3. Insurance contracts

Insurance and reinsurance contracts along with investment contracts with a discretionary participation feature are recognised in accordance with the accounting provisions for insurance contracts (IFRS 17).

Judgements and estimates

Judgements

Information on judgements that have a material effect on the amounts reported in the Consolidated Financial Statements is provided below:

• Identification of insurance contracts, reinsurance contracts and investment contracts with discretionary participation features: assessment of whether a significant insurance risk is transferred, and the contracts thus fall within the scope of IFRS 17, or whether there are any contracts with direct participation features.

• Determination of the valuation unit: identification of portfolios of insurance contracts and determination of groups that would have a negative impact at initial recognition and those where there is no significant likelihood that they will have a negative impact at initial recognition.

• Variable fee approach: assessment of the applicability of the variable fee approach for contracts with direct participation features.

• Premium allocation approach: applicability of the premium allocation approach for long-term contracts.

• Estimates of future cash flows: estimate of the expected cash flows associated with fulfilment of the contract.

• Acquisition cash flows: determination of whether the acquisition cash flows can be allocated directly.

• Interest rate assumptions: determination of the yield curves to be used for discounting.

• Measurement: determination of the method for calculating the risk adjustment for non-financial risks and the coverage units provided.

Assumptions and estimates

Changes in the key assumptions listed below could materially change the fulfilment cash flows in the following financial year. However, these changes would lead to an adjustment of the contractual service margin and would not affect the carrying amount of the insurance contracts unless the changes result from onerous contracts or do not relate to future benefits:

• Property and casualty insurance contracts: assumptions related to claims development and claims frequency.

• Health and life insurance policies: assumptions for estimates of future cash flows related to mortality, longevity, disability or morbidity, customer behaviour (lapse) and profit participation rate.

The assumptions on discount rates and cost development have an impact on all business lines.

Significant assumptions and estimates in connection with calculating the fulfilment cash flows, the contractual service margin and the investment component are explained below.

Fulfilment cash flows

Fulfilment cash flows comprise:

• estimates of future cash flows,

• discounting to reflect the time value of money and the financial risks associated with future cash flows, and

• risk adjustment for non-financial risk.

The objective of estimating future cash flows is to determine the expected value of a range of scenarios that reflect the full scope of all possible outcomes. The cash flows from each scenario are discounted and weighted, taking into account the estimated probability that this outcome will lead to an expected present value. UNIQA applies stochastic modelling if the cash flows are influenced by complex underlying factors, and they therefore do not react linearly to changes in the economic environment. This is the case, for example, for contracts with participation features. If this is not the case, a deterministic calculation is used.

The estimates of future cash flows incorporate, in an unbiased way, all reasonable and supportable information available without undue cost or effort about the amount, timing and uncertainty of those future cash flows. The information is based on company-specific data provided that the estimates do not contradict observable market data, and the assumptions take future developments sufficiently into account. When estimating the cash flows, UNIQA takes into account current expectations of future events that might affect those cash flows. Expectations of future changes in legislation that would change or discharge the present obligation or create new obligations under the existing insurance contract are not taken into account until the change in legislation is substantively enacted.

Cash flows within the boundary of an existing insurance contract relate directly to the fulfilment of the contract, including those cash flows for which UNIQA can decide the amount or maturity at its own discretion. These cash flows include premiums, insurance benefits, acquisition cash flows and other costs incurred to fulfil the contract.

Insurance acquisition cash flows result from the sale of insurance contracts and are directly attributable to the portfolio to which the contract belongs. Other costs recognised in the cash flows are:

• claims handling costs,

• administrative costs associated with the servicing of a contract, including recurring commissions, and

• asset management costs.

Acquisition cash flows and other costs also include fixed and variable overhead costs that are directly attributable to the settlement of insurance contracts. Such overheads are allocated to groups of contracts using methods that are systematic and rational, and are consistently applied to all costs that have similar characteristics.

The distribution of acquisition and administrative costs is based on the premiums written for the respective group of insurance contracts. The distribution of costs for processing claims is based on the actual claims of the respective group of insurance contracts.

Insurance contracts of one group can influence the cash flows to policyholders of another group or be influenced by these (mutualisation). This is the case, for example, when the policyholders share the returns on the same specified pool of underlying items with policyholders of other contracts and the guarantee agreement of one group leads to a reduction in another group’s revenue.

