Risk report

44. Risk profile

UNIQA’s risk profile is very heavily influenced by life insurance and health insurance portfolios in UNIQA Österreich Versicherungen AG. This situation means that market risk plays a central role in UNIQA’s risk profile.

The Group companies in Central Europe operate in the property and casualty segment as well as in the life and health insurance segment. The insurance business predominantly relates to the property and casualty sectors in the CEE region.

This structure is important to UNIQA, because it creates a high level of diversification from the life and health insurance lines dominated by the Austrian companies.

The distinctive risk features of the regions are also reflected in the risk profiles determined by using the internal measurement approach.

Market and credit risk

The characteristics of the market and credit risks depend on the structure of the capital investment and allocation of this into the different categories of investment. The table below shows investments classified by asset category.

Asset allocation

In € thousand

31/12/2019

31/12/2018

Fixed-income securities

16,473,243

15,461,745

Real estate assets

1,137,444

1,104,146

Pension fund

834,227

721,760

Equity investments and other stocks

794,450

734,817

Shares and equity funds

765,038

729,683

Time deposits

384,762

395,016

Other investments

235,631

189,899

Total

20,624,797

19,337,067

However, the market and credit risks not only have an impact on the value of investments, but also influence the level of technical liabilities. Thus, there is – particularly in life insurance – a dependence between the (price) growth of assets and liabilities from insurance contracts. UNIQA manages the income expectations and risks of assets and liabilities arising from insurance contracts as part of the (ALM) process. The objective is to ensure sufficient liquidity while retaining the greatest possible security and balanced risk in order to achieve a return on capital that is sustainably higher than the guaranteed performance of the technical liabilities. To do this, assets and liabilities are allocated to different accounting groups.

The following two tables show the main accounting groups generated by the various product categories.

Assets

In € thousand

31/12/2019

31/12/2018

Long-term life insurance contracts with guaranteed interest and profit participation

12,251,003

12,612,019

Long-term unit-linked and index-linked life insurance contracts

4,680,403

4,751,183

Long-term health insurance contracts

4,068,651

3,591,681

Short-term property and casualty insurance contracts

5,073,948

4,813,330

Total

26,074,005

25,768,212

These values refer to the following items:

  • Land and buildings for own use
  • Investment property
  • Financial assets accounted for using the
  • Other investments
  • Unit-linked and index-linked life insurance investments
  • Cash and cash equivalents
Technical provisions and liabilities (net)

In € thousand

31/12/2019

31/12/2018

Long-term life insurance contracts with guaranteed interest and profit participation

11,143,552

10,890,862

Long-term unit-linked and index-linked life insurance contracts

4,646,152

4,721,904

Long-term health insurance contracts

3,359,589

3,191,419

Short-term property and casualty insurance contracts

3,061,309

2,970,578

Total

22,210,602

21,774,763

These values refer to the following items:

  • Technical provisions
  • Technical provisions for unit-linked and index-linked life insurance
  • liabilities (only securities account liabilities from reinsurance ceded)
  • Reinsurers’ share of technical provisions
  • Reinsurers’ share of technical provisions for unit-linked and index-linked life insurance

The market and credit risk is broken down into interest rate, credit spread, equity, currency and market concentration risk.

The interest rate risk arises on all asset and liability items of the statement of financial position whose value fluctuates as a result of changes in risk-free yield curves or associated volatility. Given the high proportion of interest-bearing securities in the investment, interest rate risk forms an important part of market risk. The interest rate risk is actively managed as part of the ALM-based investment strategy.

The following table shows the maturity structure of fixed-income securities.

Exposure by term

In € thousand

31/12/2019

31/12/2018

Up to 1 year

673,476

770,848

More than 1 year up to 3 years

1,888,393

1,892,686

More than 3 years up to 5 years

2,468,311

2,557,814

More than 5 years up to 7 years

2,323,011

2,443,177

More than 7 years up to 10 years

3,067,014

2,800,238

More than 10 years up to 15 years

2,503,197

2,141,868

More than 15 years

3,549,841

2,855,114

Total

16,473,243

15,461,745

In comparison with this, the next table shows the before in health and life insurance and the gross in non-life insurance, broken down into annual brackets. In health and life insurance the breakdown takes place using expected cash flows from the ALM process.

