36. Changes in major accounting policies as well as new and amended standards

With the exception of the following changes, the outlined accounting policies were consistently applied to all periods presented in these consolidated financial statements.

Amendments and standards to be applied for the first time

The Group applied the following amendments to standards, and they were first adopted at 1 January 2018. None of the new regulations arising from this have any essential impact on UNIQA’s financial position.

Standard

Standard

Content

First-time application by UNIQA

Impact on UNIQA

IAS 40

Investment Property – Clarification of Classification

1 January 2018

No

IFRS 4

Insurance Contracts – Applying IFRS 9 together with IFRS 4

1 January 2018

Yes

IFRS 2

Share-based Payment – Classification and Measurement of Transactions with Share-based Payments

1 January 2018

Yes

IFRS 15

Revenue from Contracts with Customers

1 January 2018

Yes

IFRIC 22

Foreign Currency Transactions and Advance Consideration

1 January 2018

No

Miscellaneous

Annual Improvements Project 2014–2016 – Amendments to IAS 1 and IAS 28

1 January 2018

No

IFRS 15 Revenue from Contracts with Customers

IFRS 15 has been applicable since 1 January 2018 and covers revenue recognition from contracts with customers. IFRS 15 is not applicable to insurance contracts as they are within the scope of IFRS 4.

IFRS 15 is relevant for the UNIQA Group due to investments being accounted for using the equity method. Use of the modified retrospective method on first-time adoption of IFRS 15 is expected to have a positive effect of approximately €5 million on equity for the full 2018 year. For other revenues the scope of IFRS 15, the application of IFRS 15 has no impact on the financial position of the Company or the presentation in the consolidated financial statements.

New and amended standards to be applied in the future

The IASB has also published a range of new standards that will be applicable in the future. UNIQA does not intend to adopt these standards early.

Standard

Standard

Content

First-time application by UNIQA

Endorse­ment by the EU 31/12/2018

Likely to be rele­vant for UNIQA

1)

Preliminary decision of the IASB to defer the date of IFRS 17 coming into force and to extend the temporary exemption of IFRS 9 by one year.

New standards

 

 

 

IFRS 9

Financial Instruments

1 January 20221)

Yes

Yes

IFRS 9

Amendments to IFRS 9 – Prepayment Features with Negative Compensation

1 January 20221)

Yes

Yes

IFRS 16

Leases

1 January 2019

Yes

Yes

IFRS 17

Insurance Contracts

1 January 20221)

No

Yes

IFRIC 23

Uncertainty over Income Tax Treatments

1 January 2019

Yes

Yes

Amended standards

 

 

 

Miscellaneous

Annual Improvements Project 2015–2017

1 January 2019

No

Yes

Miscellaneous

Updated Framework

1 January 2020

No

Yes

IAS 1, IAS 8

Definition of Material

1 January 2020

No

Yes

IAS 19

Plan Amendment, Curtailment or Settlement

1 January 2019

No

Yes

IAS 28

Investments in Associates and Joint Ventures – Long-term Interests in Associates and Joint Ventures

1 January 2019

No

Yes

IFRS 3

Definition of a Business

1 January 2020

No

Yes

 

 

 

 

 

The following standards to be applied in future are expected to have a significant impact on reporting at UNIQA:

IFRS 9 – Financial Instruments

The IASB published the final version of IFRS 9 (Financial instruments) in July 2014. This replaces IAS 39 (Financial Instruments: Recognition and Measurement) in its entirety and came into force effective 1 January 2018. The different effective dates applicable to IFRS 9 and IFRS 17 which must be applied to reporting periods as of 1 January 20221) would result in increased volatilities in profits and duplicate migration efforts for the transition period. As a result of this, the IASB published adjustments in 2016 to IFRS 4 (Insurance Contracts) which allow insurance companies to recognise certain profits or losses in other comprehensive income (overlay approach) or to defer the initial application time for IFRS 9 until IFRS 17 comes into force (deferral approach) as part of a transition process.

Since UNIQA’s business is predominantly insurance-related and UNIQA has not yet applied IFRS 9 in any other version, a deferral to apply IFRS 9 for the first time is permitted until 1 January 20221). This is possible if the share of the carrying amount of all insurance liabilities in the total liabilities as of 31 December 2015 exceeds 90 per cent. The criteria to be fulfilled for the deferral approach were met by more than 90 per cent. For associated companies that have been applying IFRS 9 since 1 January 2018, UNIQA has exercised the option of including them in the consolidated financial statements without any adjustments.

