Comprehensive Retirement Income Products, page-27

Just listened to the webcast.

Both product mix changes and lower asset yields were mentioned by Management as causing the compression in the COE margin, but no explicit breakdown was provided.

My personal guesstimate is that 70% or more of the impact is due to asset yields.

For, even in the extreme and unrealistic scenario of both Japanese annuities and GIR/IndexPlus products having zero COE margin (which is clearly impossible), the COE margin on the remaining 85% of Domestic annuities (see slide 19 of the presentation) would have had to be some 5.05% in FY17, i.e.:

85%*5.05% + 15%*0.00% = 4.29%

But then, in FY18 (see again slide 19), we would have had:

78%*5.05% + 22%*0.00% = 3.94%

So, in order to get to 3.93% aggregate COE margin in FY18, one would basically need (for constant margins on Domestic annuities) a negative margin on Japanese/GIR/IndexPlus.

Using some more realistic numbers, such as

85%*4.50% + 15%*3.10% = 4.29% in FY17 (solving for the margin on non-Domestic to provide a 4.29% weighted average)

We would then get

78%*4.50% + 22%*3.10% = 4.19% in FY18

So, out of 36bp of Life COE margin drop, 10bp (28%) would be coming from product mix changes, and the remaining 26bp (72%) from lower asset yields.

This is all for pure illustration purposes, of course, but I hope it does give an idea of magnitudes.

Cheers