insurance contract liabilities. The CSM is reflecting the future profit pool of the life insurance portfolio. In addition, the reserves of CHF 4 billion for financial contracts with discretionary participation features, DPF, are now also shown under insurance contract liabilities and no longer as previously together with the liabilities from financial contracts. As a result, insurance contract liabilities rise from CHF 43.6 billion to CHF 52.1 billion. Liabilities from financial contracts go down from CHF 26.9 billion to CHF 21.9 billion and equity reduces from CHF 7.3 billion to CHF 4.2 billion at transition. Under IFRS 17/9, shareholders' equity and the contractual service margin have to be looked at in conjunction. The sum of equity and CSM post tax under IFRS 17/9 is a transition by 24% larger than equity under IFRS 4. Moving from CHF 7.3 billion equity under IFRS 4 to CHF 4.2 billion under IFRS 17/9, apart from the separation of the CSM, there are CHF 1.3 billion positive revaluation effects stemming from IFRS 9, mainly the aforementioned reclassification of HTM bonds. And CHF 1.0 billion positive revaluation effects stemming from IFRS 17, mainly due to the impact of discounting in IFRS 17/9 and differences between the valuation frameworks, and CHF 0.6 billion positive effects from deferred taxes, which results from the revaluations and the buildup of the CSM. After tax, CSM amounts to CHF 4.8 billion, leading to a comprehensive equity of CHF 9.0 billion at the moment of transition. Solvency does not change. Risk-bearing capital under SST is larger than comprehensive equity and this is due to valuation differences and the different treatment of subordinated debt. Due to the CSM, there is improved transparency about future profits and more consistent valuation of assets and liabilities in the Life business. A few minutes ago, I spoke about the volatility absorption nature of the insurance balance sheet and that market value movements, even if temporary in nature, ultimately affect equity. Under IFRS 4, the big market movements in interest rates, equities, spreads and foreign exchange rates in 2022 led to a reduction in equity under IFRS 4 by 37%. Looking at comprehensive equity, the impact of market movements was only 14%. This demonstrates that under IFRS 17/9, there are less accounting mismatches in comparison to IFRS 4 and IAS 39. Let's now move from the balance sheet to the earnings perspective. Under IFRS 17/9, looking at profit and loss must be complemented with looking at OCI and at CSM. Thus, a more comprehensive income view needs to be taken. Changing accruals-based accounting does, all other things being equal, not alter the profit pool of the business. From now on, the earnings perspective requires a close look at the profit and loss statement, at other comprehensive income and at the contractual service margin. These are the 3 pipelines through which value creation flows. What alters under IFRS 17/9 is the timing of P&L profits in conjunction with value creation materializing through the other 2 valves. Thus, understanding the interplay between these 3 valves is paramount under IFRS 17/9. There is slicing because of the accrual's principle of accounting and there is dicing because of the 3 value pipelines. The dicing between P&L, OCI and CSM can vary in any given periods. In Life, IFRS 17/9 leads due to the nature of our Life books being predominantly variable fee to the compulsory contractual service margin. While movements have gone through P&L and OCI under IFRS 4, these movements go through the CSM and are earned over time through the release of CSM in the P&L. This implies that the CSM is the main value valve from now on. It is the nature of the new standards that many bookings in the Life business are noncash or unrealized valuation movements. Local accounting and cash remittance are not affected by this. As mentioned earlier, the reduction of accounting mismatches has been one of our design principles. As a consequence, we chose to newly classify equities as fair value through OCI and Non-Life. This means there will be no recycling for equities anymore. And as a result, a systematic shift of positive earning streams into OCI. Under IFRS 9, fixed income instruments that fail the SPPI test and investment funds shift from OCI to P&L. These effects were particularly strong in 2022. While our IFRS 4 accounting treated Non-Life reserves undiscounted, we newly have discounting effects in both the OCI and in the P&L. OCI effects will be due to changes in current interest rates for the in-force business. P&L effects, on the other hand, will be due to