Mutualisation has an impact on the measurement of the fulfilment cash flows of the groups concerned. The fulfilment cash flows of a group include all payments to policyholders from other groups resulting from the contract conditions, while all payments to policyholders of the group that have already been included in the fulfilment cash flows of another group must not be taken into account.

The contract boundaries determine which future cash flows are to be included in the measurement of a group of insurance contracts. Cash flows are within the boundary of an insurance contract if they result from substantive rights and obligations that exist during a specific period in which the Group can compel the policyholders to pay the premium or in which UNIQA has a substantive obligation to provide the policyholders with insurance contract services.

Significant assumptions used in the calculation of future cash flows

Property and casualty insurance

Future cash flows from premiums are estimated using contract data taking future lapses by policyholders into account. The lapse rates are derived from past experience at product group level.

Loss or cost ratios and associated payment patterns are derived from past experience to estimate future cash flows from future service and costs. Where necessary, judgements are also made as to the extent to which past trends can also be expected in the future, as well as whether new trends should be taken into account.

Reserves for incurred claims that have not yet been settled, including incurred claims that have not yet been reported, are usually estimated using generally accepted statistical triangular methods (such as chain ladder or Bornhuetter-Ferguson) on the basis of the years in which they occurred. These methods assume that the company’s own past experience provides a sufficiently good indication of future claim payments. Other best practice methods (such as methods based on claims frequency and loss amounts) are only used in exceptional cases. The selection of the appropriate procedure for the respective sub-portfolio is a key discretionary decision. Finally, the future cash flows are estimated from the claims payments determined in this way using settlement patterns also derived from past experience.

Health insurance and life insurance

The assumptions for the best estimate described below are determined based on past, present and expected developments. These are reviewed and updated at least once per year.

Assumptions on profit participation

The policyholder’s assumed profit participation for the corresponding life insurance business is derived for each economic scenario using the management rules. The profit participation is derived in accordance with the applicable statutory profit participation regulations.

Cost assumptions

Cost assumptions are based on the directly attributable actual costs incurred in the years prior to the measurement date. Future additional costs are taken into account in the cost allocation, whereas extraordinary costs are eliminated. The costs expected along the projection period are based on the performance of the portfolio, with differences in the administrative expenditure taken into account in accordance with relevant contractual features, such as higher administrative expenditure for contracts with mandatory premiums as compared with those that are premium-free.

Lapse assumptions

Lapse rates are based on an analysis of previous lapse rates and the average for comparable financial years. For new products, the lapse assumptions are based on similar products from the past.

Assumptions on commissions

The commission estimates are based on the applicable commission agreements.

Assumptions on mortality and disability-morbidity

Mortality and disability-morbidity assumptions are based on the best estimate for future events. Past developments and external demographic forecasts are used here.

Interest rate assumptions

All cash flows are discounted using the adjusted risk-free yield curve, which reflects the special features of the cash flows and the liquidity features of the insurance contracts. The risk-free base rates for all relevant currencies are calculated using swap and government bonds market data. The underlying market data sources and the parameters required for the interpolation and extrapolation of the risk-free base curves are harmonised with those of EIOPA. The risk-free curve including adjustments is extrapolated to a final forward interest rate after the last liquid market data point. The ultimate forward rate reflects the long-term real interest rate and inflation expectations and is updated in accordance with the EIOPA parameters.

The risk-free yield curve is adjusted by an illiquidity premium to reflect the liquidity feature of the insurance contracts. Illiquidity adjustments are determined by calculating risk-adjusted spreads on government and corporate bonds within the portfolio of the respective entity. Cash flows that fluctuate based on the yields of the underlying items are adjusted to account for the effects of this volatility using risk-neutral modelling techniques and discounted using the risk-free interest rates including the illiquidity adjustment.

Assumptions on cash flows to be paid to policyholders

Insurance contracts without direct participation features often give rise to cash flows to policyholders over which the entity has some discretion. The basis on which the contractual obligations are determined must be defined at the beginning of the contract to determine how any change in the discretionary cash flows is to be identified. A change in the discretionary cash flows is regarded as relating to future service, and adjusts the contractual service margin accordingly.

