Gjensidige Forsikring ASA (GJF) Earnings Call Transcript & Summary

Hello, and welcome to Gjensidige IFRS 17 Webinar. [Operator Instructions]. I will now hand over to your host, Mitra Negård to begin today's conference. Thank you.

Thank you. Good morning, everyone, and welcome to our education session on IFRS 9 and 17. My name is Mitra Negård, and I'm Head of IR. With me here today are our 2 speakers, our Chief Financial Officer, Jostein Amdal; and Chief Accountant, Karen-Elise Berg Christoffersen. The presentations will take approximately 30 minutes. We will open up for questions after the presentation. Our Chief Actuary, Simen Gaarder, will join us in this session together with the speakers. Today's webcast is being recorded and will be posted on our website later today. The slide deck and the transition guide on this topic were made available on our website this morning. . So without further ado, I hand the word over to Jostein.

Thank you, Mitra, and good morning, everyone. My name is Jostein Amdal, and I'm CFO at Gjensidige. In today's session, we will run through the key impact from adopting IFRS 9 and 17 based on the best of our knowledge. However, it's important to emphasize that the figures are preliminary and may be subject to change up until the audited financial statement of 2023 is finalized. We have been preparing for the transition for quite some time, and we're ready to report according to the new standards from the first quarter of next year. Turning over to Page 4. Let's look into the key implications of the new standards. The most important message is that the fundamentals of our business remain unchanged. The new accounting standards do not change underlying cash flows or our dividend capacity. The adoption of the new accounting standards will impact where, when and how specific items are recognized in our financial statements. Our strategy, risk appetite and operations are not affected by this. Earnings will be very little affected and our dividend policy will be the same. And accounting changes do not affect the solvency situation, which is the basis for dividend assessments. We will see a few changes in our reporting. The 2022 opening balance of equity will be lower than under the current accounting standard IFRS 4. This is mainly a consequence of risk adjustment and delayed profit recognition for our pension business. There will only be a minor impact on our general insurance results. You'll see some changes in the way we calculate certain KPIs for our General Insurance business without this changing the way we gross our performance. The most significant impact of the new standard will be on our Pension business, with results being more volatile as a consequence of applying a market-based interest rate for discounting purposes and fair value on financial assets. The company accounts of the Pension business will still be prepared according to IFRS 4, but in the group accounts, pension will be included according to IFRS 9 and 17. And we might see some tax effects, although it is too early to conclude as the industry is waiting for regulatory decision on this matter. Turning over to Page 5. We have reviewed our annual financial targets starting from 2023 on the basis of the new accounting standards. We have also looked into the expected effects on our results from the current interest rates, which are materially different from where they were when we set our targets 1 year ago. Our revised combined ratio target is brought down to below 84%. The change of 1 percentage point is a technical investment primarily reflecting the effect of discounting all reserves under IFRS 17 as opposed to approximately 20% of reserves today under IFRS 4. There will also be a small effect from a larger premium base in the denominator as insurance revenue is a gross figure before ceding premiums to reinsurance. IFRS 17 will have a positive impact on the cost ratio as well, although not material, which is the reason why where this target unchanged. This stems from a reallocation of some costs to other expenses, as well as the denominator being insurance revenue, which again is a gross number. We'll continue to deliver a cost ratio of below 14%. We have taken the