Accounting regulations

1. Basis

With the exception of the changes described in the section titled “Changes in major accounting policies”, the Group applied the following accounting policies consistently to all periods presented in these consolidated financial statements.

2. Consolidation principles

Business combinations

If the Group has obtained control, it accounts for business combinations in line with the acquisition method. The consideration transferred for the acquisition and the identifiable net assets acquired are measured at fair value. All goodwill arising is tested for impairment annually. Any profit from an acquisition at a price below market value is recognised directly in profit or loss. Transaction costs are recognised immediately as expenses if they are not related to the issue of debt securities or equity securities.

The consideration transferred includes no amounts associated with the fulfilment of pre-existing relationships. Such amounts are recognised in profit or loss.

Any contingent obligation to pay consideration is measured at fair value as of the acquisition date. If the contingent consideration is classified as equity, it is not remeasured, and a settlement is accounted for within equity. Otherwise, later changes in the fair value of the contingent consideration are recognised in profit or loss.

Non-controlling interests

Non-controlling interests are measured as of the acquisition date with their proportionate share in the identifiable net assets of the acquired entity.

Changes in the Group’s share in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity if it has the power to govern its financial and operating policies so as to obtain benefits from its activities. Control exists when the Group directly or indirectly holds more than half of the voting rights in a subsidiary or when control can otherwise be legally demonstrated via agreements with other investors or the articles of association. Potential voting rights that are currently exercisable or convertible are considered when assessing whether control exists.

The financial statements of subsidiaries are included in the consolidated financial statements from the date control begins until the date control ends.

Loss of control

If the Group loses control of a subsidiary, it derecognises the subsidiary’s assets and liabilities and all associated non-controlling interests and other equity components. Any resulting profit or loss is recognised in profit or loss. Any retained interest in the former subsidiary is measured at fair value as of the date of the loss of control.

Shares in associated companies recognised at equity

Associated companies are entities over which the Group has significant influence, but not control or joint control, as regards financial and operating policies.

Shares in associated companies are recognised at equity. They are initially recognised at cost, which also includes transaction costs. After the first-time recognition, the consolidated financial statements include the Group’s share in the comprehensive income of the financial investments recognised at equity until the date the significant influence or joint control ends.

Transactions eliminated on consolidation

Intragroup balances and transactions and all unrealised income and expenses from intragroup transactions are eliminated in the preparation of the consolidated financial statements.

Discontinued operations

A discontinued operation is a part of the Group whose operations and cash flows can be clearly distinguished from the rest of the Group and which

• represents a separate, major line of business or geographical area of operations,
• is part of a single coordinated plan to dispose of a separate, major line of business or geographical area of operations, or
• is a subsidiary acquired exclusively with a view to resale.

An operation is classified as discontinued when it is disposed of or as soon as the criteria for classification as “held for sale” are met, whichever is earlier.

If an operation is classified as a discontinued operation, the statement of comprehensive income for the comparative year is adjusted so that it were as if the operation had been discontinued from the start of the comparative year.

Assets held for sale

Non-current assets or disposal groups that include assets and liabilities are classified as held for sale if it is highly probably that they will be realised through sale rather than continued use.

In general, these assets or disposal groups are recognised at the lower of their carrying amounts or fair values less costs to sell. Any impairment loss of a disposal group is firstly attributed to goodwill and then to the remaining assets and liabilities on a proportional basis – with the exception that no loss is attributed to financial assets, deferred tax assets, assets in connection with employee benefits or investment property that continue to be measured according to the Group’s other accounting policies. Impairment losses on the first-time classification as held for sale and later profit and loss on remeasurement are recognised in profit or loss.

As soon as they are classified as held for sale, intangible assets and property, plant and equipment are no longer amortised or depreciated and any investees recognised at equity are no longer recognised at equity.

3. Currency translation

Transactions in foreign currencies

Transactions in foreign currencies are translated into the functional currency of the Group entity at the spot exchange rate on the date of the transaction.

