3. Other investments and unit-linked and index-linked life insurance investments

UNIQA has applied the deferral approach for  9 since 1 January 2018. This enables UNIQA to postpone the date of first-time application of IFRS 9 until  17 comes into force.

Financial assets are recognised for the first time on the settlement date. They are derecognised when the contractual rights to cash flows from an asset expire or the rights to receive the cash flows in a transaction in which all major risks and opportunities connected with the ownership of the financial asset are transferred.

Financial assets at fair value through profit or loss

Financial assets are recognised at through profit or loss if the asset is either held for trading or is designated at fair value and recognised in profit and loss ( option). These include structured bonds, selected debt and equity instruments as well as derivatives and investment certificates whose original classification fell within this category.

The fair value option is applied to structured products that are not split between the underlying transaction and the derivative but are instead accounted for as a unit. Unrealised gains and losses are recognised in profit/(loss) for the period. The maximum default risk of these products is limited to the carrying amount. Furthermore, there are no relationships or credit derivatives for these financial assets. The adjustment in fair values of these securities was not due to adjustments in credit risk.

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 period. Financial assets from derivative financial instruments are recognised under other investments. Financial liabilities from derivative financial instruments are recognised under financial liabilities.

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. Corresponding value changes, with the exception of impairment and foreign exchange differences in the case of available-for-sale debt securities, are recognised in other comprehensive income. When an asset is derecognised, the accumulated other comprehensive income is reclassified to profit/(loss) for the period.

Impairment of is recognised in profit/(loss) for the period by reclassifying the losses accumulated in equity. The accumulated loss that is reclassified from equity to profit/(loss) for the period is the difference between the , of any redemptions, amortisations and less any impairment loss previously recognised in profit or loss – and current fair value. 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/loss for the period. Reversals of impairment losses of equity instruments held at fair value cannot be recognised in profit/(loss) for the period.

Loans and receivables

When first recognised, loans and receivables are measured at their fair value plus directly attributable transaction costs. Subsequently, they are measured at using the effective interest method.

For debt instruments and assets in the category “Loans and receivables”, this test is executed within the framework of an internal impairment process. If there are objective indications 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.

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 period. 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 profit/(loss) for the period. In the event of a definitive non-performance, the asset is derecognised.

Other investments are broken down into the following classes and categories of financial instruments:

Other investments
At 31 December 2021

In € thousand

Variable-income securities

Fixed-income securities

Loans and other investments

Derivative financial instruments

Investments under investment contracts

Total

Financial assets at fair value through profit or loss

52,352

182,475

0

2,792

56,260

293,880

Available-for-sale financial assets

1,331,890

17,836,075

0

0

0

19,167,965

Loans and receivables

0

62,691

362,187

0

0

424,879

Total

1,384,242

18,081,241

362,187

2,792

56,260

19,886,724

of which fair value option

52,352

182,475

0

0

0

234,827

Other investments
At 31 December 2020

In € thousand

Variable-income securities

Fixed-income securities

Loans and other investments

Derivative financial instruments

Investments under investment contracts

Total

Financial assets at fair value through profit or loss

6,442

162,844

0

17,823

53,920

241,029

Available-for-sale financial assets

978,834

18,700,091

0

0

0

19,678,925

Loans and receivables

0

88,269

413,883

0

0

502,152

Total

985,276

18,951,204

413,883

17,823

53,920

20,422,107

of which fair value option

6,442

162,844

0

0

0

169,286

Carrying amounts of other investments, with the exception of reclassified bonds, represent fair values. Reclassified bonds are subsumed in the item “Fixed-income securities” under “Loans and receivables”, the fair value of which amounts to €72,964 thousand at 31 December 2021 (31 December 2020: €101,797 thousand).

Unit-linked and index-linked life insurance investments are broken down into the following classes and categories of financial instruments:

Unit-linked and index-linked life insurance investments
At 31 December 2021

In € thousand

Variable-income securities

Fixed-income securities

Loans and other investments

Derivative financial instruments

Total

Financial assets at fair value through profit or loss

2,532,889

2,515,441

86,368

19,355

5,154,053

Total

2,532,889

2,515,441

86,368

19,355

5,154,053

Unit-linked and index-linked life insurance investments
At 31 December 2020

In € thousand

Variable-income securities

Fixed-income securities

Loans and other investments

Derivative financial instruments

Total

Financial assets at fair value through profit or loss

2,076,362

3,024,384

117,378

0

5,218,124

Total

2,076,362

3,024,384

117,378

0

5,218,124

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 respective Member of the Management Board.

A review of the major unobservable inputs and the measurement adjustments is carried out regularly. If information from third parties (e.g. price quotations from brokers or price information services) is used to determine fair values, the evidence obtained from third parties is examined in order to see whether such measurements meet the requirements of IFRSs. The level in the fair value hierarchy to which these measurements are attributable is also tested. 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 inputs 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: measurement parameters that are not quoted prices included in Level 1 but which can be observed for the asset or liability either directly (i.e. as a price) or indirectly (i.e. derived from prices), or are based on prices from markets that have been classified as inactive. The parameters that can be observed here include, for example, 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: measurement parameters for assets or liabilities that are not based or are only partly based on observable market data. The measurement here primarily involves application of the discounted cash flow method, comparative 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 measurement. At UNIQA, it is primarily other equity investments, private equity funds and structured products that do not fulfil the conditions under Level 2 that are assigned to Level 3.