changes in locked-in rates for in-force business and change in current interest rates for the new business. As for the Life business, it is the nature of the new standards that many bookings in Non-Life business are noncash or unrealized valuation movements. Local accounting and cash remittance in Non-Life are also not affected by this. Let us now look at what this means for the restatements of the financial year 2022. The variable fee approach is the dominating new measurement model in Life. 81% of our liabilities are VFA, while 19% are general measurement model exclusively in Belgium. In line with this, 95% of our Life insurance assets are classified as fair value through profit and loss. VFA implies that the CSM release is the main annual value valve from now on. The timing of profits is changed with improved visibility and predictability of profit emergence. The CSM release of CHF 154 million at half year and CHF 303 million at full year points to increased earnings predictability. And this implies a release ratio of 5.3% and for the financial year 2022. Since a large part of noncash non-realized temporary market movements are absorbed in the balance sheet through CSM or OCI, EBIT in Life is expected to be more stable. Position Other contains in particular, the non-attributable cost of the Life business. The comparatively lower EBIT, CHF 377 million under IFRS 4 and CHF 261 million under IFRS 17/9 stems from the fact that reserve releases under IFRS 4 due to higher interest rates are now recognized through the CSM and spread over the remaining lifetime of the contracts. The contractual service margin stands at CHF 5.4 billion at year-end 2022. Due to the low interest level at the beginning of 2022, the discount unwinding effect has been not material in the restatement period. It is expected to be larger for this year. New business CSM contributed CHF 0.2 billion. Variances amounted to CHF 0.5 billion mainly driven by higher credit spreads and negative stock market performance in 2022. The financial markets showed particularly strong movements in 2022. Thus, in a "normal year" we expect less impact from economic variances in the CSM. CHF 0.3 billion stem from the CSM release of the in-force book. Let's now look at Non-Life. Non-life is entirely measured with the premium allocation approach, PAA. Consistent with our design principle of avoiding accounting mismatches and reducing noncash, non-realized valuation volatility in the P&L, 67% of our Non-Life insurance assets are classified fair value through OCI. The major part of the fair value through profit and loss classified assets are investment property that do not fall under IFRS 9, but under IAS 40. As the restated EBIT for half year 2022 stands at a comparable level of CHF 140 million compared to CHF 162 million under IFRS 4 and it's more or less as expected, I do not go in the details here and move directly to the EBIT for full year 2022, which requires more explanation. Restated full year 2022 EBIT is significantly lower than IFRS 4, reflecting primarily 2022 specific effects and transition impacts. As in half year 2022, insurance revenue in full year 2022 was comparable. Insurance service expenses were negatively affected by inflation-driven reserve strengthening. We mentioned inflation-driven reserve strengthening already when presenting our annual results under IFRS 4 in March this year. In moving to IFRS 17, the mentioned offsetting effects between reserve strengthening and discounting which we had under IFRS 4, thanks to reserve releases, do not flow through P&L, but instead go through OCI, respectively, directly through equity in the opening balance sheet. Hence, for full year 2022, insurance service expenses are larger than the claims and costs in IFRS 4 despite positive discount effects in IFRS 17/9. The insurance finance result is mainly impacted by the reclassification of equities from available for sale under IAS 39 to fair value through OCI under IFRS 9. Insurance finance income and expenses is a new line in the Non-Life P&L that is directly linked to the discounting of Non-Life reserves. It represents, in particular, the unwinding of the discount effect. Other income and expenses is higher due to shifts in cost allocation of around CHF 100 million between technical results and other income and expenses. We acknowledge that the P&L accounting restatement of the Non-Life EBIT for full year 2022 is significant. Due to 2022 specific effects and transition impacts, we consider it appropriate to take an adjusted view at the restated EBIT number. This slide details the 2022 specific effects equaling to CHF 130 million as well as the transition effects of CHF 85 million. The transition effects relate mainly to the reclassification of equities from available for sale to fair value through OCI. This alone explains CHF 76 million of the movement. Let me detail the 2022 specific events of CHF 137 million, one by one. In 2022, we adjusted our claims reserves for inflation. When presenting our annual results under IFRS 4 in March this year, we specified that EBIT and the combined ratio were negatively impacted by reserve strengthening due to inflation, partially offset by reserve releases. In moving to IFRS 17, the offsetting effects do not flow through P&L, but instead go through OCI and therefore, no longer contribute to P&L, respectively, move to best estimate and thus go directly to equity in the opening balance sheet. This means that CHF 120 million inflation-driven reserve strengthening fully impacts Non-Life EBIT in the restatements. We do not expect inflation spikes like 2022 moving forward. The discounting effects represent a net of CHF 31 million. This effect is composed of positive discounting effects from reserving of the accident year 2022 in the insurance service result in the amount of CHF 71 million and negative discounting effects mainly due to the discount unwind in insurance finance income and expenses of minus CHF 40 million. The interest rate-driven decrease in market value of fixed income, the compulsory IFRS 9 effect, as already mentioned, amounts to CHF 23 million. CHF 25 million represent other 2022 specific effects, respectively, effects related to first-time application of the 2 new standards. Due to these 2022 specific events, although headline EBIT is CHF 99 million on a restated basis, the adjusted EBIT points to a level of CHF 237 million. The combined ratio moves from 91.9% to 92.9% from the 2022 related effects and transition impacts. Taking the aforementioned effects into account, the combined ratio stands at 91.6%. We newly apply a net gross definition for the combined ratio. Our combined ratio is now directly linked to the line items in the Non-Life P&L. Due to the move to the new definition, the loss ratio increases and the cost ratio decreases. The positive effect from discounting new claims from the accident year 2022 amounts to about 1.8 percentage points in combined ratio. Together with a negative effect of about 3 percentage points from inflation-driven reserve strengthening, the restated combined ratio stands at 91.6%. Both effects are reflected in the insurance service result. In summary, the balance sheet remains strong. The restated profit level for 2022 is lower, but more long term and stable in Life. Contractual service margin is substantial with CHF 5.4 billion at year-end 2022. After considering the restatement effects in Non-Life, the adjusted view on profit for 2022 amounts to CHF 343 million. It needs to be noted that 2022 had a particularly high implied tax rate of around 30%, which we did not adjust for and which we do assume to come down to around 20% moving forward. The implied return on equity in the restated numbers is equal to the return on equity under IFRS 4 at a level of 9.4%. Solvency and local accounting remain unchanged. Cash is unaffected, and there is no change to the strategic ambition to remit CHF 2 billion in the years 2022 to 2025. To finish off, we would like to take a short look on our key performance indicators. Earnings per share on an adjusted view basis stands at CHF 7.6. CSM is a new indicator, signaling the future profit pool of the Life book. Revenue in Non-Life is very similar to the notion of gross written premiums under IFRS 4. Dividend and cash payout are unaffected. The same applies for SST and S&P rating. Also unaffected is the revenue from our innovation portfolio. We continue to deliver against our financial commitments. Cash remittance has already been mentioned. Combined ratio stands at an adjusted level of 91.6%. Life EBIT stands at CHF 261 million. Cash payout has already been mentioned and cost efficiencies have not changed. All of this forms the basis for continued and consistent shareholder cash returns. By moving accounting to IFRS 17/9, the economic value and balance sheet strength remain high. Timing of profits changes. Cash remittance, targets and dividend policy are unchanged. We expect for 2023, again, a strong cash remittance. With that, we would like to move to the Q&A session of today's IFRS 17/9 transition meeting and Michael and myself will be happy to take on your questions and engage into a dialogue on Bâloise's transition from IFRS 4, IAS 39 to IFRS 17 and 9.

[Operator Instructions] The first question comes from Simon Fössmeier from Vontobel.

Welcome to the new CEO to the evil world of analysts. I got 2 questions. The first is on Slide 18, the CSM book. And I think the confusion of the market is that as now is not expected that the new business CSM would be larger than the release and with that, over time, the CSM would grow. And you're not the only one -- not the only insurer where this doesn't occur. In a normal year, I think it is fair to say that '22 was a particularly challenging year because of the capital markets development. But I absolutely don't know how to forecast the 3 items, the new business CSM and the economic variances. I think the CSM release is easier. You're guiding to 5.3%. And can I assume that this will remain unchanged? So that's the first question. And the second question is would you disclose the percentage of onerous contracts? This would be my 2 questions.

Yes, Simon, thank you, and good morning, and welcome to the IFRS 17/9 world where we are all new to and start to learn. I happily take the question on CSM and onerous contracts. So in thinking together the release with the addition from new business, I think it's certainly the right perspective in the longer term. The CSM release of the 5.3% of the CHF 300 million that we disclosed is expected to be relatively stable and predictable because of the CSM mechanism. The new business added in a particular year obviously depends on what business has been underwritten, and therefore, is a reflection of the underwriting strategy in the Life business that we are pursuing. And I think it's fair to say that we are cautious on underwriting Life business, both in the individual life as well as in the group life business. It's worth to mention also that the expected business contribution stemming from the unwinding, in our case, is calculated not with real world rates and that is why I made the statement that we would expect this to be higher into the future. And to your second question with regard to the percentage of onerous contracts, it is very, very small, not material.

The next question comes from Nasib Ahmed from UBS.

Firstly, on the removal of prudence from the liabilities. I can see you don't have an offset from the inflation reserve charge. But if I look at Slide 8, your insurance contract liabilities haven't really reduced under IFRS 17. So if you're removing prudence, I would have thought that the CHF 6.9 billion would have reduced. So that's the first question. Second question on reserve releases. On Slide 17, you've got CHF 96 million for full year '22. I think I remember from the full year '22 presentation on IFRS 4, you had CHF 64 million. So just trying to check what the difference is? And then finally, on the expected loss of CHF 33 million. Do you expect this to unwind over time? So the question here is, are the expected losses that you've experienced in the past lower than what you're assuming in the CHF 33 million?

Thank you, Ahmed, for your 3 questions. We start with your first question. I'm just repeating and being sure that I got it right on Slide 8 with regard to the level of Non-Life insurance contract liabilities. There is a couple of offsetting effects in there in moving from the old world to the new world. On the one hand, the discounting effects which are reducing the net present value of the non-life insurance liabilities. On the other hand, there is the new element of risk adjustments and loss components, which increase the Non-Life liabilities that are accounted for on the liability side and some other offsetting effects. So by and large, this leads to the effect that the CHF 6.9 billion stands at a comparative level to the old world. Now your second question on Slide 17. I just need to make sure that I got your question right. Your question was on Slide 17, referring to the reserve releases in Life in 2022. So those were interest rate-driven reserve releases that under IFRS 4 had an impact on P&L and went through P&L and that under IFRS 17/9 because they are interest rate driven do not go to P&L anymore. The effect of which has been CHF 96 million in moving from the old world to the new world. And your third question on the expected loss. Could you please repeat your question, which -- so that I'm sure that I understood you correctly.

Sure. So the expected loss under IFRS 17, I think, is CHF 33 million. Does it come back -- does it unwind in the investment return line because your actual losses historically have been lower than IFRS 17. Is that an assumption I can make? Or is that expected loss a best estimate level of expected loss?

So you're referring to the impact of the introduction of the expected credit loss method of CHF 33 million, right?

Correct. Yes.

Yes. Yes. So in a stable environment, this will not move, and it will -- it just reflects the creditworthiness of the portfolio. Obviously, when there is shifts, then this would adjust, but it is basically a value adjusting mechanism to value the bond portfolio. So given the quality of our bond portfolio, we would not expect this to play a material role into the future. Albeit, we have to account for because it's just a new standard that requires us to do so.

The next question comes from Anne-Chantal Risold from Octavian.

