1. Investment property

Land and buildings, including buildings on third-party land, which are held as long-term investments to earn rentals or for capital appreciation or both and which do not constitute underlying items in life and health insurance are generally measured using the cost model. These investment properties are amortised on a straight-line basis over a useful life of 15 to 80 years and are recognised under the item “Net investment income”.

The exercise of the measurement option in accordance with IAS 40.32A results in a transition from investment property recognised at amortised cost to a fair value measurement. This only concerns those properties that are the underlying items in life and health insurance with participation features.

The fair value is determined using reports prepared by independent experts. These expert reports are prepared based on the income approach. It requires making assumptions about the future, principally concerning the discount rate, the exit yield, the expected utilisation (vacancy rate), the development of future rental charges and the condition of the land and buildings. Property value, location, usable area and usage category for the property are also taken into account.

For this reason, all measurements of the fair value for the land and buildings come under Level 3 of the hierarchy in accordance with IFRS 13. The valuation techniques respond to the underlying assumptions and parameters.

For instance, any reduction in the discount rate applied would result in an increase in the values ascertained for the land and buildings if the other assumptions and parameters remained unchanged.

Conversely, any reduction in the expected utilisation or the expected rental charges would, for instance, result in a decrease in the values ascertained for the land and buildings if the other assumptions and parameters remained unchanged. The measurement-related assumptions and parameters are ascertained at each reporting date based on the best estimate by management with due consideration of the prevailing market conditions.

For land and buildings used by third parties that are recognised at fair value, the following sensitivities result from the calculations in the partial internal model that have been coordinated with Solvency II: