2. Accounting principles

2.1 Principles

The consolidated financial statements were prepared in line with the International Financial Reporting Standards (IFRSs) as well as the provisions of the International Financial Reporting Interpretations Committee (IFRIC) as adopted by the European Union (EU) as at the reporting date. The additional requirements of Section 245a(1) of the Austrian Commercial Code as well as Section 138(8) of the Insurance Supervision Act were also met.

The following table provides an overview of the valuation principles for the individual balance sheet items in the assets and liabilities:

2.2 Principles for technical items

UNIQA has applied IFRS 4 (published in 2004) for insurance contracts since 1 January 2005. This standard demands that the accounting policies 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 US Generally Accepted Accounting Principles (US GAAP) in the version applicable 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 life insurance with profit sharing, FAS 120 was observed; FAS 60 was applied for specific items in health, property and casualty insurance and FAS 113 for reinsurance. Unit-linked life insurance, where the policyholder bears the entire investment risk, was accounted for in accordance with FAS 97.

Based on the regulations, technical items must be covered by suitable assets (cover funds). As is standard in the insurance industry, amounts dedicated to the cover funds are subject to a limitation as regards availability in the group.

The new standard for insurance contracts (previously referred to as IFRS 4 Phase II, now IFRS 17) has been in preparation for many years. It is expected to be issued by the middle of 2017 and its initial date of application is scheduled for 2021. The subject of the future standard for insurance contracts is the representation of the assets and liabilities resulting from the insurance contracts. IFRS 17 applies largely to all insurance and reinsurance contracts that a company underwrites and to reinsurance contracts that a company enters into.

2.3 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. Any generated goodwill is tested annually for impairment. Any profit from an acquisition at a price below the fair value of the net assets is recognised directly in profit/(loss) for the year. Transaction costs are recognised as expenses immediately.

The consideration transferred does not include any amounts associated with the fulfilment of pre-existing relationships. Such amounts are generally recognised in profit/(loss) for the year.

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

Non-controlling interests

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

Changes in the share in a subsidiary that do not result in a loss of control are recognised directly as equity transactions with non-controlling interests.

Subsidiaries

Subsidiaries are entities controlled by UNIQA. UNIQA is regarded as controlling an entity if:

• UNIQA is able to exercise power over the relevant entity,
• UNIQA is exposed to fluctuating returns from its participation and
• UNIQA is able to influence the amount of the returns as a result of the power it exercises.

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 UNIQA loses control of a subsidiary, the subsidiary’s assets and liabilities and all associated non-controlling interests and other equity components are derecognised. Any resulting profit or loss is recognised in profit/(loss) for the year. Any retained interest in the former subsidiary is measured at fair value as at the date of the loss of control.

Investment in associates

Associates are all the entities over which UNIQA has significant influence but does not exercise control or joint control over their financial and operating policies. This is generally the case as soon as there is a voting share of between 20 and 50 per cent or a comparable significant influence is guaranteed legally or in practice via other contractual regulations.

Investments in associates are accounted for using the equity method. They are initially recognised at acquisition cost, which also includes transaction costs. After the first-time recognition, the consolidated financial statements include the Group’s share in profit/(loss) for the year and in changes in other comprehensive income until the date the significant influence ends.

At each reporting date, UNIQA reviews whether there are any indications that the investments in associates are impaired. If this is the case, then the impairment loss is recorded as the difference between the participation carrying amount of the associate and the corresponding recoverable amount and recognised separately in profit/(loss) for the year.

Transactions eliminated on consolidation

Intragroup balances and transactions and all unrealised income and expenses from intragroup transactions are eliminated when consolidated financial statements are prepared.

Discontinued operations

A discontinued operation is a part of the Group that has either been sold or has been categorised as held for sale, and which

• represents a major line of business or a 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.

The entity is classified as a discontinued operation when the aforementioned criteria are fulfilled.

If an operation is classified as a discontinued operation, the consolidated statement of comprehensive income as well as the data relating to it 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 and liabilities held for sale

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

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 continues to be measured based on the Group’s other accounting policies. Impairment losses on the first-time classification as held for sale and any subsequent impairment losses are recognised in profit or loss.

Intangible assets held for sale and property, plant and equipment are no longer amortised or depreciated and any investments recognised using the equity method are no longer equity-accounted.