opportunity to adjust our return on equity target as well, raising the bar by 1 percentage point to above 20% to reflect higher interest rates. The contraction of the opening balance of equity also contributes positively, although to a much smaller extent. I will describe these changes as mainly technical. The outlook for our business is good and no different from our recent communication, thus we do not see any reason to make any target adjustments to our financial targets at this point. Turning over to Page 6. And a few words about the measurement approaches we will be applying. The most insurance contracts having a duration of 12 months, our General Insurance business is eligible for applying the premium allocation approach also called the simplified approach. The main difference from IFRS 4 is the discounting of all reserves and in reduction of risk adjustment. For our Pension business, as a main room, all the insurance contracts will be accounted for according to the building block approach. As this part of our business accounts for a very small share of group revenues, the simplified approach will be the main model for our accounts. Investment contracts in our pension business are based on unit-linked products, both occupational and private. As there are no insurance elements embedded in these contracts, they will be measured according to IFRS 9, resulting in the value of liabilities, mirroring the value of the investments measured at fair value and changes recorded through the P&L. Let's have a brief look at the key elements in the new standards on Page 7. As mentioned under IFRS 4, we have discounted approximately 20% of our reserves. IFRS 17 will call for discounting of all claims irrelevant of the payment period. A few new elements will be introduced in our accounts. Risk adjustment is a new liability under IFRS 17, reflecting the compensation required for uncertainty in cash flows, contractual service margin is the second one. This is also a new liability and applies under the building block approach. Liabilities related to our Pension business and will reflect the under profit for providing future insurance coverage. According to IFRS 9, which applies to both our General Insurance and Pension business, all financial assets will be recognized at fair value through profit and loss. Today, we use amortized costs for a significant part of the fixed income instruments in the match portfolio. With these ranges, both technical reserves and the match portfolio are measured on the same basis in the accounts. We will also see changes in the presentation of selected lines in our financial accounts with the most important changes being the introduction of insurance service results, which is similar to the current underwriting results for General Insurance. Insurance revenues will be reported on a gross basis before deducting reinsurance premiums. There are 2 new terms for the insurance liabilities, liability for incurred claims, replacing the claims provision and well before the remaining coverage replacing the premium reserves and provision for unearned premiums. Over to Page 8, as mentioned, the equity in the 2022 opening balance for the group is lower under IFRS 17. You can see the difference of approximately NOK 700 million explained on the chart there. One of the largest drivers behind this are the exclusion of identified excess reserves, NOK 1 billion as of the 1st of January this year. And new models for calculating insurance liabilities for our Pension business. According to IFRS 17, it is not possible to retain excess reserves on the balance sheet and the reserves we'll be accounting for according to our best estimate. Discounting all claims reserves for our General Insurance business has a positive effect of approximately NOK 700 million. This is partly offset by the effect of replacing guaranteed interest rates with market interest rates for our pension business when discounting the insurance liabilities. The addition of risk adjustment to our general insurance and pension reserves reduces equity by NOK 2.5 billion and the contractual service margin on our pension business deducts another NOK 800 million. Changing the valuation of financial assets recognized at amortized cost to fair value through profit and loss increases equity by NOK 500 million. Over to Page 9. IFRS 17 discount rates may be based on either top-down or a bottom-up approach. We have shown later for both General Insurance and Pension. For General Insurance, we apply swap rates for the different relevant currencies. These are liquid, well known and easily available. Our liabilities in General Insurance have mainly short to medium-term duration. For Pension, our liabilities have a much longer duration, some up to 50 years. We have shorten the discount piece where they operate without volatility adjustments. I operate, are considered risk-free with a well-known ultimate aggregate reflecting the long duration of the liabilities. The sort of interest rates is important when adopting IFRS 17. Our choices are based on what we believe will be market practice and will result in a good hedge between liabilities and assets for both segments. As mentioned, risk adjustment reflects the compensation required for bearing the uncertainty about the amount and timing of the cash flow that arise related to the insurance contracts. There are 2 main principles for calculating risk adjustment, the cost of equity and the percentile approach. We have decided to use the percentile approach which will provide more stability in results. Results at percentile level of 85%, which is aligned with series on cost of equity. Further, the results to calculate the risk adjustment based on ultimate risk. That is all cash flows until the contracts are fulfilled as the liabilities are shown until final run off in the accounts. 85% competence level per legal entity. 85% corresponds to a level of approximately 95% when that 1-year approach is used instead of facing it on ultimate risk. Looking into the figures. For General Insurance, the risk adjustment constitutes approximately 7% of liabilities for incurred claims. For Pension, the risk investment constitutes approximately 6% of liabilities for remaining coverage. Let's turn to Page 10. The new standards do not have any impact on our solvency position. The difference between equity and eligible own funds will be less under IFRS 17, primarily as a consequence of discounting all claims reserves, introducing risk investment and applying the same principles for valuation of financial assets. Apart from that, as you can see from the chart on the right-hand side, the main differences between the IFRS equity and eligible own funds are broadly speaking, the same as under current regime. Turning to Page 11. Also Pension, a key point to make is that the fundamentals of the business remain unchanged. But core General Insurance, the Pension business will have more significant changes in the accounts with IFRS 9 and 17, and the results will be more volatile. The portfolio will be split into cohorts and groups reducing risk diversification. For onerous contracts, losses will be recognized recorded upon recognition. For the rest of the portfolio, profits are distributed over the whole coverage period rather than from recognition of the contracts. The contractual service margin will be released according to the payment of pensions. The difference in duration between insurance liabilities and financial assets will have a large impact with the new standards. Currently, our pension insurance liabilities have a duration of approximately 13 years, while the matching assets have a duration of approximately 6 years. In the Norwegian market, it is somewhat difficult to have a perfect match due to lack of insurance with very long duration. With the asset side being fully recognized at fair value, changes in interest rates will have a large impact on the results than today where assets held to maturity are recognized at amortized costs. Under IFRS 4 liabilities are discounted with guaranteed interest rates while market-based interest rates will be applied under IFRS 17. This will impact the measurement of the liability significantly. In other words, the interest rate sensitivity becomes much more visible with the new accounting standards. I will then leave the word to Karen-Elise to explain the changes in the accounts and KPIs in further detail.