Monetary assets and liabilities denominated in a foreign currency on the reporting date are translated into the functional currency at the closing rate. Non-monetary assets and liabilities measured at fair value in a foreign currency are translated at the rate valid on the date the fair value is calculated. Foreign exchange differences are recognised in profit or loss for the period. Non-monetary items measured at historical cost in a foreign currency are not translated.

For the following items, foreign exchange differences are recognised in other comprehensive income in deviation from the policy:

• Available-for-sale equity instruments (except in the case of impairment, for which foreign exchange differences are reclassified from other comprehensive income into profit or loss),
• Financial liabilities designated as a hedge of a net investment in a foreign operation, provided the hedge is effective,
• Qualified cash flow hedges, provided they are effective.

Foreign operations

Assets and liabilities from foreign operations, including the goodwill and fair value adjustments that result from the acquisition, are translated into euros at the closing rate on the reporting date. Income and expenses from foreign operations are translated at the average rate for the year.

Foreign exchange differences are reported in other comprehensive income and recognised in the foreign currency translation reserve in equity if the foreign exchange difference is not attributable to non-controlling interests.

On the disposal of a foreign operation that results in loss of control, joint control or significant influence, the corresponding cumulative amount recognised in the foreign currency translation reserve up to this date is reclassified to profit or loss as part of the result on disposal. In the case of only partial disposal without loss of control over a subsidiary that includes a foreign operation, the corresponding portion of the cumulative exchange difference is attributed to the non-controlling interests. If the Group partially disposes of an associated or jointly controlled company that includes a foreign operation, but retains significant influence or joint control respectively, the corresponding portion of the cumulative foreign exchange difference is reclassified to profit or loss.

If the settlement of monetary items in the form or receivables or liabilities from or to a foreign operation is neither planned nor probable in the foreseeable future, the resulting foreign currency gains and losses are considered part of the net investment in the foreign operation. The foreign currency gains and losses are then reported in other comprehensive income and recognised in the foreign currency translation reserve in equity.

Major exchange rates

4. Actuarial items

Since 1 January 2005, UNIQA Insurance Group AG has applied IFRS 4 published in 2004 for insurance policies. This standard demands that the methods of accounting and valuation be largely unaltered with regard to the actuarial items.

The IFRSs contain no specific regulations that comprehensively govern the recognition and measurement of insurance and reinsurance policies and investment contracts with a discretionary participation feature. Therefore, in accordance with IAS 8, the provisions of the US Generally Accepted Accounting Principles (US GAAP) in the version valid on 1 January 2005 were applied to all cases for which IFRS 4 contains no specific regulations. For balancing the accounts and evaluation of the insurance-specific entries of the life insurer with profit participation, FAS 120 was observed; FAS 60 was applied for specific items in health, property and casualty insurance and FAS 113 in the area of reinsurance. The unit-linked life insurance, where the policyholder bears the investment risk, is stated according to FAS 97.

Insurance and investment contracts

Insurance contracts, i.e. contracts through which significant insurance risk is assumed, and investment contracts with a discretionary participation feature are treated in accordance with IFRS, i.e. under application of US GAAP. Investment contracts, i.e. contracts that do not transfer a significant insurance risk and that do not include a discretionary participation feature, fall under the scope of IAS 39 (Financial Instruments).

Reinsurance contracts

Assumed reinsurance (indirect business) is recognised as an insurance contract in accordance with IFRS 4.

Ceded reinsurance is also subject to the application of IFRS 4 and is presented in a separate asset-side item as per IFRS 4. The profit and loss items (premiums and payments) are deducted openly from the corresponding items in the gross account, while commission income is reported separately as its own item.

Deferred acquisition costs

Deferred acquisition costs are accounted for according to IFRS 4 in conjunction with US GAAP. In the case of property and casualty insurance contracts, costs directly attributable to the acquisition are deferred and distributed over the expected contract term or according to the unearned premiums. In life insurance, the deferred acquisition costs are written down in line with the pattern of expected gross profits or margins.