2.4 Basis of consolidation

In addition to the annual financial statements of UNIQA Insurance Group AG, the consolidated financial statements include the financial statements of all subsidiaries in Austria and abroad. The basis of consolidation comprised – including UNIQA Insurance Group AG – 54 Austrian (2015: 56) and 62 (2015: 67) foreign subsidiaries. The associates are 6 domestic (2015: 8) and 1 foreign company (2015: 1) that were included in the consolidated financial statements using the equity method of accounting.

A list of the fully consolidated subsidiaries and associates can be found in chapter Affiliated companies and associates.

Shares in subsidiaries that are not consolidated (for lack of materiality), associates as well as joint ventures not accounted for using the equity method are classified as financial assets available for sale in accordance with IAS 39 and recognised at fair value in other comprehensive income. Those equity investments for which the fair value cannot be reliably ascertained are recognised at cost less any impairments.

In application of IFRS 10, fully-controlled investment funds are included in the consolidation insofar as their fund volumes were not of minor importance when viewed separately and as a whole.

In the reporting year, the following changes occurred to the basis of consolidation.

Acquisitions

UNIQA Real Estate Inlandsholding GmbH (Vienna) was included within the basis of consolidation for the first time effective 14 June 2016. The acquisition constitutes an acquisition of a group of assets and does not fulfil the conditions of a business according to IFRS 3. The company acquired is a financial and strategic shareholding.

Following approval by the Austrian Supreme Court sitting as a competition high court, on 7 July 2016 the acquisition of a 75 per cent stake in Vienna-based Privatklinik Goldenes Kreuz Privatklinik BetriebsGmbH (“Goldenes Kreuz”) was finalised.

The company operates a private hospital specialising in obstetrics in Vienna’s 9th District. The acquisition represents a strategic expansion for the existing group of hospitals. In accordance with IFRS 3, the acquisition of this holding is considered the acquisition of a business.

The profit/(loss) for the year includes negative contributions to earnings in the amount of €–782 thousand from the current profits of the Vienna private clinic “Goldenes Kreuz” since its initial consolidation.

If the acquisition had taken place on 1 January 2016, according to estimates of the Group Management Board the non-insurance result would have amounted to €244,338 thousand and net profit would have been €148,974 thousand. In determining these amounts, the management assumed that the provisional fair value adjustments at the time of the acquisition would also have been valid in the event of an acquisition on 1 January 2016.

The consideration paid for the acquisition comprises exclusively cash and cash equivalents amounting to €4,023 thousand. The incidental costs incurred for this acquisition in 2016 amounting to €10 thousand (2015: €435 thousand) are recognised under other operating expenses.

Receivables (trade receivables and other assets) acquired in the course of the acquisition have a fair value of €4,947 thousand. Based on the best possible estimate, there were no uncollectible receivables at the time of the acquisition.

Calculations based on the estimates show that no goodwill was generated with the acquisition of the “Goldenes Kreuz” private hospital in Vienna.

Non-controlling interests of 25 per cent were recognised at the time of acquisition and measured at a fair value of €1,341 thousand.

The consideration paid is offset by an acquired cash position of €770 thousand.

Restructuring processes

Sedmi element d.o.o. (Zagreb, Croatia) and Deveti element d.o.o. (Zagreb, Croatia) were merged with UNIQA osiguranje d.d. (Zagreb, Croatia) in January 2016.

UNIQA International AG (Vienna), acting as the transferor company, has transferred its 100 per cent stake in UNIQA Re AG (Zurich, Switzerland) through demerger to the UNIQA Insurance Group AG (the acquiring company) by means of a spin-off and take-over agreement dated 20 June 2016. Concurrently, Raiffeisen Versicherung AG, acting as the transferor company, transferred its 25 per cent stake in UNIQA International AG through demerger to the UNIQA Insurance Group AG (the acquiring company) by means of a spin-off and take-over agreement dated 20 June 2016.

Dr. E. Hackhofer EDV-Softwareberatung Gesellschaft m.b.H. (Vienna), which was entered into the company register on 1 July 2016 with retroactive effect from 31 December 2015, was merged as transferor company with UNIQA IT Services GmbH (Vienna).

BL syndicate Beteiligungs Gesellschaft mbH was merged with the UNIQA Insurance Group AG (the absorbing company) as at 31 July 2016.