IFRS reserve by expected maturity date

In € thousand

31/12/2019

31/12/2018

Up to 1 year

1,133,007

1,138,678

More than 1 year up to 3 years

1,085,507

1,359,578

More than 3 years up to 5 years

994,309

1,007,618

More than 5 years up to 7 years

1,127,128

1,074,549

More than 7 years up to 10 years

1,490,459

1,578,545

More than 10 years up to 15 years

2,433,869

2,455,407

More than 15 years

7,226,506

6,896,491

Total

15,490,785

15,510,867

Since the interest rate risk is particularly relevant in life insurance as a result of the long-term liabilities, the focus below is placed on this segment. Using UNIQA Österreich Versicherungen AG as an example, the average interest rate sensitivity of life insurance in the event of a change in interest rates of +/–50 basis points for the assets is €453.0 million, and that of liabilities €563.0 million. The difference between these two values is used as the control basis for the interest rate risk or the gap. During the annual ALM process, it is determined from a strategic point of view which budgets for interest rate risk can be accepted at the operating company level.

The discount rate that may be used in the costing when new business is written in most UNIQA companies takes into account a maximum discount rate imposed by the relevant local supervisory authority. In all those countries in which the maximum permissible discount rate is not imposed in this way, appropriate prudent, market-based assumptions are made by the actuaries responsible for the calculation. In our core market of Austria, the maximum interest rate beginning 1 January 2017 is 0.5 per cent per year. However, the portfolio also includes older contracts with different discount rates. In the relevant markets of the UNIQA Group, these rates amount to as much as 4.0 per cent per year. The following table provides an overview of the average discount rates by region and currency.

Average technical discount rates, core business by region and currency

In per cent

EUR

USD

Local currency

Austria (AT)

2.3

 

 

Central Europe (CE)

3.5

 

3.0

Eastern Europe (EE)

3.5

3.6

3.3

Southeastern Europe (SEE)

2.2

1.9

0.8

Russia (RU)

2.7

2.7

4.0

As these discount rates are guaranteed by the insurance company, the financial risk lies in not being able to generate these returns. Since classic life insurance business predominantly invests in interest-bearing securities, the unpredictability of long-term interest rate trends is the most significant financial risk for a life insurance company. Investment and reinvestment risk arises from the fact that received in the future must be invested to achieve the rate of return guaranteed when a policy is written. However, it is entirely possible that no appropriate securities will be available at the time the premium is received. In the same way, future income must be reinvested to achieve a return equivalent to at least the original discount rate. For this reason, UNIQA has already decided to offer products to its key markets that are only based on a low or zero discount rate. One example of this in Austria is the sale of deferred pension products with a discount rate of 0.0 per cent.

The credit spread risk refers to the risk of changes in the price of asset or liability items in the financial statement, as a consequence of changes in credit risk premiums or associated volatility, and is ascertained for individual securities in accordance with their rating and duration. When investing in securities, UNIQA chooses securities with a wide variety of ratings, taking into consideration the potential risks and returns.

The following table shows the credit quality of those fixed-income securities that are neither overdue nor written down, based on their ratings.

Exposure by rating

In € thousand

31/12/2019

31/12/2018

AAA

3,770,117

3,854,062

AA

4,063,442

3,988,504

A

4,135,223

3,640,541

BBB

3,191,344

2,524,826

BB

421,238

712,052

B

271,218

240,932

≤ CCC

2,837

6,090

Not rated

617,825

494,739

Total

16,473,243

15,461,745

Equity risk arises from movements in the value of equities and similar investments as a result of fluctuations in international stock markets, and therefore, stems in particular from the asset categories “Equity investments and other stocks” and “Equities”. The effective equity weighting is controlled by with the selective use of derivative financial instruments.