Thank you, Jostein, and good morning, everyone. My name is Karen-Elise Berg Christoffersen, and I am Chief Accountant in Gjensidige. I will spend a few minutes to share with you some further details on the implications of the new standards on our accounts. Over to Page 13. We have been preparing for the new standards ever since they have introduced back in 2017. We have used only internal resources in order to build necessary in-house competence going forward. The project has required extensive cooperation across the group between actuaries, accounting and technology disciplines and with our auditors, ensuring good progress in this complex project. We have run monthly parallel figures through this year, and we are well prepared to report according to the new standards from the first quarter 2023. On Page 14, we see the current structure under IFRS 4 on the left-hand side and the new structure based on IFRS 17 on the right-hand side. I will go through the changes on the next few slides. For the sake of simplicity, I will only show the relevant items in the statement plan. Let's move on to Page 15. As you can see on the left-hand side here, earned premiums from General Insurance and Pension are presented net of reinsurance under the current standard. Under IFRS 17, these items will be added together and presented as 1 item called insurance revenue. This item will be a gross figure before ceding premiums to reinsurance. The reinsurance premiums are deducted further down in the statement. On Page 16, you can see that claims incurred from General Insurance and Pension are added together in the new item called insurance service claims expenses. This item is also gross similar to insurance revenue with amounts recovered from reinsurance, further down in the statement. Moving over to Page 17. As you can see here, operating expenses in General Insurance and Pension will be split into 2 lines under IFRS 17. The majority of operating expenses will be recorded as insurance service operating expenses. Some indirect costs relating related to training on newly hired personnel in sales and distribution and certain costs related to new products will, under IFRS 17, be recorded as other expenses. Let us have a look at the new items related investments on Page 18. Discounting will reduce claims expenses and increased insurance finance expenses. Total net income from investments will under IFRS 17 is split into 2 items. The effects of unwinding and interest rate movements from discounting of insurance liabilities will be recorded under the new item, insurance, finance income or expenses. The remaining results from our investments will be recorded as total net income from investments. The line reinsurance finance income or expense will contain the effects of unwinding and interest rate movements on the reinsurance assets. On Page 19, we have illustrated the changes in the statement plan or financial position. I will now go through the main changes the same way as I did with the income statement. Turn over to Page 20. Receivables related to direct operations and reinsurance will, under IFRS 17, be deducted from liability for remaining coverage. The rest of the receivables will remain on the asset side as these are not directly related to payments from customers on insurance contracts. The vehicle insurance tax traffic for checking these investments, which we collect on behalf of the authorities is the largest item here. On Page 21, you can see that the 4 items related to liabilities under IFRS 4 are replaced with items, liabilities for incurred claims and liabilities for remaining coverage. Over to Page 22. Liabilities related to direct insurance and reinsurance seen on the left side are under IFRS 17, replaced by the different items, as you can see on the right-hand side here. Liabilities related to reinsurance are under IFRS 17 deducted from reinsurance contract assets. Reinstatement premiums will be recorded as reinsurance contract liabilities. And there are some minor items, which will be recorded as other financial liabilities. Please let's turn to Page 23. There will be only minor changes in the KPIs for general insurance and the group. Our loss and cost ratios will, as a starting point be based on gross figures. We will introduce a new KPI net reinsurance ratio to include the effect of reinsurance on the loss ratio. The loss ratio will improve under IFRS 17, mainly because reserves will be discounted and because the denominator increases. The positive effect will be partly reduced due to the risk adjustment. The cost ratio improves because indirect costs as training on newly hired personnel in sales and distribution and certain costs related to new products are classified as other expenses in addition to the increased denominator. This leads to an improvement also in combined ratio. The return on equity for group will continue as a KPI and will improve somewhat due to lower equity after IFRS 17. KPIs for pension are not finalized yet, pending an overview of market practice. Given the Pension business, representing a limited share of our business, this is not significant for group figures and KPIs. Over to Page 24. Here we see the general insurance KPIs under IFRS 17 compared to the KPIs under the current IFRS 4 reporting. For comparability, the excess reserves, the planned reserve releases recognized as income in 2022 has been deducted from the published KPIs. The IFRS 17 line is below the IFRS 4 line, showing the improvement commented in the previous slide. The improvement is due to discounting of the reserves using insurance revenue as a denominator and reclassifying certain costs to the line other expenses. The differences shown here give a good approximation of the effect from the accounting changes on the results in General Insurance going forward. Let us turn to Page 25. Investment portfolio in General Insurance consists of a match and free portfolio. The purpose of the match portfolio is to hedge the insurance liabilities, while the purpose of the free portfolio is to contribute to returns. With the liabilities being discounted with market-based interest rates, the best match accounting-wise, will be to recognize investments at fair value through profit and loss. The free portfolio is already measured at fair value and recognized through the profit and loss statement. There will be no change to this with IFRS 9. The group policy portfolio in Pension is intended to match the Pension assurance liabilities. As Jostein explained, this is more difficult than for General Insurance. However, we believe the match is sufficient for the group results, and we have chosen to use the fair value through profit and loss also for pension. As you can see on this slide, the switch to the new method will increase the carrying amounts compared to the current regime is illustrated with the 2022 opening balance figures. Consequently, we can expect some increased volatility in the financial results, particularly from the Pension business. That brings me to the end of my presentation. I will now hand the word over for Jostein for our concluding remarks.