FINANCE LIFE Lebensversicherung AG (Vienna), Raiffeisen Versicherung AG (Vienna) and Salzburger Landes-Versicherung AG (Salzburg), acting as the transferor companies, were merged with UNIQA Österreich Versicherungen AG (Vienna) (the absorbing company) on 1 October 2016 with effect from 1 January 2016.

UNIQA Real Estate BH nekretnine, d.o.o. (Sarajevo, Bosnia and Herzegovina) was merged with UNIQA osiguranje d.d. (Zagreb, Croatia) on 29 December 2016.

Liquidations

BSIC Holding LLC (Kiev, Ukraine) was liquidated as at 12 January 2016.

Sales

UNIQA Real II, spol. s r.o. (Bratislava, Slovakia) was sold effective 12 August 2016.

As part of the UNIQA 2.0 strategy programme focussing on the core insurance business in the key markets of Austria as well as Central and Eastern Europe, UNIQA has taken numerous actions since mid-2015 to restructure its portfolio of investments.

UNIQA decided to sell its 29 per cent holding in Medial Beteiligungs-Gesellschaft m.b.H. (Vienna) on 27 July 2015. This investment is therefore represented among the assets in disposal groups held for sale (segment “Group functions”). Medial Beteiligungs-Gesellschaft m.b.H. has an equity investment of around 38 per cent in Casinos Austria Aktiengesellschaft (Vienna); correspondingly, UNIQA holds an interest of around 11 per cent in Casinos Austria Aktiengesellschaft. Due to a decree by the Vienna regional high court acting as antitrust court, which prohibited the transfer of the investment, the sale to NOVOMATIC AG (Gumpoldskirchen) fell through and was cancelled in early 2017. UNIQA sold its 29 per cent stake in Medial Beteiligungs-Gesellschaft m.b.H. (Vienna) to CAME Holding GmbH (Vienna) in a contract of assignment dated 3 January 2017. The sale to CAME Holding GmbH is subject to a condition precedent. The conditions precedent are essentially mandatory approvals still required under merger law and public law approvals. Closing is expected in the first half of 2018.

Through the transfer agreement of 2 December 2016, the shares in Raiffeisen evolution project development GmbH (Vienna), amounting to 20 per cent, were sold to STRABAG AG (Spittal) and DC 1 Immo GmbH (Vienna). Following approval by the Austrian and Hungarian antitrust authorities, the closing was completed on 22 December 2016. The purchase price is approximately €14 million, the book value amounted to €14.7 million as at the date of disposal.

Following the approval by the Supervisory Board, on 2 December 2016 the Management Board decided to sell its 99.7 per cent holding in UNIQA Assicurazioni S.p.A. (Milan, Italy). The sales price is about €295 million. The sale includes UNIQA Assicurazioni S.p.A. (Milan, Italy) and its subsidiaries operating in Italy, UNIQA Previdenza S.p.A. (Milan, Italy) and UNIQA Life S.p.A. (Milan, Italy), which were reported in the segment UNIQA International. The sale of the Italian companies is classified as a discontinued business line. The assets and liabilities associated with the discontinued business line are stated in the consolidated statement of financial position under the assets and liabilities in disposal groups held for sale. The profit and loss of the discontinued business line is presented in the consolidated income statement under the item “Profit/(loss) from discontinued operations (after tax)”. The closing of the sale is expected in the first half of 2017 once all necessary official approvals have been obtained.

2.5 Currency translation

Functional currency and reporting currency

The items included in the financial statements for each operating subsidiary are measured based on the currency that corresponds with the currency of the primary economic environment in which the subsidiary operates (functional currency). The consolidated financial statements are prepared in euros which is UNIQA’s reporting currency.

Transactions in foreign currencies

Transactions in foreign currencies are translated into the functional currency of the Group entity at the exchange rate on the date of the transaction or, in the case of revaluations, at the time of the valuation.

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. Currency translation differences are generally recognised in profit/(loss) for the year. Non-monetary items recognised at historical acquisition cost or the cost of self-construction in a foreign currency are not translated.

In deviation from this policy, there is one case where currency translation differences are recognised in other comprehensive income: available-for-sale equity instruments (except in the case of impairment, for which currency translation differences are reclassified from other comprehensive income to profit/(loss) for the year).

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 monthly closing rates.

Currency translation differences are reported in other comprehensive income and recognised in equity as a part of the accumulated profits in the item “Differences from currency translation” if the foreign exchange difference is not attributable to non-controlling interests.

When the disposal of a foreign operation results in loss of control, joint control or significant influence, the corresponding amount recognised in the item “Differences from currency translation” under the accumulated profits up to this date is reclassified to profit/(loss) for the year as part of the gain or loss 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 an associate or jointly controlled company that includes a foreign operation is partially disposed of, but significant influence or joint control is retained, the corresponding portion of the cumulative currency translation difference is reclassified to profit/(loss) for the year.

If the settlement of monetary items in the form of 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 “Differences from currency translation” in equity.

2.6 Insurance items

Premiums written

The (gross) premiums written include those amounts that have been called due by the insurer either once or on an ongoing basis in the financial year for the purposes of providing the insurance coverage. The premiums written are increased by the charges added during the year (in the event of payment in instalments) and the ancillary charges in line with the tariffs. In the case of unit-linked and index-linked life insurance, only the premiums decreased by the savings portion are stated in the item “Premiums written”.

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 4, 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 item under assets in accordance with 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

Based on US GAAP, deferred acquisition costs are accounted for in accordance with IFRS 4. 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 amortised in line with the pattern of expected gross profits or margins.

Unearned premiums

For short-term insurance contracts, 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 upon entering into 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 amortisation of deferred acquisition costs.

These unearned premiums 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 insurance provision.

Insurance provisions

Insurance provisions are established in the life and health insurance lines. Their carrying amount is determined based on 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. Similarly, insurance provisions are established in the casualty lines that also cover life-long obligations (accident pensions). The insurance provision of the life insurer is calculated by taking into account prudent and contractually agreed calculation principles.

For policies that are mainly of investment character (e.g. unit-linked life insurance), the provisions of FAS 97 are used to measure the insurance provision. The insurance provision is 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 insurance provision is listed as a separate liability entry under “Technical provisions for unit-linked and index-linked life insurance”.

The insurance provisions for health insurance are determined based on calculation principles that correspond to the “best estimate”, taking into account safety margins. Once calculation principles have been determined, they have to be applied to the corresponding partial portfolio for the whole duration (locked-in principle).

An unearned revenue liability (URL) allocated to future year premium shares (such as preliminary fees) is calculated for unit-linked and index-linked life insurance contracts in accordance with FAS 97 and amortised correspondingly to deferred acquisition costs over the contract period.

Provisions for losses and unsettled claims

The provision for unsettled claims in the property and casualty insurance lines contains the actual and the expected amounts of future financial obligations, including the direct claims settlement expenses appertaining thereto, based on accepted statistical methods. This applies for 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 methods individual loss provisions are set aside.

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

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

The provision for the assumed reinsurance business generally complies with the figures of the cedents.

Provisions for premium refunds and profit sharing

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

In life insurance policies with a discretionary participation feature, differences between local measurement and measurement according to IFRSs are presented with deferred profit participation taken into account, whereby this is also reported in profit/(loss) for the year or in other comprehensive income depending on the recognition of the change in the underlying measurement differences. The amount of the provision for deferred profit participation generally comes to 85 per cent of the valuation differentials before tax.

Other technical provisions

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

Liability Adequacy Test

The Liability Adequacy Test evaluates whether the established IFRS reserves are sufficient. For the life insurance portfolio, a so-called best estimate reserve is compared with the IFRS reserve less the deferred acquisition costs. This calculation is done separately each quarter for mixed insurance policies, pension policies, risk insurance policies, and unit-linked and index-linked policies.

Because UNIQA uses the best estimate approach for calculating the loss reserves in non-life, only the unearned premiums are tested. Only business areas that show a surplus of less than 10 per cent at the time of the annual calculation are tested every quarter. In non-life insurance, the business areas tested are motor vehicle, general liability, and other.

Technical provisions for unit-linked and index-linked life insurance

This item relates to the insurance 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 unit-linked and index-linked life insurance investments written at current market values.

2.7 Other provisions

Provisions are formed if there is a current obligation (be it legal or practical in nature) from a past event, it is likely that fulfilment of the obligation will be associated with an outflow of resources, and a reliable estimate of the amount for the provision is possible.

