Stephen Hayward

Stephen Hayward asked about the conservatism of the Expected Credit Loss (ECL) impairments and the likelihood of them materializing. He also sought a better economic explanation for the RBC ratio's negative sensitivity to both rising and falling markets.

Answer

CFO Duncan Russell explained the ECL charge was driven by more prudent forward-looking assumptions, particularly on US unemployment, rather than current defaults. On RBC sensitivity, he clarified the counterintuitive result stems from the flooring of VA reserves under US statutory rules, which creates a prudence buffer in up-markets that then mitigates the impact of down-markets. He suggested IFRS sensitivities are a better guide to economic exposure.

Steven Hayward of HSBC asked for more detail on below-the-line non-operating items, specifically the performance of alternative investments and real estate, and whether impairment trends were a concern. He also questioned if the uplift in IFRS operating profit guidance implies a corresponding increase in operating capital generation (OCG) guidance.

Answer

CFO Matt Rider explained that the alternative asset revaluation was non-cash 'mark-to-market noise' linked to lower energy prices and not a concern. He clarified that while the IFRS operating result guidance is lifted by the mortality assumption update, the impact on the statutory OCG framework is a small drag. However, he emphasized that underlying business growth is positively impacting both frameworks, supporting the overall OCG guidance.