Maybe just on the Page 23, where you clearly explained the effect on the Non-Life business with '22 specific effect. But my question is, should inflation in any year be similar to 2022. Actually, this is something an effect that would repeat if you have any spike in inflation that you would book inflation-related reserve directly in P&L and potentially interest rate accordingly the order reserve in the OCI. So this is basically something was very specific to 2022, but that could [ in carry ] up in any year, if we are in similar condition? And then if you have a reduction in inflation with the release mechanism of this inflation reserve then again be booked directly in the P&L. That's for one. And the second one is on the -- more in general, also, you mentioned that the dividend policy and cash remittance hasn't changed. And I mean, all the peers this week have heavily stated this fact. Now for you, if we look a component that some people are still looking at a payout ratio as a percentage of IFRS profit now in the case of restatement would have been over 100%. But if you could just confirm that basically a payout ratio as a percentage of IFRS profit is not a relevant parameter now for your capital management or dividend decision?

Yes. Merci beaucoup, Anne-Chantal. And it's right, we are at the end of quite an intense week of transitions. And I'm happy to address your questions. First, the question on inflation-driven reserve strengthenings. And I take your last point first. If yes, this position could revert because it's an inflation-related strengthening. So it could also revert as an interest rate-driven strengthening can revert and the reversion effect would go through P&L. Now 2022 to put it into perspective, in October 2022, the then seen inflation in the market has been the highest inflation in Europe since the beginning of inflation data gathering. So it was a massive year. And that's why we said that if that would reoccur, then we would again look in the business what these inflation effects mean for reserving in Non-Life and take according measures. Yet, we do not expect 2023 -- 2022 to repeat and fully aware that sometimes what you see is not what you get and the real world can develop in unforeseen manners. But that's with regard to the inflation. And to your second point on the cash remittance and payout ratio perspective in relation with IFRS 17/9 profit numbers. It is close to 100% if we take it on an adjusted profit perspective, which we considered given 2022 to be a fair point. And it can, in principle, as you rightfully say, be above 100%. First of all, because there is many cash items that are not shown in P&L but materialize through OCI. I give an example, if in the future, we are realizing gains on shares then this has a positive cash impact it is creating earnings in statutory accounts and therefore is creating substance to pay out as dividends. And you won't see it in the P&L of IFRS 17/9 because this -- due to the classification fair value through OCI goes through the OCI statement. And therefore, I can confirm that dividend policy and dividend payments are not affected by the movements to IFRS 17/9. It is much more related to statutory accounts and the ability to remit cash from the operating entities to the holding company.

Your next question comes from Farquhar Murray from Autonomous.

Just a few questions from me, really, both relating to the CSM and then maybe actually a little third question, actually. Firstly, on the CSM. Am I right in taking it that you're saying, look, that 5.3% release percentage is essentially flat in the coming years? And what's the reasoning for that actually have been suggested from -- in certain cases that actually in a kind of older mature book, actually, that might tend to be slightly back-end loaded. So I just wouldn't mind understanding that a little bit. And then secondly, are you intending to come forward maybe with a kind of forward projection on CSM release? Some companies have kind of floated the idea of doing that. And then, actually, as I say, a third question. Given the kind of difficulties we have here between what's in IFRS 17 earnings and then actually the way that's quite different necessarily from what funds the dividend in terms of remittances and statutory earnings. Are you thinking of giving maybe some kind of operating profit number that might be a little bit more indicative of the statutory outcome maybe in the future? I wouldn't mind just your thoughts on that.

Yes. Yes. Farquhar, thank you very much for your questions, and I'll take them one by one. So the amount of our CSM as well as the 5.3 percentage points in release, obviously reflects the underlying portfolios, both from the individual life book as well as from the substantial group life book in Switzerland. So I think it's important to bear in mind what's the nature of our Life business portfolio. And that will provides, as we expect it today, longer-term stability. Now I think it's also fair to say that with the restatements that we are just discussing, we have a first real data point and that also we will learn more into the future and how this whole new framework on the reporting behaves. It doesn't have an impact on the way we run the business, but learning on how it translates into reporting is a key point. And your third question also points in that direction. As we speak, we have not made our minds up with regard to forward projections. As we speak, I think it would be fair to say that we would not be in a position to do so yet. But we're learning. We are continuing to learn and adapt the application of the standards. And then we will see what we can maybe disclose in the full year 2023 publications than in Q1 2024. And I see your struggle with your -- to your third point, I fully see the struggle you have with regard to, on the one hand the IFRS 17/9 world and on the other hand, the question of what ultimately funds dividends and flows. And that's why we alluded to statutory accounting and other relevant frameworks for this. We will certainly think about how we make -- how we can make this new disclosure more meaningful and more telling to you. That's going to be a process, and we will think about how we can improve disclosure on this one, so to bridge your relevant question better. I'm afraid I cannot give you a solution today. I fully acknowledge that this is a key question that you are asking. And therefore, you can count on us to give it a thought and in dialogue with you find ways to improve this bridge.

Okay. That's a really helpful answer, let's just say we're all learning on this one. So...

Yes. Exactly. And thank you also for -- if I may, just on this note, it is very, very helpful for us to stay in this kind of dialogue with all of you in moving into this new world and having this dialogue between us as the preparers of the financial statements, and you as the key users of the financial statements that makes sense out of it also then to your clients. And I'm fully aware of this value creation chain. And that's, I think, we can jointly solve with dialogue. But that's on a different [ night ], thank you, Farquhar.

The next question comes from Bhavin Rathod from HSBC.

I had 3 questions on my side. Two from the Life and one from the Non-Life. The first one would be, again, coming to the CSM release of 5.3%. When we look at the releases reported by some of your peers, the percentage is slightly on the higher side. So just wanted to understand, is this 5.3% mainly because the duration of your Life book is rather on the longer side, i.e., around 20 years or is there also some element of management conservatism involved in how you are actually releasing your CSM? The other one would be on slide, I guess it's slide number -- just a sec there's a slide where you showed the other impact in the life of minus CHF 85 million. So just wanted to check how should we think of this other impact in Life going forward? Would you say this CHF 85 million would be a more normalized number that we should expect going forward? And the last one would be on the Non-Life discounting and unwinding impact. You mentioned there was CHF 71 million positive effect of discounting on the combined ratio, and there is this minus CHF 40 million unwinding impact. Can you give us any guidance or indication on how the unwinding and discounting might develop in the near future given the current interest rate environment and when we should potentially expect the unwinded to overtake this discounting impact, I don't know, maybe 3 or 4 years down the line? So any indications around that would be very helpful.

Yes. Bhavin, thank you very much for your 3 questions. I go to your first question of the CSM release of 5.3%. It is correct that in comparison to what others have disclosed, it's maybe more on the low side or slower side, and that has to do with -- as I said before, has to do with the business mix that are underneath and also the way we interpreted the principal-based IFRS 17 standard. But I think the main -- it's fair to say that the main reason for the pretty high CSM on the balance sheet and the 5.3% release that we see in the P&L is a reflection of the geographic and product mix that are behind the FA business. Now with regard to the other minus 84 -- CHF 85 million that we showed on Slide 17 in the condensed P&L for the restated life business. This is just one data point that we have. It contains, as I said, also the non-attributable costs. The first assumption would be that it's more or less stable, but we need more data on this until we could really give a guidance. So it's not possible to give a run rate based on the 2022 restatements. And then your first -- your third question relating to the unwinding effects that have been mentioned in the Non-Life unwind and discounting effects. We expect also positive discount effects in 2023, but probably to a lesser extent and if the interest rate environment goes flat, then it's by nature that at some stage, this levels out and it gets us in [indiscernible] to 0. And -- but those are shifts -- only shifts over time, depending on where the interest rates go. But to your precise question for 2023, we expect positive discount effects also in this year, but to a lesser extent in comparison to the restatement year 2022.

The next question comes from René Locher from KBW.