Classification and measurement

The technical development of the SPPI (Solely Payments of Principal and Interest) decision tree and of the systems integration of the developed SPPI logic for the entire securities portfolio of UNIQA has been completed.

Fixed-income securities make up a large portion of the investment portfolio. Given that these securities tend to follow the principal/interest payment structure in most cases, they largely fulfil the criteria of the SPPI test. If an instrument meets the requirements of the SPPI test, there are two options. On the one hand, there is the option of subsequent measurement at amortised cost, and on the other, the option of fair value measurement through other comprehensive income. The portion of the UNIQA portfolio that does not fulfil the SPPI criteria will in future be measured at fair value through profit or loss.

Requirements for SPPI fulfilled based on carrying amounts in per cent1)

 

Variable-income secu­rities

Fixed-income secu­rities

Loans and other invest­ments

Deri­vative finan­cial instru­ments

Invest­ments under invest­ment con­tracts

1)

Classification according to IAS 39

Financial assets at fair value through profit or loss

0.0

0.2

0.0

0.0

Available-for-sale financial assets

0.0

92.7

Loans and receivables

-

1.1

100.0

Total

0.0

93.9

100.0

0.0

0.0

Asset allocation of other investments

 

At amortised cost or at fair value through other comprehensive income

At fair value through profit or loss

In € thousand

Carrying amount

Fair value

Change in fair value over the period

Carrying amount

Fair value

Change in fair value over the period

Government bonds

9,548,259

9,430,546

–265,912

0

0

0

Corporate bonds

2,893,062

2,879,915

52,669

180,371

179,182

284

Covered bonds

2,756,207

2,729,758

–476,097

0

0

0

Loans

86,950

86,950

53,815

0

0

0

Other

0

0

0

805,606

804,878

202,193

Total

15,284,477

15,127,168

–635,525

985,977

984,060

202,477

In addition, the logic for the business models in accordance with IFRS 9 was prepared for sub-areas, and they were also subject to a validation of their plausibility. As expected, on the basis of current indications, the hold-and-sell business model accounts for a large part of UNIQA’s business. This may result in changes due to the interactions with IFRS 17 that cannot yet be fully assessed at the time the financial statements are being prepared.

Impairment

The new provisions of IFRS 9 concerning impairment must be applied in future to financial assets measured at amortised cost or at fair value through other comprehensive income. Under IFRS 9, the impairment calculation to be applied is based on a forward-looking model for the recognition of expected losses.

The logic of the model according to which future impairment will be recognised is, at the time the financial statements are being prepared, in a development and analysis phase. In addition, the use of suitable tools is being tested to illustrate the required calculatory algorithms. On the basis of simplified assumptions, initial simulations were carried out with regard to the assessment of the default risk on financial assets within the scope of the new IFRS 9 impairment provisions. For the purpose of assessing the default risk, recourse was made to the definition in IFRS 9 of financial instruments with a low default risk on the reporting date. An external investment grade rating can therefore be used to assess whether a financial instrument has a low default risk.

Financial instruments by rating

In € thousand

Government bonds

Corporate bonds

Covered bonds

Loans

Other

Total

AAA

1,848,518

91,784

1,913,761

0

0

3,854,062

AA

3,014,437

384,210

589,766

0

0

3,988,413

A

2,381,547

1,091,067

159,303

0

0

3,631,917

BBB

1,438,214

990,579

4,495

27,539

0

2,460,827

BB

609,681

61,769

17,074

0

0

688,524

B

223,303

15,278

0

0

0

238,581

≤ CCC

4,999

0

0

0

0

4,999

Not rated

27,561

258,374

71,808

59,410

0

417,154

Total

9,548,259

2,893,062

2,756,207

86,950

0

15,284,477

The fair value of the instruments which do not feature a low default risk (non-investment grade) amounts to €913 million.

UNIQA expects effects from the conversion to IFRS 9 both as a result of the new classification and measurement rules and due to the new impairment model. In a holistic view, interactions with IFRS 17 must also be taken into account in this context. A comprehensive impact analysis will be prepared for the further course of the project, in particular with regard to the interaction and interdependencies resulting from the changes introduced by IFRS 17.

IFRS 16 – Leases

IFRS 16 replaced the current accounting regulations for leases as at 1 January 2019. In the preparatory work for its introduction, the exercise of the following options was decided. For example, a lessee has the right but is under no obligation to record a right of use for the leases for intangible assets. UNIQA has decided not to record any right of use for intangible assets. Also, UNIQA will not separate the lease payments due to the insignificant portion of non-lease components within the leases analysed. UNIQA will choose the modified retrospective method for the first-time application.