Refinement of the projection model

In this financial year, the projection model for health insurance was comprehensively optimized so that significant factors can be mapped more precisely. In particular, this involved refining existing assumptions and methods for projecting expected future cash flows, for example with respect to customer behaviour and the derivation of future changes in premiums.

Risk adjustment for non-financial risk

Risk adjustment is the amount that would be required as consideration for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk. This reflects the diversification benefit of insurance contracts issued, which is in line with the consideration demanded and reflects the extent of risk aversion.

In property and casualty insurance, the risk adjustment is determined using the confidence level method. The cost-of-capital method is applied in health insurance and life insurance.

For proportional reinsurance contracts in property and casualty insurance, the risk adjustment for non-financial risk is derived from that of the primary insurance. The basis for this is the ratio between the gross and net liability for incurred claims.

Confidence level method

The probability distribution of all expected future cash flows is estimated and the risk adjustment for non-financial risk is calculated as the difference between the median of the future cash flows and the value-at-risk, measured with a percentile of 75 per cent.

Cost of capital method

The risk adjustment for non-financial risks is calculated using a cost of capital rate, which is applied to the required capital amount for all future years. The resulting capital requirement is discounted using a risk-free yield curve adjusted for illiquidity. The required principle is determined by estimating the probability distribution of all future present values of the cash flows and determining the capital required to meet the contractual obligations with a confidence level of 99.5 per cent over the term of the contracts. The cost of capital rate is the additional consideration that investors would demand for exposure to non-financial risk. The cost of capital rate is 6 per cent (2023: 6 per cent).

Contractual service margin

The contractual service margin is a component of an asset or liability for a group of insurance contracts and represents unearned profit on a group of insurance contracts that the entity will recognise once future insurance contract services are provided.

An amount of the contractual service margin for a group of insurance contracts is recognised in profit or loss in each period to reflect the insurance contract services provided under the group of insurance contracts in that period.

Determination of the coverage units

The number of coverage units in a group of insurance contracts is the quantity of benefits provided under the contracts in the group.

These benefits include:

• insurance coverage (coverage for an insured event);

• investment-related services (for insurance contracts with direct participation features): concerns the management of underlying items on behalf of the policyholder; and

• investment-return services (for insurance contracts without direct participation features).

The amount recognised in profit or loss is based on the number of coverage units in a group. This number is determined by considering for each contract the quantity of the benefits provided under the contract and its expected coverage period. The coverage units are reviewed once a year and adjusted if necessary.

For unit-linked and index-linked life insurance, the sum insured represents both insurance benefits and investment benefits – the risk portion is allocated to insurance benefits, while the liability for remaining coverage is allocated to investment benefits.

The time value of money is taken into account when determining the coverage units in life insurance.

The risk mitigation option in accordance with IFRS 17.B115 is not utilised.

Investment component

For the identification of investment components, the amount is to be determined that an insurance contract requires UNIQA to repay to a policyholder in all circumstances, regardless of whether an insured event occurs. Investment components may not be recognised in either insurance revenue or insurance service expenses.

In life insurance, the investment component within the coverage period is calculated from the lower of the surrender value and the amount contractually agreed for the insurance benefit. At the end of the coverage period, the investment component is calculated using the maturity benefit.

Applicable accounting policies

Insurance contracts are contracts under which a significant insurance risk is assumed. Investment contracts are contracts that do not transfer a significant insurance risk and that do not include discretionary participation features. They fall under the scope of IFRS 9 (Financial Instruments).

UNIQA holds both inward and outward reinsurance contracts. The carrying amount of the portfolios from inward reinsurance contracts (assumed reinsurance) is shown together with the carrying amount of the primary insurance contract portfolios.

Insurance contracts can be divided into contracts with direct participation features and contracts without participation features. Insurance contracts with direct participation features are those for which, at inception:

• the contractual terms specify that the policyholder participates in a share of a clearly identified pool of underlying items;

• the entity expects to pay to the policyholder an amount equal to a substantial share of the fair value returns on the underlying items; and

• the entity expects a substantial proportion of any change in the amounts to be paid to the policyholder to vary with the changes in fair value of the underlying items.

For insurance contracts that meet the aforementioned criteria, the variable fee approach is mandatory. Whether the aforementioned criteria are met is assessed at inception of the contract and may not be reassessed at a later date unless the contract is modified. In addition, the variable fee approach is applied in the long-term business of health insurance as well as in unit- and index-linked life insurance.

All other insurance contracts and reinsurance contracts held are classified as insurance contracts without direct participation features and accordingly measured using the general measurement model or, if the conditions are met, the premium allocation approach.

Measurement unit and recognition

Insurance contracts

Insurance contracts are aggregated into groups for measurement purposes. A group of insurance contracts is determined by identifying portfolios of insurance contracts subject to similar risks and managed together. The defined portfolios are subdivided as follows:

• a group of contracts that are onerous at initial recognition;

• a group of contracts that at initial recognition have no significant possibility of becoming onerous subsequently; and

• a group of the remaining contracts in the portfolio.

The aforementioned groups are further subdivided by underwriting years, as only contracts sold within one year may be included in the same group.

In respect of the obligation to form annual cohorts, which prevents contracts issued more than one year apart from each other from being included together in a group of insurance contracts, an option was established as part of the adoption of IFRS 17 into EU law. According to this option, the European Commission allows users in the EU to not apply the requirement under IFRS 17.22 for certain contracts. UNIQA will make use of this option and apply it in connection with contracts with participation features. For these contracts, new business is presented in the cohort of the transition date.

Primary insurance contracts and inward reinsurance contracts are recognised at the earliest of the following dates:

• the beginning of the coverage period of the group of contracts;

• the date when the first payment from a policyholder in the group becomes due; or

• at the time it involves a loss for the group.

The group of insurance contracts is determined on initial recognition and the composition of the groups may not be reassessed subsequently. If the recognition criteria are met, the contract is allocated to an existing group of insurance contracts or, if the contract may not be allocated to the existing groups, a new group is formed.

Reinsurance contracts held

The grouping of reinsurance contracts held (outward re-insurance) is based on the same principles as for primary insurance, with the exception that reinsurance contracts cannot be onerous.

A group of reinsurance contracts must be recognised at the following dates:

• proportional reinsurance contracts: at the time of initial recognition of any underlying insurance contract;

• non-proportional reinsurance contracts: at the beginning of the coverage period of the group. However, if a group of onerous underlying insurance contracts is recognised, recognition is at that date, provided the related reinsurance contract was in force at or before that date.

Reinsurance contracts in property and casualty insurance are mostly non-proportional contracts.

The separation between assets and liabilities from insurance and reinsurance contracts is carried out in accordance with IFRS 17.78, which stipulates that portfolios of insurance and reinsurance contracts that are assets must be recognised separately from those that are liabilities.

Acquisition cash flows

Acquisition cash flows are allocated to the groups of insurance contracts using a systematic method if direct allocation to the group is possible, otherwise this takes place at portfolio level. To take account of changes in assumptions, the inputs for the allocation method used are reviewed at the end of each reporting period.

When applying the premium allocation approach, the option of recognising acquisition cash flows in the income statement for insurance contracts with a term of up to one year is not exercised.

Contract boundaries

All the future cash flows within the boundary of each contract in the group are included in the measurement of a group of insurance contracts. Whether the cash flows are within the contractual limit is determined as follows:

Insurance contracts (including assumed reinsurance)

Cash flows are within the boundary of an insurance contract if they arise from substantive rights and obligations that exist during the reporting period in which the policyholder is compelled to pay the premiums or in which UNIQA has a substantive obligation to provide the policyholder with insurance contract services.

A substantive obligation to provide insurance contract services ends when:

• UNIQA has the practical ability to reassess the risks of the particular policyholder and, as a result, can set a price or level of benefits that fully reflects those risks; or

• if these criteria are not met for an individual contract but are met for a portfolio and the pricing of the premiums for the coverage period to date does not take into account the risks that relate to future periods.

Reinsurance contracts

Cash flows are within the contract boundaries if they arise from substantive rights and obligations that exist during the reporting period in which UNIQA is compelled to make payments to the reinsurer or in which UNIQA has the right to receive services from the reinsurer.

The right to receive services from the reinsurer ends when:

• the reinsurer has the practical ability to reassess the risk assumed and is able as a result to set a price or benefit level that fully reflects those risks, or

• has a substantive right to cancel the coverage.

The contract limits are reassessed at the end of each reporting period.