Foreign currency risk is caused by fluctuations in exchange rates and associated volatility. Given the international nature of the insurance business, UNIQA invests in securities denominated in different currencies, thus following the principle of ensuring matching liabilities with assets in the same currency to cover liabilities at the coverage fund or company level. Despite the selective use of derivative financial instruments for hedging purposes, it is not always possible on cost grounds or from an investment point of view to achieve complete and targeted currency matching between the assets and liabilities. The following tables show a breakdown of assets and liabilities by currency.

Currency risk

In € thousand

31/12/2019

Assets

Provisions and liabilities

EUR

24,914,175

22,255,561

USD

315,363

92,359

CZK

651,244

530,656

HUF

492,803

576,893

PLN

993,648

804,969

RON

379,563

203,371

Other

981,612

844,177

Total

28,728,409

25,307,986

Currency risk

In € thousand

31/12/2018

Assets

Provisions and liabilities

EUR

24,776,455

22,526,995

USD

437,881

128,123

CZK

598,874

475,748

HUF

494,772

568,962

PLN

948,421

789,665

RON

289,381

213,284

Other

958,016

814,473

Total

28,503,801

25,517,251

UNIQA strives to keep the market concentration risk as low as possible. Throughout the investment period, the company continuously checks whether the investment volumes in securities of individual issuers exceed certain limits in relation to the total investment volume, defined according to the respective credit rating. If this is the case, a risk premium will be added to the portfolio items that are in excess of the limit.

and sensitivity analyses are used in particular to measure and manage market and credit risk, in addition to figures from the established market and credit risk models (MCEV, , etc.).

The following tables show the most important market risks in the form of key sensitivity figures, along with their impact on equity and profit/(loss) for the period. Depending on the measurement principle to be applied, any future losses from the measurement at may result in different fluctuations in profit/(loss) for the period or in other comprehensive income. The key figures are calculated theoretically on the basis of actuarial principles and do not take into consideration any diversification effects between the individual market risks or countermeasures taken in the various market scenarios.

Sensitivities for other investments are determined by simulating each scenario for each individual item, keeping all other parameters constant in each case. Market value changes that have no effect on the balance sheet include reclassified bonds and loans in the case of interest rate and credit spread risk.

Interest rate risk

In € thousand

31/12/2019

31/12/2018

+100
basis points

–100
basis points

+100
basis points

–100
basis points

Government bonds

–854,656

1,033,307

–736,457

851,479

Corporate bonds (incl. covered)

–381,292

426,367

–316,143

375,514

Other

–46,957

58,958

–35,852

15,855

Total

–1,282,905

1,518,632

–1,088,451

1,242,848

Of which income statement

–951

2,292

1,781

–1,127

Of which equity

–1,281,954

1,516,340

–1,090,232

1,243,975

Credit spread risk

In € thousand

31/12/2019

31/12/2018

 

+100
basis points

 

+100
basis points

Income statement

 

–1,784

 

–2,743

Equity

 

–1,275,863

 

–1,111,082

Total

 

–1,277,647

 

–1,113,826

Equity risk

In € thousand

31/12/2019

31/12/2018

 

–30%

 

–30%

Income statement

 

–126,609

 

–305,289

Equity

 

–107,515

 

–69,897

Total

 

–234,124

 

–375,186

Currency risk

In € thousand

31/12/2019

31/12/2018

10%

–10%

10%

–10%

PLN

51,970

–51,970

48,526

–48,526

USD

24,921

–50,962

20,855

–20,855

CZK

40,396

–30,432

38,422

–38,422

RUB

26,206

–26,206

18,673

–18,673

HUF

17,283

–17,283

15,703

–15,703

Other

53,026

–57,559

56,569

–54,950

Total

213,802

–234,412

198,747

–197,128

Of which income statement

203,222

–223,833

186,416

–184,798

Of which equity

10,580

–10,580

12,330

–12,330

In life insurance, the interest rate assumptions are the crucial influencing factor on the liability adequacy test and deferred . The impact of the implied new funds assumption (including reinvestment) is therefore stated below.

If new funds are assumed with a +100 bp increase, then the resulting net effect (after accounting for the deferred ) amounts to €6.62 million. A –100 bp reduction in this assumption results in a net effect of €–7.21 million. The effects described relate to the changes in along with the impact on the liability adequacy test. The results were determined using the traditional business in Austria which makes up the majority of insurance provision in the Group.

In non-life insurance, the provision for unsettled insurance claims is formed based on reported claims and applying accepted statistical methods. One crucial assumption here is that the pattern of claims observed from the past can be sensibly extrapolated for the future. Additional adjustments need to be made in cases where this assumption is not possible.

The calculation of claim provisions is associated with uncertainty based on the time required to process claims. In addition to the normal chance risk, there are also other factors that may influence the future processing of the claims that have already occurred. In particular, the reserving process for court damages in property and casualty insurance should be mentioned here. A reserve estimate is prepared here for these damages based on expert assessment, although this estimate can be exposed to high levels of volatility specifically with major damage at the start of the process for collecting court costs.

The in property and casualty insurance is a suitable instrument for quantifying the volatility involved in processing. Pursuant to analysis of these model results, it was determined that a deviation of 5 per cent from the basic provision determined may represent a realistic scenario. Based on the current provision for unsettled claims of €2,608 million (excluding additional provisions such as provisions for claim settlement) in the Group on a gross basis, this would mean an increase in claims incurred by €128 million.

Health insurance similar to life technique is now also affected by the period of low interest rates. Since 1 January 2018 only tariffs with the 1.0 per cent discount rate are being sold. That fact, together with the tariffs sold in 2017 at the discount rate of 1.75 per cent, further reduces the average discount rate. A reduction in the capital earnings by 100 bp (based on investment results 2019) would reduce the earnings before taxes by €35.6 million.

Liquidity risk

Ongoing liquidity planning takes place in order to ensure that UNIQA is able to meet its payment obligations over the next twelve months.

Obligations with a term of more than twelve months are covered by investments with matching maturities as far as possible within the framework of the ALM process and the strategic guidelines. In addition, a majority of the securities portfolio is listed in liquid markets and can be sold quickly and without significant markdowns if cash is required.

There are underwriting obligations mainly in the form of funds from holdings in healthcare and investments in private debt, as well as in the infrastructure sector, amounting to €565,916 thousand (2018: €601,415 thousand).

Contractual maturities at 31 December 2019

In € thousand

Liabilities from collateral received for securities lending

Liabilities from loans

Derivative financial instruments

Lease liabilities

Total

2020

0

900

436

8,888

10,224

2021

0

11,104

233

7,757

19,094

2022

0

0

0

7,334

7,334

2023

0

0

0

5,801

5,801

2024

0

0

0

4,452

4,452

> 2025

0

0

1

33,514

33,515

Contractual maturities at 31 December 2018

In € thousand

Liabilities from collateral received for securities lending

Liabilities from loans

Derivative financial instruments

Lease liabilities

Total

2019

772,196

936

803

0

773,934

2020

0

900

2,459

0

3,359

2021

0

11,107

0

0

11,107

2022

0

0

0

0

0

2023

0

0

0

0

0

> 2024

0

0

10,084

0

10,084

Contractual maturities at 31 December 2019

In € thousand

Notional amount1)

Coupon payments

Total

1)

Contractual maturities based on the first possible termination date

2020

 

54,063

54,063

2021

 

54,063

54,063

2022

 

54,063

54,063

2023

350,000

54,063

404,063

2024

0

30,000

30,000

> 2025

500,000

60,000

560,000

Contractual maturities at 31 December 2018

In € thousand

Notional amount1)

Coupon payments

Total

1)

Contractual maturities based on the first possible termination date

2019

 

54,063

54,063

2020

 

54,063

54,063

2021

 

54,063

54,063

2022

 

54,063

54,063

2023

350,000

54,063

404,063

> 2024

500,000

90,000

590,000

Concentration risks

UNIQA strives to keep concentration risks as low as possible. These could arise, for example, from the transfer of insurance business to individual reinsurance companies to an inappropriate extent. This can have a material influence on UNIQA’s result in case of late payment (or non-payment) by an individual reinsurer. UNIQA controls such risks with an internal reinsurance company that is responsible for selecting external reinsurance parties, taking into account strict guidelines for avoiding material concentration risks.