If the inputs 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 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.

The measurement processes and methods are as follows:

Financial instruments measured at fair value

For the measurement of capital investments, techniques best suited for the establishment of corresponding value are applied. The following standard measurement techniques are applied for financial instruments which come under Levels 2 and 3:

  • Market approach
    The measurement method in the market approach is based on prices or other applicable information from market transactions which involve identical or comparable assets and liabilities.
  • Income approach
    The income approach corresponds to the method whereby the future (expected) payment flows or earnings are inferred on a current amount.
  • Cost approach
    The cost approach generally corresponds to the value which would have to be applied in order to procure the asset once again.

Measurement techniques and inputs in the determination of fair values

Assets

Price method

Input factors

Price model

Fixed-income securities

 

 

 

Listed bonds

Listed price

-

-

Unlisted bonds

Theoretical price

CDS spread, yield curves

Discounted cash flow

Unquoted asset-backed securities

Theoretical price

-

Discounted cash flow, single deal review, peer

Infrastructure financing

Theoretical price

-

Discounted cash flow

Variable-income securities

 

 

 

Listed shares/investment funds

Listed price

-

-

Private equities

Theoretical price

Certified net asset values

Net asset value method

Hedge funds

Theoretical price

Certified net asset values

Net asset value method

Other shares

Theoretical value

WACC, (long-term) revenue growth rate, (long-term) profit margins, control premium

Expert opinion

Derivative financial instruments

 

 

 

Equity basket certificate

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes Monte Carlo N-DIM

CMS floating rate note

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

LIBOR market model, Hull-White-Garman-Kohlhagen Monte Carlo

CMS spread certificate

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Contract specific model

FX (binary) option

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes-Garman-Kohlhagen Monte Carlo N-DIM

Option (inflation, OTC, OTC FX options)

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes Monte Carlo N-DIM, contract specific model, inflation market model NKIS

Structured bonds

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes-Garman-Kohlhagen Monte Carlo N-DIM, LMM

Swap, cross currency swap

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes-Garman-Kohlhagen Monte Carlo N-DIM, Black-76-model, LIBOR market model, contract specific model

Swaption, total return swaption

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black – basis point volatility, contract specific model

Investments under investment contracts

 

 

 

Listed shares/investment funds

Listed price

-

-

Unlisted investment funds

Theoretical price

Certified net asset values

Net asset value method

Valuation hierarchy of other investments

Assets and liabilities measured at fair value

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Available-for-sale financial assets

 

 

 

 

 

 

 

 

Variable-income securities

1,019,258

770,685

88

2,866

312,544

205,283

1,331,890

978,834

Fixed-income securities

13,172,587

14,048,895

3,131,198

3,535,446

1,532,290

1,115,750

17,836,075

18,700,091

Total

14,191,845

14,819,580

3,131,286

3,538,312

1,844,834

1,321,033

19,167,965

19,678,925

Financial assets at fair value through profit or loss

 

 

 

 

 

 

 

 

Variable-income securities

2,828

912

1,770

1,966

47,755

3,564

52,352

6,442

Fixed-income securities

148,953

115,158

12,552

28,239

20,970

19,447

182,475

162,844

Derivative financial instruments

122

65

2,540

9,336

131

8,422

2,792

17,823

Investments under investment contracts

47,816

45,534

3,602

3,543

4,843

4,843

56,260

53,920

Total

199,718

161,669

20,464

43,084

73,698

36,277

293,880

241,029

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Financial liabilities

 

 

 

 

 

 

 

 

Derivative financial instruments

1,830

0

7,964

1,908

12,050

0

21,843

1,908

Total

1,830

0

7,964

1,908

12,050

0

21,843

1,908

Fair values of assets and liabilities measured at amortised cost

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Investment property

0

0

0

0

2,757,558

2,521,161

2,757,558

2,521,161

Loans and receivables

 

 

 

 

 

 

 

 

Loans and other investments

0

0

271,797

278,384

90,390

135,499

362,187

413,883

Fixed-income securities

15,711

16,051

57,253

85,746

0

0

72,964

101,797

Total

15,711

16,051

329,051

364,130

90,390

135,499

435,151

515,680

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Financial liabilities

 

 

 

 

 

 

 

 

Liabilities from bonds, loans and leases

0

0

0

0

701,474

691,657

701,474

691,657

Total

0

0

0

0

701,474

691,657

701,474

691,657

Subordinated liabilities

1,150,264

1,231,774

0

0

0

0

1,150,264

1,231,774

Transfers between Levels 1 and 2

In the reporting period transfers from Level 1 to Level 2 were made in the amount of €285,234 thousand (2020: €255,520 thousand) and from Level 2 to Level 1 in the amount of €359,168 thousand (2020: €493,055 thousand). These are attributable primarily to changes in trading frequency and trading activity.