The provision amount assessed is the best estimate for the additional benefit as at the reporting date for the purposes of settling the current obligation.

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.

2.8 Employee benefits

Short-term employee benefits

Obligations from short-term employee benefits are recognised as expenses through profit or loss as soon as the associated work is performed. A liability must be recognised for the expected amount to be paid if there is currently 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 through profit or loss 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. The defined contribution plan is financed largely by UNIQA.

Board members, special policyholders and active employees in Austria are subject to a basic defined contribution pension fund scheme. The beneficiaries are also entitled to a final pension fund contribution which guarantees them a fixed cash value for retirement when they begin their retirement. According to the provisions of IAS 19, this obligation in the contribution phase is to be classified as a defined benefit. The works council agreement states the extent to which a final pension fund contribution is provided to the beneficiary’s individual assurance cover account in the event of a transfer to the old-age pension or of an incapacity to work or the death as a participant. UNIQA has no obligations during the benefit phase.

Defined benefit plans

There are individual contractual pension obligations, individual contractual bridge payments, and pension allowances in accordance with association recommendations. Individuals who hold an individual contractual agreement can generally claim a pension when they reach the age of 60 or 65, subject to certain conditions. The amount of the pension generally depends on the number of their years of service and their last salary before leaving their active employment. In the event of death, the spouse of the individual entitled to the claim receives a pension at 60 per cent, 50 per cent or 40 per cent depending on the policy. The pensions are suspended for any period in which a termination benefit is paid and their value is generally guaranteed.

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.

Revaluations of the net liability from defined benefit plans are recognised directly in other comprehensive income. The revaluation includes the actuarial gains and losses, the income from plan assets (not including projected interest income) and the effect of any asset ceiling. The net interest expenses (income) on the net liabilities (assets) from defined benefit plans are calculated 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 through profit or loss in the profit/(loss) for the year.

If a plan’s defined 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/(loss) for the year. Gains and losses from the settlement of a defined benefit plan are recognised at the date of the settlement.

Termination benefit entitlements

In the case of employees of Austrian companies whose employment began prior to 31 December 2002 and lasted three years without interruption, the employee is entitled to termination benefits when the employment is terminated, unless the employee quits, leaves without an important reason or is guilty of an act resulting in early dismissal. The amount is double the salary owed to the employee in the last month of the employee relationship and increases after five years of employment to three times, after ten years of employment to four times, after fifteen years of employment to six times, after twenty years of employment to nine times and after twenty-five years of employment to twelve times the monthly salary. Employees subject to the collective agreement for insurance undertakings – back office and whose employment began before 1 January 1997 may be entitled to an increase of the statutory claim by 150 per cent. Employees subject to the collective agreement for insurance undertakings – back office and whose employment began after 1 January 1997 are entitled to an increase of 50 per cent of the statutory claim.

For employees of Austrian companies who joined the Group after 31 December 2002, the statutory provisions of the Austrian Company Staff and Self-Employment Pension Provision Act (BMSVG) apply. These people are not included in the calculation of the termination benefits.

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

Pension entitlements

The pensions that are based on individual policies or on association recommendations are financed through provisions. The final pension contribution is set aside during the contribution phase and transferred to the pension fund at the time of retirement. The financing is specified in the business plan, in the works council agreement and in the pension fund contract.

Other long-term employee benefits

The net obligation with regard to long-term benefits due to employees comprises the future benefits that the employees have earned in return for work performed in the current and in earlier periods. These obligations include provisions for length of service awards that are paid to employees after reaching a certain length of service. These benefits are discounted to determine their present value. Revaluations are recognised in profit/(loss) for the year in which they arise.

Post-employment benefits

Post-employment 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.

Share-based payments with cash settlement (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 valuation assumptions likewise result in an adjustment of the recognised provision amounts affecting income.

2.9 Income taxes

Tax expense includes actual and deferred tax. Actual tax and deferred tax is recognised in profit/(loss) for the year, 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 includes 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 apply on the reporting date or will soon apply, plus all adjustments of the tax liability relating to previous years. Actual tax liability also includes all the tax liability that may arise as a result of income received domestically or abroad that is subject to a domestic or foreign withholding tax.

