Based on the fact they tilted to a safer portfolio, it implies that they have locked in some of the $800m in mark to market loses, but we can't know for sure how much.
That’s correct. With regard to the Equity component, the realised loss on the underlying securities will have been mitigated by the presence of the Equity Collar hedge, which is likely to have been unwound at a profit; nonetheless, it seems reasonable to assume that a non-insignificant portion of the -709m$ drop in Life Assets mark-to-market (*) will have been locked in as a result of the re-positioning.
If we assume half has been lost and the market get back to normal (highly unlikely in the next 6-12months) and they tilt the portfolio back to normal settings then what you are saying is that it would be touch and go whether the could meet their regulatory ratios without raising capital?
Without making any assumptions on how much exactly has been lost, and on where/when markets will eventually stabilise, we can simply look at what the capital ratios would look like if CGF reversed the portfolio re-weighting as of today (which would conceivably leave the Company roughly neutral, from an Investment Yield perspective, vis-a-vis December 2019 levels).
So, if we a) leave the Total Reg Cap Base unchanged at 3,211m$ and b) increase the Capital Intensity Ratio back to 13.3%, the new Prescribed Capital Amount would increase to 13.3%*18,960m$ = 2,522m$; therefore, the PCA Ratio would be 3,211m$/2,522m$ = 1.27, which is below the Company’s 1.30x minimum target.
Under the same assumptions, Total T1 and CET1 ratios would be 1.11x and 0.79x, i.e. still above the respective APRA minimum requirements of 0.80x and 0.60x; nonetheless, I suppose CGF aim at operating with more comfortable capital buffers (hence their policy of targeting a 1.30/1.60 PCA Ratio).
I personally think that a re-risking of the Portfolio will ultimately be necessary, because sticking to a more defensive posture would entail a loss of ongoing earnings; also, based on the above calculation, the Company is likely to be left a bit short in terms of Reg Cap levels, when such re-risking occurs. So, overall, the way I see it is that the current portfolio allocation buys the Company time to optimise their capital management decisions, but a capital injection looks more likely than not to me further down the line.
Cheers
(*): the difference between the -709m$ drop in the mark-to-market of Life Assets and the -811m$ drop in CET1 is likely to be due to the dividend/interest payments that occurred in February/March, and possibly to some noise in the mark-to-market of the Liability side.
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