Valuation hierarchy in unit-linked and index-linked life insurance investments

Assets and liabilities measured at fair value

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

31/12/2021

31/12/2020

Financial assets at fair value through profit or loss

3,315,599

2,908,360

1,072,624

1,116,739

765,831

1,193,026

5,154,053

5,218,124

Total

3,315,599

2,908,360

1,072,624

1,116,739

765,831

1,193,026

5,154,053

5,218,124

Level 3 financial instruments

The following table shows the changes to the fair values of financial instruments whose measurement techniques are not based on observable inputs.

In € thousand

Fixed-income securities

Other

Other investments Total

Unit-linked and index-linked life insurance investments

 

2021

2020

2021

2020

2021

2020

2021

2020

At 1 January

1,115,750

879,787

241,560

229,648

1,357,310

1,109,434

1,193,026

120,801

Transfers from Level 3 to Level 1

–1,659

0

0

0

–1,659

0

0

0

Transfers from Level 3 to Level 2

–10,379

–39,342

0

0

–10,379

–39,342

0

0

Transfers to Level 3

18,314

2,610

0

1

18,314

2,611

1,860

604,062

Gains and losses recognised in profit or loss

–31

–1,854

2,381

–24,777

2,350

–26,631

–11,769

6,710

Gains and losses recognised in other comprehensive income

16,378

14,275

3,275

1,874

19,653

16,149

0

0

Additions

788,684

258,597

238,737

108,603

1,027,421

367,201

117,992

695

Disposals

–395,158

–11,267

–111,595

–88,333

–506,753

–99,600

–531,762

–10,784

Changes from currency translation

391

–189

–166

–550

226

–739

–3,516

0

Change in basis of consolidation

0

13,133

0

15,094

0

28,227

0

471,541

At 31 December

1,532,290

1,115,750

374,193

241,560

1,906,483

1,357,310

765,831

1,193,026

Sensitivities

Fixed-income securities

The main unobservable input in the measurement of fixed-income securities is the specific credit spread. In order to be able to measure these securities in a discounted cash flow model, the spreads are derived from a selection of reference securities with comparable characteristics. For the fixed-income securities in Level 3, an increase in the discount rate by 100 basis points results in a 7.7 per cent reduction in value (2020: 7.0 per cent). A reduction in the discount rate by 100 basis points results in an 8.4 per cent increase in value (2020: 8.3 per cent).

Other

Other securities under Level 3 mainly comprise private equity funds and other equity investments. Private equity funds are measured based on the net asset values which are determined by the fund manager using specific unobservable inputs for all underlying portfolio positions. This is done in accordance with the International Private Equity and Venture Capital Valuation (IPEV) Guideline. For other equity investments under Level 3, invested capital is considered to be an appropriate measure of fair value. In these cases, a sensitivity analysis is not applicable.

Carrying amounts for loans and other investments

In € thousand

31/12/2021

31/12/2020

Loans

 

 

Mortgage loans

6,219

7,925

Loans and advance payments on policies

11,173

12,343

Other loans

66,652

110,000

Total

84,044

130,269

Other investments

 

 

Bank deposits

271,797

278,384

Deposits retained on assumed reinsurance

6,346

5,230

Total

278,143

283,614

Total sum

362,187

413,883

The carrying amounts of the loans and other investments mainly correspond to their fair values. The measurement is based on collateral and the creditworthiness of the debtor; for deposits with banks, it is based on quoted prices.

Impairment of loans

In € thousand

31/12/2021

31/12/2020

At 1 January

–2,602

–2,713

Use

141

83

Reversal

780

16

Currency translation

–4

13

At 31 December

–1,685

–2,602

Contractual maturities for fair values of loans

In € thousand

31/12/2021

31/12/2020

Up to 1 year

14,957

7,141

More than 1 year and up to 5 years

13,763

22,759

More than 5 years up to 10 years

51,309

95,368

More than 10 years

4,015

5,001

Total

84,044

130,269

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).
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).
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.
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.
Hedging
Hedging against unwanted changes in exchange rates or prices using an appropriate offsetting item, particularly derivative financial instruments.
Available-for-sale financial assets
The available-for-sale financial assets include financial assets that are neither due to be held to maturity, nor have been acquired for short-term trading purposes. Available-for-sale financial assets are measured at fair value. Fluctuations in value are recognised in other comprehensive income in the consolidated statement of comprehensive income.
Available-for-sale financial assets
The available-for-sale financial assets include financial assets that are neither due to be held to maturity, nor have been acquired for short-term trading purposes. Available-for-sale financial assets are measured at fair value. Fluctuations in value are recognised in other comprehensive income in the consolidated statement of comprehensive income.
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.
Net
The part of risk which is assumed but that the insurer/reinsurer does not cede as reinsurance.
Amortised cost
Amortised costs are costs of acquisition less permanent impairment (e.g. ongoing depreciation and amortisation).