Unearned premiums

For short-term insurance policies, such as most property and casualty insurance policies, the premiums relating to future years are reported as unearned premiums in line with the applicable regulations of US GAAP. The amount of these unearned premiums corresponds to the insurance cover granted proportionally in future periods.

Premiums levied on the conclusion of certain long-term contracts (e.g. upfront fees) are recognised as unearned premiums. In line with the applicable regulations of US GAAP, these fees are recorded in the same manner as the write-downs of deferred acquisition costs.

They are in principle calculated for each individual policy and exactly to the day. If they are attributable to life insurance, they are included in the premium reserves.

Actuarial provisions

Actuarial provisions are established in the casualty, life and health insurance lines. Their recognition value on the balance sheet is determined according to actuarial principles on the basis of the present value of future benefits to be paid by the insurer less the present value of future net premiums the insurer expects to receive. The actuarial provisions of the life insurer are calculated by taking into account prudent and contractually agreed calculation bases.

For policies of a mainly investment character (e.g. unit-linked life insurance), the regulations in the Statement of Financial Accounting Standards No. 97 (FAS 97) are used to value the actuarial provisions. The actuarial provisions are arrived at by combining the invested amounts, the change in value of the underlying investments and the withdrawals under the policy. For unit-linked insurance policies in which the policyholder carries the sole risk of the value of the investment rising or falling, the actuarial provisions are listed as a separate liability entry under “Technical provisions held on account and at risk of life insurance policyholders”.

The actuarial provisions for health insurance are determined on a calculation basis of “best estimate”, taking into account safety margins. Once a calculation basis has been determined, these basically have to be applied to the corresponding partial portfolio for the whole duration (locked-in principle).

Provisions for losses and outstanding claims

The provisions for outstanding claims in property and casualty insurance contain the actual and the expected amounts of future financial obligations including the claims settlement expenses appertaining thereto, based on accepted statistical procedures. This applies to claims already reported as well as for claims incurred but not yet reported (IBNR). In insurance lines in which past experience does not allow the application of statistical procedures, individual loss provisions are made.

Life insurance is calculated on an individual loss basis with the exception of the provisions for unreported claims.

As for health insurance, the provisions for outstanding claims are estimated on the basis of past experience, taking into consideration the known arrears in claim payments.

The provisions for the assumed reinsurance business generally comply with the figures of the cedents.

Provisions for premium refunds and profit sharing

The provisions for premium refunds include the amounts for profit-related and profit-unrelated profit sharing to which the policyholders are entitled on the basis of statutory or contractual regulations.

For life insurance policies with a discretionary participation feature, differences between local measurement and IFRS measurement are presented with deferred profit participation taken into account, whereby this too is reported in profit or loss or in the statement of comprehensive income depending on the recognition of the change in the underlying valuation differences. The amount of the provisions for deferred profit participation amount to generally 85 per cent of the valuation differentials before tax. These valuation differences can also give rise to net positive items, which are also listed here.

Other actuarial provisions

This item basically contains the provisions for contingent losses for acquired reinsurance portfolios as well as provisions for expected cancellations and premium losses.

Provisions held on account and at risk of life insurance policyholders

This item concerns the actuarial provisions and the remaining technical provisions for obligations from life insurance policies where the value or income is determined by investments for which the policyholder bears the risk or for which the benefit is index-linked. As a general rule, the valuation corresponds with the investments of the unit-linked and index-linked life insurance written at current market values.

5. Employee benefits

Short-term employee benefits

Obligations from short-term employee benefits are recognised as expenses as soon as the associated work is performed. A liability must be recognised for the expected amount to be paid if the Group currently has a legal or de facto obligation to pay this amount on the basis of work performed by the employee and the obligation can be reliably estimated.

Defined contribution plans

Obligations for contributions to defined contribution plans are recognised as expenses as soon as the associated work is performed. Prepaid contributions are recognised as assets if an entitlement to refund or reduction of future payments arises.

