7. Intangible assets

Goodwill

Ascertainment and allocation of goodwill

For the purpose of the impairment test, UNIQA has allocated the goodwill to the cash-generating units (CGUs) below, which coincide with the countries in which UNIQA operates. Exceptions to this are the SIGAL Group, where the three countries Albania, Kosovo and North Macedonia were combined into one CGU due to their similar development and organisational links, and the Telemedi Group (acquired in the fourth quarter of 2023), which is based in Poland but is not a joint CGU with the insurance group in Poland:

• UNIQA Austria
• Albania/Kosovo/North Macedonia as subgroup of the SIGAL Group (SEE)
• Bulgaria (SEE)
• Poland (CE)
• Telemedi Group
• Czechia (CE)
• Hungary (CE)

Impairment test for goodwill

The impairment test was performed during the preparation of the financial statements. In order to test the impairment for goodwill, the recoverable amount of the CGUs is determined. Impairment is recognised when the recoverable amount of a CGU is less than its value to be covered, consisting of goodwill and the proportional net assets. The impairment of goodwill is recognised in profit/(loss) for the period under the item “Amortisation of VBI and impairment of goodwill”.

Determination of the recoverable amount – significant estimates

The recoverable amount of the CGUs with goodwill allocated is calculated on the basis of value in use by applying generally accepted measurement principles by means of the dividend discount method. The budget projections (detailed planning phase) of the CGUs, the estimate of the long-term net profits achievable by the CGUs and long-term growth rates (perpetuity) are used as the starting point for determination of the capitalised value.

The capitalised value is determined by discounting the future profits with a suitable capitalisation rate after assumed retention to strengthen the capital base. In the process, the capitalised values are separated by the three business lines, which are then totalled to yield the value for the CGU.

Cash flow forecast (multi-phase model)

Phase 1: five-year company planning

The detailed company planning generally encompasses a period of five years. The company plans used for the calculation are the result of a structured and standardised management dialogue. This includes an integrated reporting and documentation process and takes into account empirical values from previous planning periods as well as UNIQA’s sustainability strategy and associated climate-related aspects. The plans are formally approved by the Group Management Board and also include material assumptions regarding the combined ratio, capital earnings, market shares and the like.

Phase 2: perpetuity growth rate

The last year of the detailed planning phase is used as the basis for determining cash flows in phase 2. The perpetuity growth rate is based on medium-term growth forecasts of the respective national economy. The underlying growth assumptions depend on the geographical location and range from 1 to 4 per cent. Various studies and statistical analyses were used as sources to provide a basis for determining the growth rates in order to consistently and realistically reflect the market situation and macroeconomic development. The reference sources include our own research, as well as country risks, growth rate estimations and multiples published by Damodaran (NYU Stern).

Determining the capitalisation rate

The assumptions with regard to risk-free interest rate, market risk premium and business line betas made for determining the capitalisation rate are consistent with the parameters used in the UNIQA planning and controlling process. They are based on the capital asset pricing model.

In order to depict the economic situation of income values as accurately as possible, considering the volatility on the markets, the capitalisation rate was calculated as follows: a uniform, risk-free interest rate according to the Svensson method (a 30-year spot rate for German federal bonds) was used as a base interest rate.

The beta factor was determined on the basis of the monthly betas over the last ten years for a defined peer group. The betas for the non-life, life and health insurance business lines were determined using the revenues in the relevant business lines of the individual peer group companies. The health insurance business line, which is strongly focused on the Austrian market, is operated in a manner similar to life insurance. A uniform beta factor for personal insurance is therefore used in relation to the health and life insurance lines.

In Austrian measurement practice, the market risk premium is derived at the reporting date from the implied market return based on capital market data. The growth factor is derived in the same manner as the growth in the profit from ordinary activities in the impairment test.

An additional country risk premium was defined in accordance with Professor Damodaran’s models. The basic principles for calculation of the country risk premium in accordance with the Damodaran method are as follows: the spread of credit default swap spreads in a rating class of “risk-free” US government bonds is determined starting from the rating of the country concerned (Moody’s). Then the spread is adjusted by the amount of the volatility difference between equity and bond markets.

The calculation also factored in the inflation differential for countries outside the eurozone. In general, the inflation differential represents inflation trends in different countries and is used as a key indicator in assessing competitiveness. In order to calculate the inflation differential, the deviation of the inflation forecast for the country of the CGU in question in relation to the inflation forecast for a risk-free environment (Germany, in this case) was used. This is adjusted annually in the detailed planning by the expected inflation, and is subsequently applied for perpetuity with the value of the last year of the detailed planning phase.

Sensitivity analyses

In order to substantiate the results of the calculation and estimation of the value in use, sensitivity analyses with regard to the capitalisation rate and the main value drivers are performed.

These analyses show that sustained surpluses on the part of the individual CGUs are highly dependent on the actual development of these assumptions within the individual national or regional economies (GDP, insurance density, purchasing power parities particularly in the CEE markets) as well as the associated implementation of the individual profit goals. The biggest factor of uncertainty for the forecasts and the associated assessment of the future market situation is the further impact of the war in Ukraine and the consequences of the current phase of high interest rates.

In the event that the insurance markets develop very differently from the assumptions made in those business plans and forecasts, impairment losses may have to be recognised on the goodwill carried.

A sensitivity analysis shows that only a combination of an interest rate increase of 100 bp and a simultaneous change in cash flows of –10 per cent would result in a shortfall in the value in use of € 28.5 million for the CGU Poland and € 3.2 million for the CGU Czechia. However, a change in only one of these two parameters does not result in a shortfall in the value in use.

Other intangible assets

Other intangible assets include both purchased and internally developed software, which is depreciated on a straight-line basis over its useful economic life of 2 to 20 years.

Costs that are incurred at the research stage for internally developed software are recognised through profit or loss for the period in which they were incurred. Costs that are incurred in the development phase are deferred provided that it is foreseeable that the software will be completed, there is the intention and ability for future internal use, and this will result in a future economic benefit.

The amortisation of other intangible assets is reported in the profit/(loss) for the period after cost sharing in the technical result and other non-insurance service expenses.

Measurement of non-financial assets

The carrying amounts of UNIQA’s non-financial assets – excluding deferred tax assets – are reviewed at every reporting date to determine whether there is an indication of impairment. If this is the case, the recoverable amount of the asset is estimated. The goodwill and intangible assets under development are tested for impairment when a triggering event occurs. If there is none, an annual test is done.

Impairment losses on goodwill are not reversed. In the case of other assets, an impairment loss is reversed only to the extent that it does not increase the carrying amount of the asset above the carrying amount that would have been determined net of depreciation or amortisation had no impairment loss been recognised.

Value of business in force and non-insurance deferred acquisition costs

The values of life, property and casualty insurance policies in accordance with IFRS 17 as well as pension fund contracts relate to expected future margins from purchased operations. They are recognised at their fair value at the acquisition date. The redemption of the current value of business in force follows the progression of the estimated gross margins. The amortisation of the value of business in force is recognised in the profit/(loss) for the period under “Amortisation of VBI and impairment of goodwill”.

Deferred acquisition costs not related to contracts are accounted for in accordance with IFRS 15. These are essentially contracts for the management of pension and investment funds. They recognise costs that would not have been incurred if the contract had not been concluded. The amortisation is carried out pro rata temporis over the term of the underlying contracts.

Intangible assets under development and other intangible assets mainly comprise software. The impairment of other intangible assets relates to the development of software that can no longer be used.