Measurement

Contracts that are not measured using the premium allocation approach

Insurance contracts – initial measurement

UNIQA measures a group of insurance contracts at initial recognition as the sum of the fulfilment cash flows and the contractual service margin. The fulfilment cash flows include estimates of future cash flows, an adjustment reflecting the time value of money and financial risks, and a risk adjustment for non-financial risk.

The risk adjustment for non-financial risk is derived separately from the other estimates and represents the compensation for bearing the uncertainty about the amount and timing of the cash flows that arises from non-financial risk.

The contractual service margin for a group of insurance contracts depicts the unearned profit that UNIQA will generate with the future provision of services. If there is a net cash inflow on initial recognition, a contractual service margin is recognised in order to avoid profit recognition. The fulfilment cash flows are offset by the recognition of the contractual service margin, thereby resulting in a provision for future policy benefits of zero on initial recognition.

If there is a net outflow of funds, the contracts are onerous. This amount is recognised in the income statement and reported as a loss component within the liability for remaining coverage. The reversal of the loss component is recognised as a reduction in expenses in the item “insurance service expenses”.

The determinations under the initial recognition also apply to the variable fee approach. The differences between the general measurement model and the variable fee approach only arise in the subsequent measurement and relate to the roll-forward of the contractual service margin and the determination of the technical financial result.

Insurance contracts – subsequent measurement

Since UNIQA also prepares interim financial statements applying IAS 34, the accounting option regarding the treatment of accounting estimates made in interim financial statements must be observed. An entity has an accounting option to change the treatment of accounting estimates made in previous interim financial statements when applying IFRS 17 in subsequent interim financial statements and in the annual reporting period. UNIQA applies the year-to-date approach, i.e. the treatment of accounting estimates in previous interim financial statements is changed and thus the annual result is not affected by estimates in interim financial statements.

The measurement of the fulfilment cash flows is based on current estimates of future cash flows, current discount rates and current estimates of the risk adjustment for non-financial risks at each reporting date. The change in fulfilment cash flows is recognised as follows:

• The contractual service margin is adjusted in the event of any changes in connection with future benefits. If the fulfilment cash flows increase, then the contractual service margin is reduced; if they decrease, then the contractual service margin is increased. If an increase in the fulfilment cash flows exceeds the amount of the contractual service margin, this is reversed in full and the excess amount is recognised as a loss in the insurance service expenses. If the fulfilment cash flows are subsequently reduced, this is recognised as income in the insurance service result until the accumulated losses have been recovered. A contractual service margin is again created for the excess.

• Any change that is in connection with current and past benefits is recognised in the income statement under insurance service expenses.

• Effects of changes in connection with financial assumptions are recognised through profit or loss under insurance finance income or, in cases where the OCI option is applied, divided between insurance finance income and other comprehensive income.

The contractual service margin for a group of contracts measured using the general measurement model is calculated as of the end of the financial year from the opening balance adjusted by:

• the contractual service margin for new contracts;

• the interest accreted on the carrying amount of the contractual service margin during the reporting period (applying the discount rate determined at the date of initial recognition);

• the changes in fulfilment cash flows relating to future service;

• the effect of any currency exchange differences; and

• the amount recognised as insurance revenue due to the provision of benefits.

The aforementioned changes in fulfilment cash flows relating to future benefits include:

• experience adjustments arising from premiums received in the period that relate to future service, and related cash flows (such as insurance acquisition cash flows);

• changes in estimates of the present value of the future cash flows in the liability for remaining coverage, except for the fair value of the money and the financial risk;

• deviations with regard to the investment component in life insurance;

• changes in the risk adjustment for non-financial risk that relate to future service.

Because a change in discretionary cash flows is considered as a future service, an adjustment is made to the contractual service margin.

For insurance contracts measured using the variable fee approach, there are differences in the subsequent measurement of the contractual service margin compared to the general measurement model.

A contract with direct participation features exists if UNIQA has the obligation to pay the policyholder an amount equal to the fair value of the underlying items as well as a variable fee that is retained in exchange for the future service provided by the insurance contract. The variable fee comprises the share to which UNIQA is entitled depending on the varying underlying items.