Defined benefit plans

The Group’s net obligation with regard to defined benefit plans is calculated separately for each plan by estimating the future benefits that the employees have earned in the current and in earlier periods. This amount is discounted and the fair value of any plan assets is deducted.

The calculation of defined benefit obligations is carried out annually by a qualified actuary using the projected unit credit method. If the calculation results in a potential asset for the Group, the asset recognised is limited to the present value of any economic benefit available in the form of future refunds from the plan or reductions in future contributions to the plan. Any valid minimum funding requirements are included in the calculation of the present value of the economic benefit.

Remeasurements of the net liability from defined benefit plans are recognised directly in other comprehensive income. The remeasurement includes the actuarial gains and losses, the income from plan assets (not including interest) and the effect of any asset ceiling (not including interest). The Group calculates net interest expenses (income) on the net liability (asset) from defined benefit plans for the reporting period by applying the discount rate used to measure the defined benefit obligation at the start of the annual reporting period. This discount rate is applied to net liabilities (assets) from defined benefit plans on this date. Any changes in the net liabilities (assets) from defined benefit plans resulting from contribution and benefit payments over the course of the reporting period are taken into account. Net interest expenses and other expenses for defined benefit plans are recognised in profit or loss.

If a plan’s benefits are changed or a plan is curtailed, the resulting change in the benefit relating to past service or the gain or loss on the curtailment is recognised directly in profit or loss. The Group recognises gains and losses from the settlement of a defined benefit plan at the date of the settlement.

Other long-term employee benefits

The Group’s net obligation with regard to long-term employee benefits comprises the future benefits that the employees have earned in return for work performed in the current and in earlier periods. These benefits are discounted to determine their present value. Remeasurements are recorded in profit or losses in the period in which they arise.

Termination benefits

Termination benefits are recognised as expenses on the earlier of the following dates: when the Group can no longer withdraw the offer of such benefits or when the Group recognises costs for restructuring. If benefits are not expected to be settled within twelve months of the end of the reporting period, they are discounted.

Cash-settled share-based payment transactions (share appreciation rights)

The fair value on the date share-based payment awards are granted to employees is recognised as expense over the period in which the employees become unconditionally entitled to the awards. The amount recognised as expense is adjusted in order to reflect the number of awards expected to fulfil the corresponding service conditions and non-market performance conditions, so that the expense recognised is ultimately based on the number of awards that fulfil the corresponding service conditions and non-market performance conditions at the end of the vesting period. Changes in measurement assumptions likewise result in an adjustment of the recognised provision amounts in profit or loss.

6. Income taxes

Tax expenditure includes actual and deferred tax. Actual tax and deferred tax is recognised in profit or loss, with the exception of any amount associated with a business combination or with an item recognised directly in equity or other comprehensive income.

Actual tax

Actual tax is the expected tax liability or tax receivable on taxable income for the financial year or the tax loss on the basis of interest rates that are valid on the reporting date or will soon be valid, plus all adjustments of the tax liability relating to previous years. Actual tax liabilities include all tax liabilities resulting from the determination of dividends.

Deferred tax

Deferred tax is recognised with regard to temporary differences between the carrying amounts of assets and liabilities for Group accounting purposes and the amounts used for tax purposes. Deferred taxes are not recognised for:

• Temporary differences on the first-time recognition of assets or liabilities in the event of a transaction that is not a business combination and that affects neither accounting profit before taxes nor taxable profit,
• Temporary differences in connection with shares in subsidiaries, associated companies and jointly controlled entities, provided the Group is able to control the timing of the reversal of the temporary differences and it is probable that they will not reverse in the foreseeable future,
• Taxable temporary differences on the first-time recognition of goodwill.

A deferred tax asset is recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available for which they can be used. Deferred tax assets are reviewed on every reporting date and reduced to the extent that it is no longer probable that the associated tax advantage will be realised.