There are around 1,200 contracts across the entire Group which fall within the scope of IFRS 16 and for which UNIQA is lessee. Most of the portfolio is made up of standard contracts that are not very complex. They mainly relate to real estate and in part to operating and office equipment. A significant portion of the contracts are concluded for an indefinite period, for which estimates had to be made regarding the term and the exercise of termination options. The increase in lease liabilities arising from the cash value of the remaining lease payments compared with the obligations stated so far from future lease instalments is primarily the result of estimates made on the expected contractual term of lease agreements with no fixed term. The lease payments recorded each year amount to around €12 million. The average contract term is between three and five years. The discount rate to determine the liability is composed of the risk-free interest rate adjusted by the country risk, creditworthiness, quality of the collateral and an amortisation factor.

The capitalisation of the usage rights and the statement of the associated obligations on the liabilities side will result in an increase in the total assets and liabilities stated in the balance sheet of around €181 million.

There will be no material impact on the items in the consolidated income statement and no differences in the statements made as a result of the regulations in IFRS 16. With the impairment losses, amortisation of goodwill and other intangible assets, and depreciation of property, plant and equipment there is an expected increase of €11 million through depreciation of the right-of-use asset.

Amortisation of the lease liabilities in the projected amount of €11 million for 2019 will be stated in the item “Net cash flow from financing activities” in the consolidated statement of cash flows. The interest payments associated with this are recognised under “Net cash flow from operating activities”.

Changes in the capital structure such as changes in the gearing ratio resulting from lease obligations due to be recognised in the balance sheet in future have been deemed insignificant at this point.

IFRS 17 – Insurance Contracts

On 17 May 2017, the International Accounting Standards Board published IFRS 17, the new standard for accounting for insurance contracts. The International Accounting Standards Board proposed in November 2018 a postponement of the date of first-time application of IFRS 17 provisionally until 1 January 2022.

An essential element of the standard is a general measurement model, according to which all insurance contracts are to be valued on the basis of a prospective model. This involves combining current best estimate values plus a risk margin with a mode for distributing the profit from the contracts. The general measurement model will be applicable to a significant part of the insurance business.

The contractual service margin is the equivalent of the expected profit from the portfolio of contracts held and thus creates a high degree of transparency with regard to UNIQA’s future profitability. However, as this margin is a residual, its amount depends significantly on the assessment of the best estimate of future cash flows, the discount rate and the method used to determine the risk margin.

For short-term contracts and less volatile insurance contracts, there is the option of applying a simpler measurement model (premium allocation approach). UNIQA is currently examining in detail how much of the property and casualty insurance business can be measured with the premium allocation approach.

There is a mandatory special model (variable fee approach) for participating contracts and contracts of unit-linked and index-linked life insurance. The variable fee approach is expected to be applied at UNIQA in health insurance and in life insurance. The exact extent of applicability is currently being evaluated in various analyses.

The approach and the measurement of insurance contracts take place at the group level. Insurance contracts are consolidated in portfolios. Contracts contained in these portfolios are exposed to similar risks and are managed together. These contracts shall be divided into further groups, whereby insurance contracts written more than one year apart may not belong to the same group. In any case, there are at least the following three groups per insurance portfolio:

  • group of contracts that already involve a loss when the contract is formed,
  • group for which it is unlikely that the contracts will involve a loss during the term of the contract, and
  • the remaining group.

This represents a major paradigm shift in the accounting and measurement of insurance contracts. The implementation of IFRS 17 is therefore divided into three dimensions: the implementation of technical requirements, the implementation of business requirements and the adaptation of processes and communication channels.

UNIQA introduced a Group-wide project including comprehensive governance for the implementation of IFRS 17. The project structure is essentially divided into the following six workstreams:

  • Project Management Office
  • Actuarial Content and Processes
  • IFRS 17 Accounting Content and Processes
  • IFRS 9 Accounting
  • Systems Implementation, Data & Processes
  • Reporting and Planning

This lays down the timetable up to the expected first application starting on 1 January 2022 (Preliminary decision of the IASB to defer the date of IFRS 17 coming into force and to extend the temporary exemption of IFRS 9 by one year) and the progress of the project currently corresponds to the planned target in all workstreams.

The next important milestones are comprehensive impact analyses, the incorporation of feedback for various specialist concepts for different areas and the first sprint phases in system implementation.