Insurance giant Allianz is analysing the potential impact of looming accounting rule changes on its business and investment strategy, something that is also a concern for Asian insurance firms.
The German group's chief investment officer highlighted various issues to AsianInvestor, including concerns about how analysts will react to the higher expected profit-and-loss (P&L) volatility.
“Both [the new reporting standards] will be a big change,” Quitter told AsianInvestor last month. He noted that the new rules are a source of focus because their treatment of some assets can impact insurers’ P&L.
The insurance giant has a multi-function team – covering accounting, investment, risk, planning and control – analysing how the P&L will look in various scenarios after the standards have been applied.
Similarly, Zurich-based Swiss Life, with Sfr161 billion ($164 billion) under management, is working to analyse the impact of the new standards, said Michael Essl, CIO for the firm’s German business.
Quitter argues that Allianz can easily handle the P&L impact, in part because it does not rely so much on funds. It has many in-house mandates that sit with the group’s asset management subsidiaries, Allianz Global Investors and Pimco. And it would be over-simplistic to exit investments because they appear much more volatile in the P&L under IFRS 9, he said.
Perhaps a bigger concern is how the investor community will respond to an increase in P&L volatility. Quitter said many analysts will understand ultimately that an insurer has the same investment exposure even if the accounting numbers look different under IFRS 9. But he is concerned that some might view apparently higher P&L volatility as bad.
It could be that the changes in accounting treatment will affect Allianz’s investment and business strategy, added Quitter, but more fact-finding will be needed first. In the meantime, a major focus for him is building Allianz's alternative investment allocation in response to the prevailing low-yield environment.
Meanwhile, the effects of IFRS 9 are also being felt in Asia.
Taiwanese insurers are ahead of the curve, having already had to adopt IFRS 9 this year. And some firms elsewhere – such as China’s Ping An – have chosen to implement it early. This is already affecting mainland insurer’s equity portfolio, in that it is looking to up its exposure to high-dividend to mitigate the impact of fluctuations in fair value.
Moreover, the Thai insurance industry is concerned about the potential impact of the new accounting rules, particularly on fixed income portfolios.
However, IFRS 9 and 17 are not high on the agenda of Korean insurance companies right now, said Stefan Gans, a senior sales executive at DWS Investments, part of Deutsche Bank. They are more focused on the country’s incoming risk-based capital rules, due to take effect in 2021, and achieving decent returns, he noted.
Meanwhile, the CIOs of big regional insurers AIA and Prudential Corporation Asia – Mark Konyn and Stephan van Vliet, respectively – are sanguine about the looming changes. They argue the new standards won’t have a major impact on how the firms invest their assets.
This is an edited version of an article that appears in the August/September issue of AsianInvestor magazine.