Underwriting risks

The underwriting risks are divided into non-life, life and health insurance.

The underwriting risk in non-life is broken down into the three risk categories of premium, reserve and catastrophe risk.

Premium risk is defined as the risk that future benefits and expenses in connection with insurance operations will exceed the collected for the insurance concerned. Such a loss may also be caused in insurance operations by exceptionally significant, but rare loss events, known as major claims or shock losses. Natural disasters represent a further threat from events that are infrequent but that nevertheless cause substantial losses. This risk includes financial losses caused by natural hazards, such as floods, storms, hail or earthquakes. In contrast to major individual claims, insurance companies in this case refer to cumulative losses.

Reserve risk refers to the risk that technical provisions recognised for claims that have already occurred will turn out to be inadequate. The loss in this case is referred to as settlement loss. The claim reserve is calculated using actuarial methods. External factors, such as changes in the amount or frequency of claims, legal decisions, repair and/or handling costs, can lead to differences compared with the estimate.

To counter and actively manage these risks, UNIQA runs a number of processes integrated into its insurance operations. For example, Group policy specifies that new products may only be launched if they satisfy certain profitability criteria. Major claims and losses from natural disasters are appropriately managed by means of special risk management in the underwriting process (primarily in corporate activities) and by the provision of suitable reinsurance capacity.

In connection with claim reserves, guidelines also specify the procedures to be followed by local units when recognising such reserves in accordance with . A quarterly monitoring system and an internal validation process safeguard the quality of the reserves recognised in the whole of the Group.

An essential element in risk assessment and further risk management is the use of the non-life partial model. This risk model uses stochastic simulations to quantify the risk capital requirement for each risk class at both company and Group levels.

In life insurance, the underwriting risk is generally defined as the risk of loss or adverse developments affecting the value of insurance liabilities. It is divided into the following categories: mortality, longevity, disability-morbidity, lapse, expense, revision and catastrophe risk.

The mortality risk depends on possible fluctuations in mortality rates due to an increase in deaths which would have an adverse effect on the expected benefits to pay on risk insurance policies.

Longevity risk refers to the adverse effects of random fluctuations in mortality rates due to a decline in the mortality rate. The insurer is thereby exposed to the risk that the anticipated life expectancy in the calculation of the premium will be exceeded in reality and that the expenditure for pension payments will be higher than planned.

The disability-morbidity risk is caused by possible adverse fluctuations in disability, sickness and morbidity rates compared to what they were at the time the premium was calculated.

The lapse risk arises from the fluctuations in policy cancellation, termination, renewal, capital selection and surrender rates of insurance policies. Overall, it represents the uncertainty regarding customer behaviour.

The expense risk refers to adverse effects due to fluctuations in the administrative costs of insurance and reinsurance contracts.

The revision risk results from fluctuations in the revision rates for annuities due to changes in the legal environment.

The catastrophe risk results from significant uncertainty in relation to pricing and the assumptions made in the creation of provisions for extreme/exceptional events. The most relevant risk in this context is an immediate dramatic increase in mortality rates: in this case, death benefits in the risk portfolio could not be fully financed by the risk premium collected.

In the context of life insurance, the main techniques for risk mitigation are the adjustment of future profit participations or a corresponding premium adjustment as well as additional reinsurance policies, which are carried out in compliance with legal and contractual framework conditions. These measures are crucial for the underlying risk models and contain detailed information and regulations, particularly with regard to profit participation. In practice, profitable new business supports the risk-bearing capacity of the existing portfolio, whereby careful risk selection (e.g. health checks) and cautiously chosen calculation principles for premiums are essential cornerstones when designing products. By including premium adjustment clauses, the potential to reduce risk can be improved, especially in the risk and occupational disability portfolio.

The health insurance business is operated primarily in Austria. As a result, risk management in this line focuses mainly on Austria.