The contractual service margin for a group of contracts measured using the variable fee approach is calculated as of the end of the financial year from the opening balance adjusted by:

• the contractual service margin of any new contracts;

• the change in the amount of UNIQA’s share of the fair value of the underlying items unless the decrease in the amount of the company’s share exceeds the carrying amount of the contractual service margin and a loss component would therefore have to be recognised or adjusted;

• the changes in the fulfilment cash flows relating to future service unless the increase in the fulfilment cash flows would exceed the carrying amount of the contractual service margin and therefore a loss component would have to be recognised or adjusted;

• the effect of any currency exchange differences; and

• the amount recognised as insurance revenue because of the transfer of insurance contract services.

The components to be considered in determining the changes in the fulfilment cash flows related to future service are the same as in the general measurement model, but are measured using current discount rates and also include the change in the effect of the time value of money and financial risks not arising from the underlying items.

Loss component

Once a loss is recognised for onerous insurance contracts and a loss component is formed within the provision for future policy benefits, future changes in the fulfilment cash flows must be allocated systematically to the loss component of the liability for remaining coverage as well as to the liability for remaining coverage with no loss component as part of the subsequent measurement.

Changes in the fulfilment cash flows that must be taken into account in the systematic allocation:

• estimated value of the present value of future cash flows for claims and expenses that are eliminated from the liability for remaining coverage due to insurance service expenses;

• changes in the risk adjustment for non-financial risk recognised in profit or loss because of the release from risk; and

• insurance finance income or expenses.

The systematic allocation is calculated as the share of the loss component divided by the present value of future cash outflows plus the risk adjustment for non-financial risk. In addition, the variable fee approach takes into account the company’s share of the change in the fair values of the underlying items divided by the expected claims and expenses.

Systematic allocation means that the total amounts allocated to the loss component at the end of the term (coverage period) of a group of contracts is equal to zero.

Any subsequent decreases in the fulfilment cash flows due to changes in the estimated future cash flows relating to future service as well as any subsequent increases in the company’s share of the fair value of the underlying items do not result in a split between the liability for remaining coverage with a loss component and the liability for remaining coverage without a loss component. An allocation to the loss component must only be made until this has been reduced to zero.

Reinsurance contracts held

The general measurement model is applied to measure the reinsurance ceded, albeit with some modifications.

Initial measurement

Assumptions that are consistent with those of the underlying insurance contracts are used to measure the present value of the estimated future cash flows for the group of reinsurance contracts held. The reinsurer’s default risk is also taken into account, including the effects of collateral and losses from disputes. The default risk is assessed as at each reporting date and any changes are recognised in the income statement.

An amount corresponding to the amount of risk being transferred to the reinsurer is recognised as the risk adjustment for non-financial risk.

The requirements for calculating the contractual service margin as part of initial recognition are modified to take account of the fact that there is no unrealised gain on a group of reinsurance contracts held, but rather a net cost or net gain on the acquisition of the reinsurance.

At the time of initial recognition therefore, the contractual service margin represents any net costs or net gains, which are measured as follows:

• fulfilment cash flows,

• the amount of assets or liabilities recognised in previous periods that is derecognised as at that date,

• any cash flows that occur at the time of the initial recognition,

• gains from the recognition of any loss-recovery component;

• however, if the net costs relate to insured events prior to the acquisition of the group of reinsurance contracts held, these costs are recognised immediately as an expense.

Subsequent measurement

The carrying amount of the contractual service margin at the end of the reporting period is measured as the carrying amount determined at the start of the reporting period, adjusted for:

• the effects of any new contracts added to the group;

• interest accreted on the carrying amount of the contractual service margin, measured at historical interest rates;

• realisation of income from the coverage of onerous primary insurance contracts (loss-recovery component);

• reversal of the loss-recovery component, provided that this reversal does not relate to changes in the fulfilment cash flows for the group of reinsurance contracts held;

• changes in the fulfilment cash flows, measured at the discount rates applicable on initial recognition, to the extent that the change relates to future service unless the change results from a change in the fulfilment cash flows from onerous primary insurance contracts;

• effects of any exchange rate differences on the contractual service margin;

• release of the contractual service margin recognised in profit or loss due to the benefits received in the period.

A loss-recovery component can only be recognised if the reinsurance contract held is concluded at the same time as or before the recognition of the underlying onerous insurance contracts. The amount for the loss-recovery component, which adjusts the contractual service margin and is recognised in profit or loss, is determined as follows:

Multiplying the reported profit or loss from the underlying insurance contracts by the percentage of claims on the underlying insurance contracts that are expected to be reimbursed by the reinsurer.