Thank you, Karen-Elise. So to summarize on Page 26, the transition to IFRS 9 and 17 will not change the fundamentals of our business, neither General Insurance to Pension. But there is no major impact on earnings, and our solvency position and dividend policy will remain unchanged. You will see a lower '22 opening balance of group equity, and there will be some changes in the definitions of a few KPIs as well as a few changes in the financial statements. Outlook for our business is good and unchanged. We have revised our annual financial targets from 2023 for technical reasons, being related to the new accounting standards and considering the current interest rate environment. I'll now hand the word over to Mitra.

Thank you, Jostein. We will now open up for questions through our panel. [Operator Instructions]. We will start with the questions over the phone. Operator, can you please open the lines?

[Operator Instructions] The first question comes from the line of Blair Stewart from the Bank of America.

Thanks very much for the presentation. I wondered if you could just clarify what the income from investments would look like under the new regime at the moment, we've got fairly stable results from the match portfolio and then more volatile results through the P&L from the other portfolio. So what should we expect to see going forward, I think you've said that there will be 1 item, which is the unwinding of the discount rate and another item which is everything else. And I'm just wondering what that everything else looks like -- it seems from Slide 26 or 25, I think we were 1 slide out with printed version, but Slide 25 that you will still have some bonds amortized costs. And I'm wondering whether will there be an offset in the mark-to-market volatility from the fact that you're also moving the value of your liabilities. So sorry, a very long and complicated question, but I'm just trying to get a feeling for what the new standard will look like for that investment income line.

Yes, I will try to answer. We will have no more positions at amortized cost, everything will be valued at fair value through profit and loss in our statements going forward. And there is a new line insurance finance. This will include both unwinding and the interest rate effects or the discounting of the liabilities. The rest of the results from investments will be on the net investment line. I hope that clarifies.

And would you -- yes, and would you generally expect there to be more or less volatility given the new structure where it seems like the unwind of the discount rate and interest rate effects on liability is 1 aspect and then everything else goes into the other line. Is that expected to introduce more volatility versus the current system or less? I'm guessing more.

Well, it's difficult to have a perfect match. So some more volatility, we would see in our accounts, yes.

Yes. If I may add, Blair, also because there is both interest rate risk and credit risk in the match portfolio. We will now get the credit spread part as mark-to-market, which used to be an amortized cost portfolio. So that part will introduce some more volatility in the net of the financial items.

Okay. And can I just ask on Slide 26, the figures that you're showing for bonds amortized cost. Is that under the existing regime because that's the IFRS 9? So I'm slightly confused by the bonds amortized cost element within that slide.

We are now trying to show that the bonds at amortized cost will increase in value when we record after fair value through profit and loss. And this is a statement in the opening balance, as of the 1st January of 2022. So this will be a different picture as of today. The values have decreased through 2022.

The next question comes from the line of Håkon Astrup of DNB Markets.

One question from me. Can you help us with some sensitivities. I was just wondering how 1 percentage point increase or decrease in interest rates will impact the combined ratio and also the net profit. Is that possible at this stage?

Simen, you have about that?

Yes, I can answer that question. For general insurance, 1% increase in the interest rates, we'll reduced the combined ratio at 1%.

Perfect. And just because you have some or a large part of that effect will be a one-off effect. But some of that will maybe also be run rate going forward as well, just given that interest rates are at that level going forward. Can you split those 2 impacts or just from, say, 1 of these effects?

I'm not sure I actually understood the questions. Can you please repeat.

Yes. Okay. Sorry, yes, absolutely. So just say that interest rate jumps with 1 percentage point. Will that mean that every year going forward, we will have 1 percentage point lower combined ratio? Or is it a larger one-off effect in the first year and a smaller run rate effect going forward?

I think that's a one-off effect in the first year, unless the interest rates continues to decrease.

Okay. So if we have a scenario where interest rates increased by 1 percentage point in year one that will have a 1% lower effect on the combined ratio. And in the next year, the combined ratio will not be changed compared with 0. Was that correct?

Yes, yes, that's right.

The next question comes from the line of Tryfonas Spyrou of Berenberg.

Thank you for the lovely presentation. I have got 2 questions. So 1 is on the combined ratio improvement of 1 point you gave us. How does that help -- can you perhaps help us reconcile that with the fact that your Q3 pro forma combined ratio seems to be better lower by 2.2 points. So that's my first question. And the second 1 is on the risk adjustment. My understanding is that the release of that you'll be sort of equivalent of reserve releases under the current regime, and I guess, I'm just trying to understand how the percentile method you adopted, how the conservative of that? How does that relate to your current sort of reserving project best estimated and how should we think about the 2 upon the transition?