Health insurance is a loss insurance which is calculated under consideration of biometric risks and is operated in Austria according to the “similar to life technique”.

The risk categories of the underwriting risk in health insurance by type of life insurance are based on the subdivisions of life insurance already described above, with minor deviations.

Analogous to life insurance, the main techniques for risk mitigation are the adjustment of future profit participations or a corresponding premium adjustment which is carried out in compliance with legal and contractual framework conditions. These measures are crucial for the underlying risk models and contain detailed information and regulations, particularly with regard to . In practice, classic risk-mitigation techniques are also relevant here.  

For health insurance they include:

  • Prudent setting of the discount rate at a level that can be earned in the long term;
  • Risk selection, i.e. a targeted pre-selection of prospective customers for insurance products, for example through health checks;
  • Careful selection of the withdrawal probabilities (death and policy cancellation) in order to obtain sufficient premiums for the expected benefits;
  • The consideration of premium adjustment clauses in various health insurance products in order to be able to adjust premiums in line with changes in the calculation principles in case of changes in the expected values.

In addition to these classic risk mitigation techniques, an ongoing process for managing portfolios has been established. This process is carried out annually by determining and evaluating the need for rate adjustments. The effectiveness of the risk mitigation techniques described for the health business is assessed by comparing invoiced and actual benefits as well as by calculating contribution margin calculations.

Operational risk

Operational risk includes losses that are caused by insufficient or failed internal processes, as well as losses caused by systems, human resources or external events.

The operational risk includes legal risk, but not reputation or strategic risk. Legal risk is the risk of uncertainty due to lawsuits or uncertainty in the applicability or interpretation of contracts, laws or other legal requirements. At UNIQA, legal risks are monitored on an ongoing basis, and reports are made to the Group Management Board. UNIQA’s risk management process also defined the risk process for operational risks in terms of methodology, workflow and responsibilities. The risk manager is responsible for compliance throughout all Group companies.

A distinctive feature of operational risk is that it can surface in all processes and departments. This is why operational risk is identified and evaluated in every operational company at a very broad level within UNIQA. Risks are identified with the help of a standardised risk catalogue that is regularly checked for completeness.

According to international standards, UNIQA – as a financial service provider – forms part of the critical infrastructure of key importance to the national community. If this infrastructure were to fail or become impaired, it would cause considerable disruption to public safety and security or lead to other drastic consequences.

As a rule, emergencies, crises and disasters are unexpected events for which it is impossible to plan, although systems and processes can be put in place to deal with such events. The systems and processes must then be treated as a special responsibility of management and must be dealt with professionally, efficiently and as quickly as possible.

UNIQA has implemented a business continuity management system covering the issues of crisis prevention, crisis management and business recovery (including business continuity plans). The UNIQA BCM model is based on international rules and standards and is developed on a continuous basis.

Emerging risk

Emerging risk refers to newly arising or changing risks that are difficult to quantify and can have a significant impact on an organisation. Among the main drivers of the changing risk landscape are new economic, technological, socio-political and ecological developments and the increasing interdependencies between them, which may lead to a growing concentration of risk. In addition, a changing business environment – the further development of regulatory rules, the increased expectations of stakeholders and the shift in risk perception – must be taken into account.

Reputational risk

The reputational risk describes the risk of loss that arises due to possible damage to the company’s reputation, a deterioration in prestige, or a negative overall impression due to negative perception by customers, business partners, shareholders or supervisory agencies.

Reputational risks that occur in the course of core processes such as claim processing or advising and service quality are identified, evaluated and managed as operational risks in the Group companies.

Contagion risk

Group risk management analyses whether the reputation risk observed in the Group or in another unit may occur, and whether the danger of “contagion” within the Group is possible. The analyses performed prevent the risk of infection.

Strategic risk

The strategic risk refers to the risk that results from management decisions or insufficient implementation of management decisions that may influence current or future income or . This includes the risk that arises from management decisions that are inadequate because they ignore a changed business environment. Like operational and reputational risks, strategic risks are evaluated on an ongoing basis.