Deferred tax

Deferred tax is recognised with regard to temporary differences between the carrying amounts of assets and liabilities in the IFRS consolidated financial statements and the corresponding amounts used for tax purposes. Deferred tax is 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 net earnings before taxes nor taxable income,
• temporary differences in connection with shares in subsidiaries, associates 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 profits or deferred tax liabilities will be available, which can be used by way of netting.

Deferred tax assets are tested for impairment on every reporting date and reduced to the extent that it is no longer probable that the associated tax advantage will be realised.

Deferred tax is 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 tax 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.

Deferred tax assets and debts are netted out if the conditions for a legal claim to offsetting are met and the deferred tax claims and liabilities relate to income tax that is levied by the same tax authority, either for the same taxable item or for different taxable items, aimed at achieving a settlement on a net basis.

Group taxation

UNIQA exercises the option of forming a group of companies for tax purposes provided by the legislators in Austria; there are three taxable groups of companies with the parent groups UNIQA Insurance Group AG, PremiQaMed Holding GmbH and R-FMZ Immobilienholding GmbH.

The group members are basically charged, or relieved by, the corporation tax amounts attributable to them by the parent group through the distribution of their tax burden in the tax group. Losses from foreign group members are also included within the scope of taxable profits. The tax realisation for these losses is accompanied by a future tax obligation to pay income taxes at an unspecified point in time. A corresponding provision is therefore formed for future subsequent taxation of foreign losses.

2.10 Property, plant and equipment

Property, plant and equipment is 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. Gains from the disposal of property, plant and equipment are recorded under the item “Other insurance income”, while losses are recorded under “Other technical expenses”.

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

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.

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. 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. The depreciation charges for property, plant and equipment are recognised in profit/(loss) for the year on the basis of allocated operating expenses under the items “Insurance benefits”, “Operating expenses” and “Net investment income”. The allocation of operating expenses denotes the allocation of expenses and income on the basis of their causation to the main groups of the consolidated income statement.

2.11 Intangible assets

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 amortised over the term of the related insurance contracts. If they are attributable to property and casualty insurance, they are amortised over the probable contractual term. In life insurance, the acquisition costs are amortised over the duration of the contract in 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 contracts. For long-term health insurance contracts, the amortisation 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 recognised as part of profit/(loss) for the year under operating expenses.

Goodwill

Goodwill arises upon acquisition of subsidiaries and represents the surplus of the consideration transferred for acquisition of the company above the fair value of UNIQA’s share in the identifiable assets acquired, the liabilities assumed, contingent liabilities and all non-controlling shares in the acquired company at the time of the acquisition. Goodwill is valued at cost less accumulated impairment losses. The impairment of goodwill is recognised in profit/(loss) for the year under the item “Amortisation of goodwill and impairment losses”.

Value of insurance contracts

Values of life, property and casualty insurance policies relate to expected future margins from purchased operations and are recognised at the fair value at the acquisition date.

The amortisation of the current value of the insurance contracts follows the progression of the estimated gross margins. The amortisation of the value of the insurance contracts is recognised under “Amortisation of goodwill and impairment losses”.

Other intangible assets

Other intangible assets include both purchased and internally developed software, which is depreciated on a straight-line basis over its useful economic life of 2 to 40 years.

In accordance with the provisions of IAS 38, costs that are incurred at the research stage for in-house software are recognised through profit or loss in profit/(loss) for the year in which they were incurred. Costs that are incurred at the development stage are deferred provided that it is foreseeable that the software will be completed, there is the intention and ability for future internal use and a future economic benefit arises from this.

The amortisation and redemption of the other intangible assets is recognised in profit/(loss) for the year on the basis of allocated operating expenses under the items “Insurance benefits”, “Operating expenses” and “Net investment income”.

2.12 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. The property held as financial investments is subject to linear depreciation over the useful life of 10 to 77 years and is recognised under the item “Net investment income and income from investment property”.

2.13 Treasury shares

The acquisition costs of treasury shares are recognised as a deduction from equity.

2.14 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 “Financial assets available for sale”.

Non-derivative financial liabilities are classified as measured at amortised cost.

Derivatives are recognised as financial assets or liabilities at fair value through profit/(loss).

Recognition and derecognition

Loans, receivables and issued debt securities are recognised from the date on which they arise. All other financial assets and liabilities are recognised for the first time on the settlement date. Financial assets are derecognised when the contractual rights to cash flows from an asset expire or the rights are transferred 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.