Can I answer that?

Yes.

I think starting with the risk adjustment, the question was about how that will influence from the reserving policy, was that the question?

Yes.

Yes. Risk adjustment is calculated from the internal model actually. So -- but it will be actually linked to the risk service level. But going forward, we will not have any excess margins. So I think that the risk adjustment will be quite stable compared to the liability for incurred claims going forward. Was that clarifying or?

Yes. I just -- yes, that's perfect. Thank you.

And then change on the combined ratio in the pro forma figures rather than the 1% that you, but that was -- the difference is that you gave 1 percentage point change in interest rates, give a 1 percentage point change in combined ratio. And the actual interest rate change is 1%.

Yes, that's the answer.

Yes. And also, there's a couple of secondary effects on the costs and on the denominator being gross 1% instead of net.

Yes. 1% change was actually comparing on the effect of the change in interest rates.

Yes.

The next question comes from the line of Vinit Malhotra of Mediobanca.

Yes. So just 1 or 2 quick clarification and pardon my ignorance here, please. Just on the -- you mentioned the volatility that could come in P&L from pension insurance now. It could be that it's not too material also, I think you have stated. But I'm just curious, why -- I mean is there not an OCI option that you could have chosen obviously, that would probably move the interest rate effect to the balance sheet. Just curious where this is something we could note or whether the reason you didn't choose the option. And second thing, again, pardon again, if I missed it. But I understood that 1 of the key things about IFRS 9 was the expected credit loss, the ECL. And I'm not sure I heard your opinion on that. Over there, it's not material or any comments on the ECL, please.

Yes. I will answer on the OCI question. We did discuss this, whether we wanted to use this on the Pension business, but we wanted to have transparent methods. And we think that going through the P&L is a better position for us. Also, we see that increased volatility in Pension is handled in the group figures. The Pension business is, as you saw in 1 of the first slides small for the group. So we think, therefore, that fair value through profit and loss is a good presentation.

Operator, can we take a few questions from the web. All right. I believe we can. Okay. We have the first question here from Ulrik Zürcher. How will you recognize potential runoff losses or gains changing under IFRS 17 compared to IFRS 4. For example, with the timing of the current motor TPL run-off gains recognition have changed?

I'll try that to answer, Ulrik. And there is -- as we talked about during a couple of presentations now under IFRS 4, we have these planned reserve releases, which is partly related to motor TPL, which are now coming to an end at the fourth quarter of 2022. And going forward, reserves will be booked at best estimate. So there will be run-off gains or losses going forward and so, but this will not be of this planned kind that we've had over a number of years now.

Okay. The next question, this is for the Jostein, regarding the CSM, I was wondering if you could say anything about the duration of it. Alternatively, how much of the CSM is expected to be released in year 1, for example. This is from Roy Tilley, Arctic.

Yes. The release of CSM will follow the -- how we actually do those services regarding the insurance contracts. And that's due to the payment pattern of the pension liabilities. Jostein, said that liabilities have an average duration of approximately 13 years. So the proportion that we released in the first year is quite limited.

Another question for you, Simen. How do you see the positive discounting effect versus the negative risk adjustment margin effect? This is from Jan Gjerland, ABG Sundal Collier.

Was it discounting effects versus...

Versus a negative risk adjustment margin effect.

Well, as the transition that we had 1st of January 2022. The interest rates were quite low. So the effect of discounting was much lower than the effect of establishing the new liability risk adjustment. If you look into the figures at the end of the third quarter, the interest rates have increased a lot. And now we can see that the difference is much lower between the fact of discounting and the opposite effect of introducing the risk adjustment.

Thank you. Jostein, a question for you from Faizan Lakhani, HSBC. Although the excess reserve releases will end this year, but is there a likelihood that the release or a true-up is needed before you move to IFRS 9?

I'm not sure what the true-up is here. But in terms of reserve releases in general. The planned reserve releases began north of fourth quarter. And we talked a bit also on the Capital Markets Day back in November 2021 of what can you expect in the future? And will you guide for any reserve releases at all, but if we look at the history, it has, on average, been a positive reserve this of, say, 1 to 2 percentage points of the premiums for many, many years. So no guiding us after to look at what's historically been in the fact.

All right. Let's go back to the questions via the phone line. Operator, can you open?

Sure. The next question comes from the line of Vegard Toverud of Pareto.

I have a couple of questions there. First, will you provide us with more historical data for comparison purposes? Or is the data you provided on Page 19 in the other documents, the information that we will receive? Secondly, I am wondering why you have opted to use the EIOPA curves without volatility adjustments. And then thirdly, I would like to come back to the previous question about the change in combined ratio. On Page 25, you show in 2 out of 3 quarters, a drop of more than 2 percentage points with IFRS 17, but you have updated your target with 1 percentage point. So if you could just discuss that, that would be nice.

Elise take the first 1, and Simen the second, and I'll answer the third one.

Yes. When it comes to historical data, we will only show 1 year the comparable figures for 2022, will be in details in the notes to the disclosures to the accounts, but we have not been able to go off the bank because this is complex calculations. We have, therefore, not changed the figures going more years back.

Sorry, from me, to interrupt just there? Is it possible to get the same data quarter-by-quarter for the 3 first quarters?

We are planning to present that in the quarterly interim reports in 2023, then you will have the comparable figures. We have not planned to distribute that earlier.

Okay. If you were to change your mind, I would be happy.

That's no to it.

Okay. Regarding the EIOPA rates without volatility adjustment. Yes, there are several options for EIOPA for choosing the interest rates under IFRS 17. We look through all the options. And we decided actually to go without volatility adjustment due to that, that the volatility adjustment is quite a small part of the interest rate curve. And also that for our Solvency II purposes for the group, we are doing the calculations without the volatility adjustment. You can see the attention is not that sensitive to the interest rates at all.

Okay. On the third question, Vegard, why we kind of only changed it 1 percentage points down. I think the important part is that the target is below 84% and without stating exactly how much below it is. We have a history of delivering well below, well better than the stated targets and expect to continue that. But this is maybe a conservative or a long-term approach to what this will be the effects from moving from 1 regime to the other. Should that be kind of proven to be lasting at a high level, of course, consider the targets again.

Excellent. So just for clarification, there's nothing special with Q2 or Q3 this year, that distorts the presentation on Page 25?

There will be nothing more special than every other typical quarter. There is something, especially with every quarter. But yes, nothing that comes systematically, that is affecting those quarters.

[Operator Instructions] We have another question from Blair Stewart of Bank of America.

Just a couple of follow-ups. On the reconciliation of equity under IFRS 4 to IFRS 9, you've obviously based that on 1/1/22. I think you've touched on this earlier, but presumably, the figures will be much different now. Is it your expectation that your equity would not be lower on a mark-to-market basis given the higher interest rates will the risk adjustment. That's my first question. The second question is just on volatility in the P&L. And I know the answer to this question, but just to clarify, presumably, if you do get undue levels of volatility in the P&L, the fact that in any 1 year, your dividend might not be covered by the accounting earnings presumably, that just wouldn't be relevant. You just look through that given it's not cash. And thirdly, just interested in the pensions profits recognition you suggested that, that will be much more gradual than it was before. I don't know if you can comment on how quickly profits were previously recognized in pensions. It's difficult from the outside to see how quickly the overall profits are recognized in any 1 year. So be it -- just if you can add any color on how aggressive or otherwise you were with your recognition of profits and pensions previously?