Sustainability risk

Sustainability risks are not currently classified as a separate risk category but are allocated among the existing categories. Up until now, UNIQA has identified potential sustainability risks with the following topics from the materiality analysis: clear evaluation of damage and rapid assistance, process for handling data and new technologies, customer information and financing, complaints management, avoidance of critical investment, employee satisfaction as well as ethics and compliance. UNIQA’s risk identification process is subject to continuous development and will also ascertain in the future whether an identified risk is relevant from a sustainability point of view. According to the definition used by UNIQA this is the case if a risk exists in relation to ecological and/or social aspects of the sustainability topics.

Asset liability management
Management concept whereby decisions related to company assets and the equity and liabilities are coordinated with each other. Strategies related to the assets and the equity and liabilities are formulated, implemented, monitored and revised with this in a continuous process in order to attain the financial objectives given the risk tolerances and restrictions specified.
Equity method
Investment in associates is accounted for using this method. The value assessed corresponds with the Group’s proportional equity in these companies. In the case of shares in companies that prepare their own consolidated financial statements, their Group equity is assessed accordingly in each case. Within the scope of ongoing valuations, this value must be updated to incorporate proportional changes in equity; it is used to impute the pro rata profit on ordinary activities to the Group results.
Reinsurance
An insurance company insures part of its risk via another insurance company.
Insurance provision
Provision in the amount of the existing obligation to pay insurance benefits and reimbursements, predominantly in life and health insurance. The provision is determined using actuarial methods as a balance of the present value of future obligations less the present value of future premiums.
Reinsurance
An insurance company insures part of its risk via another insurance company.
Provisions for unsettled claims
Also known as a claims reserve; takes into account obligations from claims that have already occurred as at the reporting date but which have not yet been settled in full.
Duration
Duration refers to the weighted average term of an interest-rate-sensitive investment or of a portfolio and is a measure of risk for the sensitivity of investments in the event of changes to interest rates.
Premiums
Total premiums written. All premiums from contracts written in the financial year from business acquired by the company directly and as inward reinsurance.
Hedging
Hedging against unwanted changes in exchange rates or prices using an appropriate offsetting item, particularly derivative financial instruments.
Stress test
Stress tests are a special form of scenario analysis. The objective is to provide a quantitative statement on the loss potential for portfolios in the event of extreme market fluctuations.
SCR
Solvency Capital Requirement. The eligible own funds that insurers or reinsurers must hold to enable them to absorb significant losses and give reasonable assurance to policyholders and beneficiaries that payments will be made as they fall due. It is calculated to ensure that all quantifiable risks (such as market risk, credit risk, life underwriting risk) are reliably taken into account. It covers both current operating activities and the new business expected in the subsequent twelve months.
Fair value
The fair value is the price that would be collected in an ordinary business transaction between market participants for the sale of an asset or that would be paid for transferring a liability.
Acquisition costs
The amount paid to acquire an asset in cash or cash equivalents or the fair value of another form of compensation at the time of acquisition.
Profit participation
Policyholders have a reasonable right under statutory and contractual regulations to the company’s surplus profits generated in life and health insurance. The level of this profit participation is determined again each year.
Deferred acquisition costs
These include the costs of the insurance company incurred in connection with the acquisition of new or the extension of existing contracts. Costs such as acquisition commissions as well as costs for processing applications and risk assessments are some of the items to be recorded here.
(Partial) internal model
Internally generated model developed by the insurance or reinsurance entity concerned and at the instruction of the FMA to calculate the solvency capital requirement or relevant risk modules (on a partial basis).
Premiums
Total premiums written. All premiums from contracts written in the financial year from business acquired by the company directly and as inward reinsurance.
IFRSs
International Financial Reporting Standards. Since 2002 the term IFRSs has applied to the overall concept of standards adopted by the International Accounting Standards Board. Standards already adopted beforehand continue to be referred to as International Accounting Standards (IASs).
Profit participation
Policyholders have a reasonable right under statutory and contractual regulations to the company’s surplus profits generated in life and health insurance. The level of this profit participation is determined again each year.
Solvency
An insurance company’s equity base.