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

Derivatives are recognised on the day of contractual agreement. They are derecognised when the contractual obligations have expired or in the event of early settlement.

Valuation

With the exception of mortgages and other loans, investments are listed at their fair value, which is established by determining a market value or, given an active market, the stock market price. In the case of investments that are not listed on an active market, 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 the event of proper realisation.

Financial assets measured at fair value through profit or loss

Financial assets are measured at fair value through profit or loss if the asset is either held for trading or is designated at fair value and recognised in profit and loss (fair value option).

The fair value option is applied to structured products that are not split between the underlying transaction and the derivative, but are accounted for as a unit. Structured products are recognised in the category “Financial assets recognised at fair value through profit or loss”. Unrealised gains and losses are recognised in profit/(loss) for the year. The category “Financial assets recognised at fair value through profit or loss” includes ABS bonds, structured bonds, hedge funds and investment certificates whose original classification fell within this category.

Financial assets at fair value through profit or loss are carried at fair value. Each profit or loss resulting from the measurement is recognised through profit or loss.

Derivatives are used within the limits permitted under the Austrian Insurance Supervisory Act for hedging investments and for increasing earnings. All fluctuations in value are recognised in profit/(loss) for the year. Financial assets from derivative financial instruments are recognised under investments. Financial liabilities from derivative financial instruments are recognised under financial liabilities.

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 the accumulated profits in equity. When an asset is derecognised, the accumulated other comprehensive income is reclassified to profit/(loss) for the year.

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.

Non-derivative financial liabilities

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.

Unit-linked and index-linked life insurance investments

These investments concern life insurance contracts whose value or profit is determined by investments for which the policyholder carries the risk. The investments in question are collected in asset pools, recognised at their fair value and kept separately from the remaining investments of the companies. The policyholders are entitled to all income from these investments. The amount of the recognised investments strictly corresponds to the insurance provisions (before reinsurance business ceded) for life insurance, to the extent that the investment risk is borne by the policyholders. The unrealised gains and losses from fluctuations in the fair values of the investment pools are thus offset by the appropriate changes in these provisions.

Cash and cash equivalents

In the consolidated statement of cash flows, cash and cash equivalents include bank balances available upon demand, which are a central component of the management of the payment transactions. They are measured at the exchange rate in effect on the reporting date.

2.15 Impairments

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. For debt instruments and assets in the category “Loans and receivables”, this test is executed within the framework of an internal impairment process. If objective indicators suggest that the value currently attributed is not tenable, an impairment is recognised.

Objective indications that financial assets are impaired are:

• the default or delay of a debtor,
• the opening of bankruptcy proceedings for a debtor, or signs indicating that such proceedings are imminent,
• adverse changes in the rating of borrowers or issuers,
• changes in the market activity of a security, or
• other observable data that indicate a significant decrease in the expected payments from a group of financial assets.

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. A significant decrease is a decrease of 20 per cent, and a prolonged decline is one that lasts for at least nine months.

Financial assets measured at amortised cost

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/(loss) for the year. If there are no realistic chances of recovering the asset, an impairment has to be recognised. In case of an event that causes a reversal of impairment losses, this is recognised in the profit/(loss) for the year. In the event of a definitive non-performance, the asset is derecognised.

Available-for-sale financial assets

Impairment of available-for-sale financial assets is recognised in profit/(loss) for the year by reclassifying the losses accumulated in equity. The accumulated loss that is reclassified from equity to profit/(loss) for the year is the difference between the acquisition cost, net of any redemptions and amortisations 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. Reversals of impairment losses of equity instruments held at fair value cannot be recognised through profit/(loss) for the year.

Associates accounted for using the equity method

An impairment loss relating to an associate accounted for at equity is measured by comparing the recoverable amount of the shares with their carrying amount. The impairment loss is recognised in profit/(loss) for the year. 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 UNIQA’s non-financial assets – excluding deferred tax assets – are reviewed at 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 is recognised if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairments are generally recognised in profit/(loss) for the year. Impairment recognised for CGUs is first allocated to any goodwill allocated to the CGU and then 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.

