Goodwill is valued at cost less accumulated impairment losses. The impairment of goodwill is recognised in profit/(loss) for the period under the item “Amortisation of goodwill and impairment losses”.
Ascertainment and allocation of goodwill
Goodwill arises from company mergers and acquisitions. It represents the difference between the acquisition costs and the proportional and current corresponding net fair value of identifiable assets, debts and specific contingent liabilities. Goodwill is not subject to amortisation, but reported at the acquisition cost less any accrued impairments.
For the purpose of the impairment test, UNIQA has allocated the goodwill to cash-generating units (CGUs). CGUs are the smallest identifiable groups of assets that generate cash flows that are to the greatest possible extent independent from the cash generating units of other assets or other groups of assets. The impairment test involves a comparison between the amount that can be generated by selling or using each CGU, the present value of future cash flows with its value to be covered, consisting of goodwill, the proportional net assets and any capital increases and internal loans. If the resulting value exceeds the realisable value of the unit based on the discounted cash flow method, an impairment loss is recognised.
The impairment test was carried out in the fourth quarter of 2017. UNIQA has allocated goodwill to the CGUs listed below, which coincide with the countries in which UNIQA operates.
An exception to this was the SIGAL Group, in which the three countries of Albania, Kosovo and Macedonia were combined as one CGU, due to their similar development and organisational connection:
- UNIQA Austria
- UNIQA Re
- Albania/Kosovo/Macedonia as subgroup of the “SIGAL Group” (SEE)
- Bosnia and Herzegovina (SEE)
- Bulgaria (SEE)
- Croatia (SEE)
- Liechtenstein (WE)
- Poland (CE)
- Romania (EE)
- Russia (RU)
- Switzerland (WE)
- Serbia (SEE)
- Montenegro (SEE)
- Slovakia (CE)
- Czech Republic (CE)
- Ukraine (EE)
- Hungary (CE)
Goodwill by CGU
In € thousand |
31/12/2017 |
31/12/2016 |
Albania/Kosovo/Macedonia as subgroup of the “SIGAL Group” |
21,307 |
20,995 |
Bulgaria |
55,812 |
55,812 |
Poland |
28,461 |
26,955 |
Romania |
101,092 |
103,753 |
Serbia |
19,918 |
19,072 |
Czech Republic |
8,305 |
7,849 |
Hungary |
17,232 |
17,260 |
UNIQA Austria |
37,737 |
37,737 |
Other |
5,720 |
5,937 |
Total |
295,584 |
295,369 |
Determining the capitalisation rate
The assumptions with regard to risk-free interest rate, market risk premium and segment betas made for determining the capitalisation rate are consistent with the parameters used in the UNIQA planning and controlling process and are based on the capital asset pricing model.
In order to depict the economic situation of income values as accurately as possible, considering the volatility on the markets, the capitalisation rate was calculated as follows: A uniform, risk-free interest rate according to the Svensson method (German treasury bonds with 30-year maturities) was used as a base interest rate.
The beta factor was determined on the basis of the monthly betas over the last five years for a defined peer group. The betas for the non-life, life and health segments were determined using the revenues in the relevant segments of the individual peer group companies. The health insurance segment, which is strongly focused on the Austrian market, is operated in a manner similar to life insurance. A uniform beta factor for personal insurance is therefore used in relation to the health and life insurance lines.
The market risk premium was determined on the basis of current standards. An additional country risk premium was defined in accordance with Professor Damodaran’s models (NYU Stern). The country risk premium in accordance with the Damodaran method is calculated as follows: starting from the rating of the country concerned (Moody’s), the spread from credit default swap spreads in a rating class to “risk-free” US government bonds is determined, and adjusted by the amount of the volatility difference between equity and bond markets.