Deferred taxes are measured on the basis of the tax rates expected to be applied to temporary differences as soon as they reverse, and using tax rates that have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred taxes reflects the tax consequences arising from the Group’s expectation of the manner in which it will recover the carrying amounts of its assets or settle its liabilities on the reporting date. For investment property measured at fair value, the presumption that the carrying amount will be recovered through sale was not rebutted.

Deferred tax assets and deferred tax liabilities are netted when certain conditions are met.

7. Property, plant and equipment

Recognition and measurement

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

If parts of an item of property, plant and equipment have different useful lives, they are recognised as separate items (main components) of property, plant and equipment.

Any profit or loss from the disposal of an item of property, plant and equipment is recognised in profit or loss.

Reclassification as investment property

If the use of a property changes and an owner-occupied property becomes an investment property, the property is reclassified as an investment property with the carrying amount as of the date of the change.

Subsequent costs

Subsequent costs are only capitalised when it is probable that the future economic benefit associated with the expense will flow to the Group. Ongoing repairs and maintenance are recognised as expenses immediately.

Depreciation

The depreciation is calculated in order to write down the costs of property, plant and equipment less their estimated residual values on a straight-line basis over the period of their estimated useful lives. The depreciation is recognised in profit or loss. Land is not depreciated.

The estimated useful lives of significant property, plant and equipment for the current year and comparative years are as follows:

Depreciation methods, useful lives and residual values are reviewed on every reporting date and adjusted if necessary.

8. Intangible assets and goodwill

Goodwill

The goodwill arising in the context of business combinations is measured at cost less accumulated impairment losses.

Value of insurance policies

Values of life, property and casualty insurance policies relate to expected future margins from purchased operations.

With regard to life insurance business acquired, the amortisation of the current value follows the progression of the estimated gross margins.

Other intangible assets

The other intangible assets include both purchased and self-developed software which is depreciated on a straight-line basis over its useful economic life of two to five years.

9. Investment property

Land and buildings, including buildings on third-party land, held as long-term investments to generate rental income and/or for the purpose of capital appreciation are measured at cost when they are acquired. Subsequent measurement follows the cost model according to IAS 40.56.

10. Deferred acquisition costs

Deferred acquisition costs for insurance activities that are directly related to new business and/or to extensions of existing policies and that vary in line with that business are capitalised and written off over the term of the insurance contracts to which they refer. If they are attributable to property and casualty insurance, they are written off over the probable policy term, with a maximum of five years. For life insurance, the acquisition costs are amortised over the duration of the policy at the same proportion as the actuarial profit margin of each individual year is realised in comparison to the total margin to be expected from the policies. For long-term health insurance policies, the depreciation of acquisition costs is measured in line with the proportionate share of earned premiums in the present value of expected future premium income. The changes in deferred acquisition costs are shown as operating expenses.

11. Financial instruments

Classification

The Group classifies non-derivative financial assets to the following categories:

Financial assets measured at fair value through profit or loss, loans and receivables and available-for-sale financial assets.

The Group categorises non-derivative financial liabilities as other financial liabilities.

Investments

With the exception of mortgage loans and other loans, the investments are listed at the current fair value, which is established by determining a market value or stock market price. In the case of investments for which no market value can be determined, the fair value is determined through internal valuation models or on the basis of estimates of what amounts could be achieved under current market conditions in event of proper liquidation.

Investments held for trade (trading portfolio)

Derivatives are used within the limits permitted by the Austrian Insurance Supervisory Act, for hedging investments and for increasing earnings. All fluctuations are recognised in the income statement.

Investments at fair value through profit or loss (fair value option)

Structured products are not split between the underlying transaction and derivative, but are accounted for as a unit. All the structured products can therefore be found in the “Financial instruments at fair value through profit or loss” item of the balance sheet. Unrealised profits and losses are dealt with in the income statement. In accordance with IAS 39 (11A), ABS bonds, structured bonds, hedge funds and a special annuity fund with a high share of derivatives are also dealt with under the items for securities at fair value through profit or loss.