Thanks, Blair. I'll answer the second one, and then I guess Simen will help me with the first and the third one. On the volatility versus dividends, you're absolutely right. The dividends are basically more dependent on the solvency calculations, and they do not change based on the change of accounting regime. So this will not affect the dividend paying capacity or the dividend policy as such. The movement from IFRS 17, if it had been updated to Q3 Simen?

Yes. During this year, the interest rates have changed significantly. So as I said, the impact from discounting all the products for the general insurance business have increased approximately almost NOK 1 billion actually. And also, there will be another effect from the discounting of the pension because now, the interest rates are more or less above the guaranteed interest rates. And so the negative effect from discounting from the pension business would have disappeared. But on the other hand, the effect from the -- on the asset side would have been different due to the increased interest rates. I don't actually have the complete figure here, but you'll see the rest for that.

Is the risk adjustment materially lower as well?

No, no. That will be lower, but not so much affected as the discounting effect though. Yes, the question about the timing of the revenue for your pension those sort of questions.

Yes, just -- previously, how quickly did profit recognition occur?

Yes. During the existing regime, there almost a recognition of the contracts. So the -- so it's recognized immediately. And also, we have seen that during the existing regimes, we are using in the guaranteed interest rates for discounting the actual market interest rates, didn't have any effect on the accounts. And also since our using amortized cost on the asset side, there was a delay in the valuation of the assets. So existing reserves for the Pension business was very stable this year, even though the interest rates have changed so much.

And what was the reason that profits were -- I mean, if the overall profit number was -- the ultimate profit per discounted value, the profit number was 100. How much of that 100 would you recognize in year 1 previously?

During IFRS 17 or?

No, under the existing regime.

Existing regime?

Yes. So I think at the moment, you're saying if the profit number is 100, you'll recognize 113th of that every year, roughly speaking. I just wonder what the policy looked like today?

We recognize the profit immediately. So according to the insurance revenue.

Okay. So the full expected the discount -- the full discounted value of the profit from the contract gets recognized on day 1 today?

Jostein?

Yes, this is the insurance part of the contracts. So it's not the savings part of that, which is under IFRS 9 going forward. Just to make clarify that.

Yes. That's the insurance part.

Yes.

Okay. The assurance part, Okay. Right, yes. Okay. So that's just a risk part comes through early and then the savings part, the kind of fee-based earnings would come through more gradually over time as you earn the basis points on the assets under management?

And to clarify, on the company accounts you can see the pension, this will still be the case because they will still be according to IFRS 4.

We have another question from the line of Vinit Malhotra of Bancomedia (sic) [ Mediobanca ].

Just to clarify, when Karen answered my question, I don't know if she addressed the ECL topic that I mean in IFRS 9, we are seeing -- we should -- I was hoping -- I was expecting to see some commentary about the credit losses and expected credit losses also very vibrant given there might be a recession next year. So just curious how you're thinking about ECL in IFRS 9.

See I didn't quite catch ECL. What -- I mean, what are you talking about there? I'm sorry, my ignorance.

No, no. So from other insurers I've heard that there is an expected credit loss, which is to be taken under IFRS 9 on various corporate debt and other investments. So the expected default rate is assumed now rather than waiting for it. That's my understanding as well, it might be wrong, but that's what I've heard from others. So I'm just curious, if you haven't -- I mean, I'm happy to take it off-line and read more about it closer as well. Just curious about it.

No, I'm sure you have a point Vinit. But I think basically, our assets will be mark-to-market. So in a sense, that is including the effect of an expected credit loss. There is no specific recognition that we calculate based on expected credit losses we read the market values of our investments.

There are no further questions. I will hand back to your host to conclude today's conference.

Thank you, operator. Thank you all for your attention. We hope you found this session useful. If you have any further questions, please don't hesitate to contact us at IR. As mentioned earlier, we published a transition guide on our website today, which will give you further details on the topics we have discussed. So with that, we will conclude this session. Have a nice day.

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