The calculation also factored in the inflation differential for countries outside the eurozone. In general, the inflation differential represents inflation trends in different countries and is used as a key indicator in assessing competitiveness. In order to calculate the inflation differential, the deviation of the inflation forecast for the country of the CGU in question in relation to the inflation forecast for a risk-free environment (Germany, in this case) was used. This is adjusted annually in the detailed planning by the expected inflation, and is subsequently applied for perpetuity with the value of the last year of the detailed planning phase.
Impairment test for goodwill – ascertainment of the recoverable amount
UNIQA calculates the recoverable amount of the CGUs with goodwill allocated on the basis of value in use by applying generally accepted valuation principles by means of the discounted cash-flow method (DCF). The budget projections (detailed planning phase) of the CGUs, the estimate of the long-term net profits achievable by the CGUs and long-term growth rates (perpetuity) are used as the starting point for determination of the capitalised value.
The capitalised value is determined by discounting the future profits with a suitable capitalisation rate after assumed retention to strengthen the capital base. In the process, the capitalised values are separated by segment, which are then totalled to yield the value for the entire Company.
Cash flow forecast (multi-phase model)
Phase 1: five-year company planning
The detailed company planning generally encompasses a period of five years. The company plans used for the calculation are the result of a structured and standardised management dialogue, in combination with the reporting and documentation process integrated into this dialogue. The plans are formally approved by the Group Management Board and also include material assumptions regarding the combined ratio, capital earnings, market shares and the like.
Phase 2: perpetuity growth rate
The last year of the detailed planning phase is used as the basis for determining cash flows in phase 2. The growth in the start-up phase leading up to phase two was determined using a projection of the growth in insurance markets. This start-up phase denotes a period that is required for the insurance market to achieve a penetration rate equal to the Austrian level. It was assumed that the insurance markets would come into line with the Austrian level in terms of density and penetration in 40 to 60 years.
Capitalisation rate 2017
In per cent |
Discount factor |
Discount factor perpetuity |
Growth rate (perpetuity) |
Property/casualty |
Life & health |
Property/casualty |
Life & health |
Property/casualty Life & health |
Bosnia and Herzegovina |
14.1 |
14.7 |
15.6 |
16.2 |
6.4 |
Bulgaria |
8.4 |
8.9 |
10.2 |
10.7 |
5.8 |
Croatia |
9.9 |
10.4 |
11.4 |
11.9 |
5.4 |
Liechtenstein |
7.0 |
7.5 |
6.8 |
7.3 |
1.0 |
Montenegro |
12.5 |
13.0 |
13.2 |
13.7 |
6.0 |
Austria |
8.2 |
8.8 |
8.2 |
8.8 |
1.0 |
Poland |
7.8 |
8.3 |
9.3 |
9.8 |
5.0 |
Romania |
8.5 |
9.1 |
10.9 |
11.5 |
5.8 |
Russia |
17.5 |
18.0 |
12.8 |
13.3 |
6.8 |
Switzerland |
7.0 |
7.5 |
6.8 |
7.3 |
1.0 |
Serbia |
12.8 |
13.4 |
14.1 |
14.7 |
6.3 |
Albania/Kosovo/Macedonia as subgroup of the “SIGAL Group” |
11.5 – 14.1 |
12.1 – 14.6 |
12.1 – 14.2 |
12.7 – 14.7 |
6.3 – 6.9 |
Slovakia |
8.8 |
9.3 |
8.8 |
9.3 |
4.6 |
Czech Republic |
8.9 |
9.5 |
8.6 |
9.2 |
4.4 |
Ukraine |
34.3 |
34.9 |
22.8 |
23.4 |
7.6 |
Hungary |
10.4 |
11.0 |
11.4 |
12.0 |
5.3 |
Capitalisation rate 2016
In per cent |
Discount factor |
Discount factor perpetuity |
Growth rate (perpetuity) |
Property/casualty |
Life & health |
Property/casualty |
Life & health |
Property/casualty Life & health |
Bosnia and Herzegovina |
15.6 |
16.1 |
12.8 |
13.2 |
6.3 |
Bulgaria |