Investments held on account and at risk of life insurance policyholders

These investments concern life insurance policies whose value or profit is determined by investments for which the policyholder carries the risk, i.e. the unit-linked or index-linked life insurance policies. The investments in question are collected in asset pools, balanced at their current market value and kept separately from the remaining investments of the company. The policyholders are entitled to all income from these investments. The amount of the balanced investments strictly corresponds to the actuarial provisions (before reinsurance business ceded) for life insurance, to the extent that the investment risk is borne by the policyholders. The unrealised profits and losses from fluctuations in the current values of the investment pools are thus counterbalanced by the appropriate changes in these reserves.

Non-derivative financial assets and liabilities – recognition and derecognition

The Group recognises loans, receivables and issued debt securities from the date on which they arise. All other financial assets and liabilities are recognised for the first time on the trade date. The Group derecognises a financial asset when the contractual rights to cash flows from an asset expire or it transfers the rights to receive the cash flows in a transaction in which all major risks and opportunities connected with the ownership of the financial asset are transferred. Derecognition also occurs when the Group neither transfers nor retains all major risks and opportunities connected with ownership and does not retain control over the transferred asset. Every share in such transferred financial assets that arise or remain in the Group is recognised as a separate asset or separate liability.

Financial liabilities are derecognised when the contractual obligation is fulfilled, lifted or expired.

Financial assets and liabilities are set off and recognised net in the balance sheet if the Group has a legal right to set off the reported amounts against each other and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Loans and receivables

When first recognised, such assets are measured at their fair value plus directly attributable transaction costs. Subsequently, they are measured at amortised cost using the effective interest method.

Cash and cash equivalents

In the consolidated cash flow statement, cash and cash equivalents include immediately available bank balances, which are a central component of the management of the Group’s payment transactions.

Available-for-sale financial assets

Available-for-sale financial assets are initially measured at fair value plus directly attributable transaction costs. Subsequently, available-for-sale financial assets are measured at fair value and corresponding value changes are, with the exception of impairment and foreign exchange differences in the case of available-for-sale debt securities, recognised in other comprehensive income and in the revaluation reserve in equity. When an asset is derecognised, the accumulated other comprehensive income is reclassified to profit or loss.

Non-derivative financial liabilities – measurement

When first recognised, non-derivative financial liabilities are measured at fair value less directly attributable transaction costs. Subsequently, these financial liabilities are measured at amortised cost using the effective interest method.

12. Impairment

Non-derivative financial assets

Financial assets not designated as at fair value through profit or loss, including interests in entities accounted for using the equity method, are tested on every reporting date to determine whether there is any objective indication of impairment.

Objective indications that financial assets are impaired are:

• The default or delay of a debtor,
• The restructuring of an amount owed to the Group at conditions that the Group would otherwise not consider,
• Indications that a debtor or issuer will become insolvent,
• Adverse changes in the payment status of borrowers or issuers,
• The disappearance of an active market for a security,
• Observable data that indicate a significant decrease in the expected payments from a group of financial liabilities.

In the case of an investment in an equity instrument, a significant or prolonged decline in the fair value below its cost is also objective evidence of impairment. The Group considers a decline of 20 per cent as significant and a period of nine months as prolonged.

Financial assets measured at amortised cost

The Group considers indications of impairment for these financial assets both at the level of the individual assets and collectively. All assets significant in themselves are tested for specific impairment. Those that prove not to be specifically impaired are then collectively tested for impairment that has occurred but not yet been identified. Assets not significant in themselves are collectively tested for impairment by pooling assets with similar risk characteristics in one group.

When testing for collective impairment, the Group uses historical information on the timing of payments and the value of the incurred losses, adjusted by a judgement on the part of the Management Board on whether the current economic conditions and credit conditions are such that the actual losses are probably higher or lower than the losses to be expected on the basis of historical trends.

Impairment is calculated as the difference between the carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate of the asset. Losses are recognised in profit or loss. If the Group has no realistic hope of recovering the asset, the amounts are written off. If an event occurring after the recognition of impairment reduces the level of impairment, the reduction is recognised in profit or loss.

Available-for-sale financial assets

Impairment of available-for-sale financial assets is recognised by reclassifying the losses accumulated in the reserve of fair value changes in equity to profit or loss. The accumulated loss that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and current fair value, less any impairment loss previously recognised in profit or loss. If the fair value of an impaired, available-for-sale debt instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment was recognised, the impairment is reversed, with the amount of the reversal recognised in profit or loss. In other cases, impairment reversal is recognised in other comprehensive income.

Associated companies accounted for using the equity method

An impairment loss relating to an associated company accounted for using the equity method is measured by comparing the recoverable amount of the shares with their carrying amount. An impairment loss is recognised in profit or loss. An impairment loss is reversed in the event of an advantageous change in the estimates used to determine the recoverable amount.

Non-financial assets

The carrying amounts of the Group’s non-financial assets – excluding inventories and deferred tax assets – are tested on every reporting date to determine whether there is an indication of impairment. If this is the case, the recoverable amount of the asset is estimated. The goodwill and intangible assets with indefinite useful lives are tested for impairment annually.

In order to test for impairment, assets are grouped into the smallest groups of assets whose continued use generates cash flows that are to the greatest possible extent independent of cash flows from other assets or cash-generating units (CGUs). Goodwill acquired in a business combination is allocated to the CGUs or groups of CGUs expected to benefit from the synergies of the combination.

The recoverable amount of an asset or a CGU is the higher of its value in use or its fair value less costs to sell. When calculating value in use, the estimated future cash flows are discounted to their present value, whereby a pre-tax discount rate is used that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised when the carrying amount of an asset or a CGU exceeds it recoverable amount.

Impairment losses are recognised in profit or loss. Impairment recognised for CGUs is first allocated to any goodwill allocated to the CGU and then allocated to the carrying amount of the other assets of the CGU (group of CGUs) on a proportional basis.

An impairment loss on goodwill is not reversed. In the case of other assets, an impairment loss is reversed only to the extent that it does not increase the carrying amount of the asset above the carrying amount that would have been determined net of depreciation or amortisation had no impairment loss been recognised.

13. Other provisions

The level of the provisions is calculated by discounting the expected future cash flows at a pre-tax interest rate that reflects current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognised as a finance cost.

14. Calculation of fair value

A range of Group accounting policies and disclosures require the determination of the fair value of financial and non-financial assets and liabilities. The Group has defined a control framework with regard to the calculation of fair value. This includes a measurement team, which bears general responsibility for monitoring all major measurements of fair value, including level 3 fair values, and reports directly to the Management Board.

The measurement team carries out a regular review of the major unobservable input factors and the measurement adjustments. If information from third parties (e.g. price quotations from brokers or price information services) is used to determine fair values, the measurement team examines the evidence obtained from the third parties for the conclusion that such measurements meet the requirements of IFRS, including the level in the fair value hierarchy to which these measurements are attributable. Major items in the measurement are reported to the Audit Committee.

As far as possible, the Group uses data that are observable on the market when determining the fair value of an asset or a liability. On the basis of the input factors used in the valuation techniques, the fair values are assigned to different levels in the fair value hierarchy:

• Level 1: Quoted prices (unadjusted) on active markets for identical assets and liabilities.
• Level 2: Measurement parameters that are not quoted prices included in level 1 but which can be observed for the asset or liability either directly (i.e. as a price) or indirectly (i.e. derived from prices).
• Level 3: Measurement parameters for assets or liabilities that are not based on observable market data.

If the input factors used to determine the fair value of an asset or a liability can be assigned to different levels of the fair value hierarchy, the entire fair value measurement is assigned to the level of the fair value hierarchy that corresponds to the lowest input factor significant for the measurement overall.

The Group recognises reclassifications between different levels of the fair value hierarchy at the end of the reporting period in which the change occurred.

Further information on the assumptions used in the determination of fair values is included in the following notes:

• Note 3 – Investment property
• Note 9 – Securities available for sale