4. Net investment income

The currency gains reported in net investment income amount to € 5,064 thousand (2022: € 18,449 thousand).

Current income from fixed-income securities measured at fair value through other comprehensive income includes current interest income according to the effective interest

method in the amount of € 355,268 thousand (2022: € 302,297 thousand). In the category “Financial assets at amortised cost”, these amount to € 41,872 thousand (2022: € 4,828 thousand).

Impairment – significant estimates

Expected credit losses are calculated using the 3-stage model for debt instruments measured at amortised cost or at fair value through other comprehensive income. Financial instruments measured at fair value through profit or loss and equity instruments measured at fair value through other comprehensive income (“FVOCI option”) are not subject to the impairment model.

To determine the expected credit losses, UNIQA uses a credit deterioration model in which the amount of the risk provision to be recognised is based on the change in the default risk of a financial instrument following its addition. The risk provision is also recognised for expected losses and therefore represents a prospective impairment in the amount of the present value of the expected credit losses. The expected credit losses are determined as at the measurement date as the difference between the discounted contractual cash flows and the risk-weighted cash flows. The scenario-based risk weighting of the cash flows is carried out using the probability of default and the loss given default. The model that UNIQA uses to determine expected credit losses aims to come up with an undistorted, scenario-weighted amount. It does this by taking into account the time value of money as well as data on current economic conditions and their future forecasts that are available at the measurement date without unreasonable time and cost. The probabilities of default also include forward-looking information and take the macroeconomic development of the unemployment rate into account as well as the high-yield spreads.

The probability of default is the probability that debtors will be unable to meet their payment obligations, either within the next twelve months or over the entire remaining term. The loss given default corresponds to the expectation of how much the loss of a financial asset will be in the event of default.

UNIQA obtains most of the data used to calculate the probability of default and the loss given default from external data sources. The probability of default is determined at issuer level, and the loss given default is allocated on the basis of long-term averages of individual classes of financial instruments. In cases where specific input data is not completely available from external data sources (e.g. financial assets that are not externally rated), the risk parameters were allocated on the basis of benchmarks of comparable instruments and expert assessments.

The time value of money (which is needed to determine the expected credit losses) is the effective interest rate of the respective financial asset, determined at the time when the financial asset was acquired.

The expected credit loss of a financial instrument is determined based on the assigned impairment level on the measurement date either as the present value of the expected defaults over the next twelve months or as the present value of the expected defaults over the entire remaining term.

At each measurement date, all financial assets within the scope of the impairment model are assigned to an impairment level.

The expected credit loss of a financial instrument is determined based on the assigned impairment level on the measurement date.

For Level 1 financial instruments, an impairment is recognised in the amount of the 12-month expected credit loss (12-month ECL). The 12-month ECL represents a portion of the total expected credit losses (lifetime ECLs) that result from default events on a financial instrument that are possible within twelve months after the reporting period. Financial instruments for which no significant increase in the credit risk was determined on the measurement date as well as financial instruments first recognised on the measurement date are assigned to Level 1. Furthermore, instruments with a low default risk (investment grade) are regularly assigned to Level 1 of the impairment model. UNIQA makes use of the option of not analysing a significant increase in credit risk for instruments with a low default risk (investment grade – in UNIQA’s model up to the equivalent of a rating level of BBB-) on the measurement date.

For Level 2 financial instruments, an impairment is recognised in the amount of the present value of the expected credit losses over the entire remaining term. Financial instruments for which a significant increase in the credit risk was identified on the measurement date are assigned to Level 2.

For Level 3 financial instruments, an impairment is recognised in the amount of the present value of the expected credit losses over the entire maturity. Financial instruments viewed as having diminished creditworthiness on the measurement date are assigned to Level 3.

UNIQA assesses a significant increase in credit risk overall on the basis of quantitative and qualitative criteria. To make this quantitative assessment, the probability-of-default curve over the lifetime at the measurement date is compared with the forward-looking probability-of-default curve over the lifetime at the time of initial recognition. A significant increase in credit risk is normally assumed whenever there is a relative doubling of the probability of default since the date of purchase. If a significant increase in credit risk is determined on the measurement date, an allocation to “Level 2” is made. As a backstop for the identification of a significant increase in the credit risk of a financial instrument, contractual cash flows are assumed to be overdue at more than 30 days.

In the overall assessment, a qualitative evaluation of the level allocation for Level 1 or Level 2 is also carried out based on external market indicators and by subject matter experts. In the qualitative assessment, particular consideration is given to factors such as a significant change in contractual terms, a borrower’s ability to repay their other exposures, as well as external factors with a potentially significant influence on the borrower’s ability to repay.

An allocation to “Level 3” (credit-impaired financial assets) of the impairment model is made if one or more events with an adverse effect on the expected future cash flows of the financial asset occur. Among others, UNIQA considers the following events to be indicators:

• significant financial difficulties on the part of the issuer or borrower;
• default of or overdue contractual cash flows;
• financial concessions by lenders;
• increased likelihood of insolvency or restructuring proceedings;
• disappearance of an active market due to the financial difficulties of the financial asset; and
• financial assets with a large discount that already reflects the credit losses incurred.

In addition, a financial instrument is assigned to Level 3 if contractual cash flows are more than 90 days in default. To assess whether a financial asset is credit-impaired, the indicators are considered both individually and collectively.

Expected credit losses on fixed-income securities measured at fair value through other comprehensive income

Changes in value recognised on the basis of the impairment model in accordance with IFRS 9 for expected credit losses in the category “Financial assets measured at fair value through other comprehensive income” amount to €– 30,642 thousand (2022: €– 162,866 thousand).

The amounts for Level 1 include financial assets totalling € 11,648,054 thousand (2022: € 10,279,856 thousand) for which the level allocation was applied based on the exemption for instruments with a low default risk (investment grade).