8.1 |
8.5 |
9.1 |
9.5 |
5.8 |
Croatia |
12.1 |
12.6 |
10.3 |
10.7 |
5.3 |
Liechtenstein |
5.7 |
6.2 |
6.1 |
6.6 |
1.0 |
Montenegro |
11.2 |
11.6 |
10.3 |
10.7 |
6.0 |
Austria |
7.7 |
8.2 |
7.7 |
8.2 |
1.0 |
Poland |
6.8 |
7.3 |
8.7 |
9.2 |
4.9 |
Romania |
8.4 |
8.8 |
10.1 |
10.6 |
5.8 |
Russia |
17.5 |
18.0 |
11.6 |
12.1 |
6.6 |
Switzerland |
5.7 |
6.2 |
6.1 |
6.6 |
1.0 |
Serbia |
14.9 |
15.3 |
13.0 |
13.5 |
6.3 |
Albania/Kosovo/Macedonia as subgroup of the “SIGAL Group” |
11.4 – 14.4 |
11.8 – 14.8 |
10.4 – 12.0 |
10.8 – 12.5 |
6.2 – 6.7 |
Slovakia |
8.4 |
8.9 |
8.2 |
8.7 |
4.6 |
Czech Republic |
7.7 |
8.2 |
8.1 |
8.5 |
4.4 |
Ukraine |
36.0 |
36.5 |
20.3 |
20.8 |
7.2 |
Hungary |
10.5 |
11.0 |
10.6 |
11.1 |
5.3 |
Uncertainty and sensitivity
Various studies and statistical analyses were used as sources to provide a basis for determining the growth rates in order to consistently and realistically reflect the market situation and macroeconomic development.
The reference sources included the following studies and materials:
- Internal research
- Damodaran – country risks, growth rate estimations, multiples
Sensitivity analyses of financial instruments
In order to substantiate the results of the calculation and estimation of the value in use, random sensitivity analyses with regard to the capitalisation rate and the main value drivers are performed.
These analyses show that sustained surpluses on the part of the individual CGUs are highly dependent on the actual development of these assumptions within the individual national or regional economies (GDP, insurance density, purchasing power parities), particularly in the CEE markets, as well as the associated implementation of the individual profit goals. These forecasts and the related assessment of how the situation in the markets will develop in the future, under the influence of the continuing financial crisis in individual markets, are the largest uncertainties in connection with measurement results.
In the event that the recovery from the economic crisis turns out to be much weaker and slower than assumed in the business plans and fundamental forecasts, and the insurance market trends differ entirely from the assumptions made in those business plans and forecasts, the individual goodwill amounts may incur impairment losses. Despite slower economic growth, income expectations have not changed significantly compared to previous years.
A sensitivity analysis shows that if there is a rise in interest rates of 50 basis points for Bosnia and Herzegovina, there could be a convergence between the value in use and the carrying amount or a value in use that is lower than the carrying amount. In the event of a higher rise in interest rates of 100 basis points or a change to the underlying cash flows by –5.0 or –10 per cent, there will also only be a risk of a convergence or a value in use that is lower than the carrying amount in Bosnia and Herzegovina.
The following table shows the recoverable amounts at the time of the impairment test for all CGUs with the necessary goodwill.
Cash generating unit
In € thousand |
Recoverable amount |
Recoverable amount exceeds carrying amount |
Impairment for the period |
Bulgaria |
110,436 |
35,172 |
0 |
Poland |
307,889 |
185,662 |
0 |
Romania |
195,268 |
36,063 |
0 |
UNIQA Austria |
2,938,457 |
973,670 |
0 |
Backtesting
Backtesting is regularly carried out on the planning for the individual countries. The objective is to obtain information for internal purposes on the extent to which the operating units plan their profits accurately and on the extent to which details useful with regard to subsequent development are highlighted. Backtesting is intended to help draw conclusions that can be applied to the latest round of planning, in order to enhance the planning accuracy of forthcoming financial plans.