38. Changes in major accounting policies as well as
new and amended standards

With the exception of the following changes, the outlined accounting policies were consistently applied to all periods presented in these consolidated financial statements.

Amendments and standards to be applied for the first time

The Group adopted the following adjustments to standards with the initial application date of 1 January 2021. None of the new regulations arising from this have any essential impact on UNIQA’s assets, liabilities, financial position and profit or loss.

New and amended standards to be applied in the future

The IASB has also published a range of new standards that will be applicable in the future. UNIQA does not intend to adopt these standards early.

The following standards to be applied in future are expected to have a significant impact on reporting at UNIQA:

IFRS 9 – Financial Instruments

Since UNIQA’s business is predominantly insurance-related and UNIQA has not yet adopted IFRS 9 in any other version, a deferral to adopt IFRS 9 for the first time is permitted until 1 January 2023. The use of UNIQA’s deferral approach requires the publication of additional information in the notes for the period up to the first-time application of IFRS 9.

Classification and measurement

The classification and measurement of financial assets under IFRS 9 results from the business model and the SPPI criterion (Solely Payments of Principal and Interest).

Based on current indications, a large part of UNIQA’s other investments is classified under the hold-and-sell business model. Investments without the intention to sell, such as time deposits and loans, are classified under the “hold” business model.

This means that UNIQA will in future measure fixed-interest securities that meet the SPPI criterion at fair value through other comprehensive income. Non-fixed-interest securities, in particular fund certificates, will in future be measured at fair value through profit or loss.

However, UNIQA plans to use the FVOCI option for selected equity instruments and consequently to measure these instruments at fair value through other comprehensive income.

All investments of unit-linked and index-linked life insurance investments will continue to be classified and measured at fair value through profit or loss, unchanged from the current accounting under IAS 39.

Impairment

In future, the calculation of expected credit losses according to the three-level model is to be carried out exclusively for financial assets measured at amortised cost or at fair value through other comprehensive income. Instruments with a low default risk (investment grade) are regularly allocated by UNIQA to Level 1 of the impairment model.

The fair value of the instruments which do not feature a low default risk (non-investment grade) amounts to €671 million.

UNIQA expects effects from the conversion to IFRS 9 both as a result of the new classification and measurement rules and due to the new impairment model. In this regard, possible initial application and subsequent measurement effects are to be expected in the category “Variable-income securities” in particular, as these financial assets will have to be measured at fair value through profit or loss in future. In a holistic view, interactions with IFRS 17 must also be taken into account in this context. In the 2022 financial year, a parallel phase for IFRS 9 will also take place in connection with IFRS 17 in order to be able to ensure the comparative figures required when adjusting the previous year’s figures.

IFRS 17 – Contracts

On 25 June 2020, the IASB (International Accounting Standards Board) published the final accounting standard for insurance contracts – IFRS 17. The date of initial application of IFRS 17 was set for 1 January 2023. For insurance companies, the date of initial application of IFRS 9 is linked to that of IFRS 17. IFRS 17 became EU law through the adoption of Regulation (EU) No. 2021/2036 of 19 November 2021 by the EU Commission. IFRS 17 establishes principles relating to recognition, measurement, presentation and disclosures of insurance contracts.

The general measurement model will be adopted for the long-term property and casualty insurance business as well as for life insurance contracts without profit participation. For short-term contracts – this is predominantly the case in the area of property and casualty insurance – UNIQA will adopt the premium allocation approach. The variable fee approach will be adopted for contracts in health insurance that involve profit participation and for contracts of unit-linked and index-linked life insurance. This classification is in line with the assumptions made so far for the initial application of IFRS 17.

For both the general measurement model and the variable fee approach, UNIQA assumes at the time of publication of the Group report that the so-called OCI option will be applied where the respective allocated financial instruments on the asset side are also measured through other comprehensive income.

The grouping for the valuation hierarchy and accounting of contracts according to IFRS 17 is as follows:

• Portfolios: insurance contracts that are exposed to a similar risk and are managed together are combined into a portfolio.
• Contract groups: portfolios are divided into contract groups.
• Annual cohorts: contract groups are subdivided according to underwriting years (“annual cohorts”). For contracts in health and life insurance that involve profit participation, UNIQA will adopt the option to exempt the mandatory subdivision by underwriting year.

In 2021, various IFRS 17 technical concepts were shared with the subsidiaries for local implementation and expanded to include their features and specific circumstances.

The integration and preparation of the data required for the measurement of and accounting for contracts represents a key challenge in implementing IFRS 17. It was possible to largely complete this work in the 2021 financial year. Comprehensive tests were carried out both with regard to the actuarial subledger and the new and adapted interfaces for supplying the systems with the data. In the 2022 financial year, UNIQA will continue to work on the quality of the systems and data in order to ensure compliance with the requirements of IFRS 17.

In the past financial year, the effects and interaction of IFRS 9 and IFRS 17 on the financial position and income statement of selected UNIQA companies were analysed. This analysis was based on several simplifications and assumptions. For example, in health and life insurance business lines, the future expected cash flows were based on the results of the market-consistent embedded value (MCEV). Furthermore, an approximate cost allocation according to IFRS 17 was applied in the analysis. A simplified approach was also used to derive the risk adjustment.

Despite simplifications and estimates, important lessons have been learned:

• The comparability of IFRS 4 and IFRS 17 is limited due to the fundamental differences between the two accounting standards.
• Despite certain similarities with the solvency regulations under Solvency II, the interpretation of profits according to IFRS 17 is challenging due to the significantly increased complexity. In addition, the parameters for measuring the success of the company will change and new indicators such as the contractual service margin or loss component will be established.
• For the measurement and accounting of contracts according to IFRS 17, much larger volumes of data need to be processed and validated compared to IFRS 4.

In the course of the impact analysis, all three measurement models (general measurement model, variable fee approach and premium allocation approach) were applied specifically to the portfolio of selected UNIQA companies. Due to the continued limited scope of this impact analysis, no precise conclusions can be drawn yet regarding the impact of IFRS 17 on the Group as a whole.