2.16 Determination of fair value

A range of accounting policies and disclosures requires the determination of the fair value of financial and non-financial assets and liabilities. UNIQA has defined a control framework with regard to the determination 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 Group 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 third parties for the conclusion that such measurements meet the requirements of IFRSs, 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, UNIQA uses data that are observable on the market when determining the fair value of an asset or a liability. Based on 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. At UNIQA these primarily involve quoted shares, quoted bonds and quoted investment funds.
• Level 2: valuation 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), or are based on prices on markets that have been classified as inactive. The parameters that can be observed here include exchange rates, yield curves and volatilities. At UNIQA, these include in particular quoted bonds that do not fulfil the conditions under Level 1, along with structured products.
• Level 3: valuation parameters for assets or liabilities that are not based or are only partly based on observable market data. The valuations here are primarily based on the discounted cash flow method, benchmark procedures with instruments for which there are observable prices, and other procedures. As there are no observable parameters here in many cases, the estimates used can have a significant impact on the result of the valuation. At UNIQA, it is primarily other equity investments, private equity and hedge funds, ABS and structured products that do not fulfil the conditions under Level 2 that come under Level 3.

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 respective level of the fair value hierarchy that corresponds to the lowest input factor significant for the measurement overall.

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

Valuation process and methods

Financial instruments measured at fair value

For the valuation of capital investments, those procedures are mainly used that are best suited for the establishment of value. The following standard valuation procedures are applied for financial instruments which come under Levels 2 and 3:

Market-value-oriented approach

The valuation method in the market-value-oriented approach is based on prices or other material information from market transactions which involve identical or comparable assets and liabilities.

Net present value approach

The net present value approach corresponds with the method whereby the future (expected) payment flows or earnings are inferred on a current amount.

Cost-oriented approach

The cost-oriented approach generally corresponds with the value which would have to be applied in order to procure the asset once again.

Non-financial assets and loans

The fair value of investment property within the scope of the impairment test in accordance with IAS 36, as well as for the disclosures according to IFRS 13, is determined based on expert reports.

The loans are accounted for at amortised cost in accordance with the valuation method in the “Loans and receivables” category. Any required impairment is determined with due regard to the collateral and the debtor’s creditworthiness.

Financial liabilities

The fair value of financial liabilities and subordinated liabilities is determined using the discounted cash flow method. Yield curves and CDS spreads are used as input factors.

Valuation methods and inputs in the determination of fair values:

Further information on the assumptions used to determine the fair values is given in the following notes:

• Note 8 on investment property
• Note 12 on financial instruments

2.17 Operating segments

The accounting and valuation methods of the segments that are subject to mandatory reporting correspond to the consolidated accounting and valuation methods described above. A decision was made to streamline the group structure as part of the UNIQA 2.0 strategic programme that has been ongoing since 2011. With the related decrease in the size of the Management Board reporting lines have changed. As a result, segment reporting was subject to a strategic review and the organisational structure applicable as at 1 July 2016 has been adapted accordingly. The earnings before income taxes for the segments were determined taking the following components into consideration: summation of the IFRS profits in the individual companies, taking the elimination of investment income in the various segments and impairment of goodwill into consideration. All other consolidation effects (profit/(loss) at associates, elimination of interim results, and other overall effects) are included in “Consolidation”. The segment profit/(loss) obtained in this manner is reported to the Management Board of UNIQA Insurance Group AG to manage the Group in the following operating segments:

• UNIQA Austria – includes the Austrian insurance business.
• UNIQA International – includes the Austrian holding companies UNIQA International AG and UNIQA Internationale Beteiligungs-Verwaltungs GmbH in addition to all foreign insurance companies (with the exception of UNIQA Re AG). This segment is divided into the following main areas on a regional basis:
  • Western Europe (WE – Switzerland, Italy and Liechtenstein)
  • Central Europe (CE – Czech Republic, Hungary, Poland and Slovakia)
  • Eastern Europe (EE – Romania and Ukraine)
  • Southeastern Europe (SEE – Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Montenegro, Macedonia, Serbia and Kosovo)
  • Russia (RU)
  • Administration (the Austrian holding companies)
• Reinsurance – includes UNIQA Re AG (Zurich, Switzerland), UNIQA Versicherung AG (Vaduz, Liechtenstein) and the reinsurance business of UNIQA Insurance Group AG.
• Group functions – includes the remaining items for UNIQA Insurance Group AG (investment income and administrative costs) as well as all other remaining Austrian and foreign service companies.