Yes. I was just about to remove my question because -- yes, I wanted to just touch on the CSM, again. I mean where I'm really struggling is you have reported a CSM at year-end closing 2022 CHF 5.4 billion. And one of your competitors [indiscernible] that they do have a similar book of business reported CHF 3.9 billion. So quite a delta, right? And then you release 5.3% and your competitor is releasing 8.8%. So I mean for an outsider like me it's really very hard to understand, yes, this new standard 17/9. It's very confusing, right? Because I really thought that the books are similar, but we have different CSM, we have different release ratio. So that's the first question. And yes, if I may very quickly, given that Michael is on the call. I appreciate that you are an attractive employer, you have very happy employees, but I mean, looking at Bâloise from a shareholder point of view, I mean the stock has underperformed now for quite a while. So I was wondering is this a discussion point at management level, even the Board level or is this just -- you just take it as it is?

René, and with a twinkle in my eye, you said that it's struggling from the outside view. There is also sometimes some small moments of struggling inside. But I say this with a twinkle in my eye. And obviously, I can only comment on our situation with regards to your observation, CHF 5.4 billion at CSM pot at year-end and 5.3% release. Our implementation of the standards and to the nature of the underlying books result in this. Again, it is a first data point. We'll certainly learn more also in the future. And I'm afraid that's all I can say. We consider this to be at the most, a fair representation of our Life franchise under IFRS 17 and 9. And for the second question, I give to you, Michael.

Thank you very much. So I think the strategy with Simply Safe, we have is we really believe that engaged motivated employees lead us also to happy customers also to growth at the end. And also with that, we have a better return for shareholders. So also having the shareholder goals in our view, that's the strategy with Simply Safe, we are following. But it's clear at the end, we are a stock listed company, and it's not about having happy customers or happy employees, which is the primary goal. And so we want to be really good also on the stock market, and we want to have this performance also. And that's also why we have our Simply Safe strategy. That's also why I think we even have to little bit more to focus this on the operational excellence. This is a key DNA of Bâloise and which leads also to cash and the cash remittance is what we pay to the shareholders. That's completely clear.

[Operator Instructions] The next question comes from Daniel Regli from Crédit Suisse.

I mean my question is basically going a little bit in the same direction as just alluded to from my colleague, René. And I just wondered how exactly is this amount of CSM which is released to the P&L determined and to what extent this is subject to management discretion or to what extent this is kind of just a rule-based execution of what you have to do?

Yes, Daniel, thank you for your question. You mentioned -- you spoke about rule based. And we had to translate the principal-based words written in the standard into an implementation and that contains many models and many calibrations, assumptions and so on. And that's why it is technically coming out of these decisions. It depends on -- the way it releases is basically the question on how the services are provided from the contracts that are backing this book and how this unfolds and that is where the duration comes into play and how the services are provided for any individual contract and then obviously then for the contract on a portfolio level. And as such, it stems directly from the contract underwritten. And with regard to the services provided, there is not really management choice. It is depending on the product portfolio or portfolio underwritten. And with regards to further disclosure, I would like to suggest at this point that we will pick this up again when we talk about half year numbers where we then have the next data point, but it is pretty rule-based.

Okay. So could you maybe just give me some kind of examples, which would then kind of trigger a CSM release, for example, if you pay out certain, yes, things to policyholders or so and then that CSM release is like triggered through like for example, in case of death and there is like a death amount paid out and then if this happens, then it triggers also the CSM release or how do I need to kind of look at this like kind of...

Yes. Yes. So if there is services provided and obviously, we talk about tragic events in life, and we make abstraction from this when we continue to talk. The -- when the underlying service is provided, then the shareholders' margin or the owner's margin on this part of the business is released.

Gentlemen, so far there are no more questions on the phone.

So if there are no more questions...

Then let us thank you. Thank you for being in the call today. Also, thank you for your questions, and as Carsten already mentioned there, it's also important for us to stay in contact that we see your topics, how are you looking on the business, which is also then good for us to improve our disclosures we are doing. So thank you very much, and we see us or hear us then with the half year closing. Thank you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.