Net results under IFRS 17 grew impressively YoY in Q2/23

CIG Pannonia (Pannonia or the insurer) reported HUF 971mn after tax profit for Q2/23
compared to HUF -325mn in Q2/22. Other comprehensive income including the
changes in the fair value of other financial assets (ie. OPUS shares and government
securities) valued at fair value was HUF 1.31bn compared to a loss of HUF 1.73bn in
Q2/22. As a result, total comprehensive came in at HUF 645mn in Q2/23 as against a
loss of HUF 790mn in Q2/22.
 It is worth stressing that Pannonia’s reported its second quarter results for the first
time in accordance with IFRS 17 standards, which significantly differ from the results
reported according to IFRS 4 standards used previously. Accordingly, the insurance
portfolios are evaluated using the so-called General Measurement Model (GMM), the
Premium Allocation Approach (PAA) and the Variable Fee Approach (VFA).
 The use of the IFRS 17 accounting transition methodology for 31 December 2021
increased Pannonia’s consolidated equity by HUF 7.3bn (+56%), however, due to the
tax impact of this transition a tax charge of HUF 475mn needed to be taken into
account and charged to the profit in Q1/23. Also importantly, according to
Pannonia’s best estimate, the extra profit tax was HUF 321mn in H1/23, as a result of
which, the insurer’s consolidated after-tax profit came in at HUF 589mn in H1/23, up
from HUF -353mn in H1/22. Adjusting for the aforementioned tax charges of HUF 796
mn in total, consolidated after tax profit was HUF 1.385bn in H1/23 compared to HUF
HUF -353mn in H1/22.
 The primary reason for the outstanding earnings growth in Q2/2023 was (i) on the one
hand, the growth of the insurance portfolio, (ii) on the other hand, a great
improvement in profitability due to economies of scale and efficiency containment
measures. The growth in the insurance stock and reinsurance contracts enabled
Pannonia to offset the related costs and services, while the claim ratio and the
combined ratio of casco products also improved, reducing Pannonia’s capital
requirements. The claim reserve for is formed in a foreign currency, thus the
strengthening of the forint compared to last year’s exchange rates resulted in
reduction of reserves set aside for Pannonia’s Italian suretyship products, whereby
leading to the improvement of the technical result. However, the effect of the strengthening of the forint is offset by the result of forward transactions recognized in
the investment result (i.e. not in the technical result), as Pannonia seeks to match the
currency exposure of assets and liabilities.