Contracts measured using the premium allocation approach

The measurement is based on the premium allocation approach if the following criteria are met:

• if the coverage period of each contract in the group is one year or less (taking the specific contract boundaries into account); or

• if it can be expected that the measurement of the liability for remaining coverage would not differ materially from the one that would be produced applying the general measurement model. This is not the case if significant variability in the fulfilment cash flows is expected when a group is initially recognised, which would influence the measurement of the liability for remaining coverage during the period before a loss occurs.

These criteria apply predominantly in the area of property and casualty insurance. If the criteria are not met, the general measurement model is used.

For contracts with an average term of one to three years, the premium allocation approach is applied. This approach was derived from sensitivity analyses by comparing the amount of the liability for remaining coverage calculated using the general measurement model and the premium allocation approach.

For contracts with an average term of more than three years, an estimate must be made regarding the stability of the liability for remaining coverage. This assessment is based on a calculation model in which non-financial assumptions (risk adjustment for non-financial risks, costs, loss ratio and lapse probability) and financial assumptions (interest rate) are stressed after one year. The deviation of the liability for remaining coverage between each stressed scenario and the basic scenario is compared with a defined threshold value.

The reinsurance contracts in property and casualty insurance are measured in their entirety using the premium allocation approach for the following reasons:

• the majority of reinsurance contracts are based on claim years with a duration of one year; and

• a concept was created for contracts based on the subscription year which addresses the contract term and the variability of the fulfilment cash flows. All contracts have an average term of up to three years.

In health insurance, there are only one-year reinsurance contracts, which is why measurement using the premium allocation approach is permissible.

Reinsurance contracts in life insurance are measured using the premium allocation approach if the contracts have a contract limit of up to one year and the coverage period is also up to one year.

For the initial recognition of insurance and reinsurance contracts measured using the premium allocation approach, the carrying amount of the liability for remaining coverage corresponds to the premiums received minus the insurance acquisition cash flows.

As part of the subsequent measurement of insurance and reinsurance contracts measured using the premium allocation approach, the carrying amount of the liability for remaining coverage is increased by the premiums received in the period and the amortisation of acquisition cash flows. This is offset by a reduction in the carrying amount due to the insurance benefits provided in the reporting period (recognised as insurance revenue) and from acquisition cash flows in the reporting period. The liability for remaining coverage is not discounted because the contracts do not contain any significant financing components.

The liability for remaining coverage is increased through profit or loss following a determination during the coverage period that a group of contracts is onerous. The loss to be recognised results from the difference between the liability for remaining coverage measured using the premium allocation approach and the (discounted) fulfilment cash flows determined using the general measurement approach, which relates to future insurance coverage.

In the case of prepayments of premiums by the policyholder, a financing component is calculated and recognised separately from the insurance service result. This means that fair value effects are taken into account when determining the technical provisions.

The liability for incurred claims is measured at the value of the fulfilment cash flows in relation to the claims incurred. The estimated values of future cash flows are discounted.

Reinsurance contracts held

The same accounting methods are generally used for the measurement of reinsurance contracts as for primary insurance contracts.

If onerous groups of insurance contracts in primary insurance are covered by reinsurance business ceded, a loss-recovery component is recognised and the carrying amount of the liability for remaining coverage from reinsurance is adjusted.

Derecognition of insurance contracts

Insurance contracts are derecognised if the obligation specified in the insurance contract has expired, been satisfied or cancelled. They are also derecognised in the event of changes to the contract in the following cases:

• The modified contract terms would have meant that at initial recognition:

  • the modified contract would not have fallen within the scope of IFRS 17;

  • various components would have had to be separated from the host insurance contract, resulting in a different insurance contract;

  • the modified contract would have had a substantially different contract boundary; or

  • the modified contract would have been included in another group of contracts.

• There is a change in the contract category with or without direct participation features.

• The criteria for applying the premium allocation approach are no longer met as a result of the contract modifications.

For contract modifications that do not result in derecognition, the changes in cash flows are treated as changes in estimated fulfilment cash flows. The exercise of a right provided for in the contractual conditions does not constitute an adjustment to the contractual conditions.

Recognition

Disclosures in the consolidated statement of financial position are made at portfolio level. The carrying amounts of the portfolios, depending on whether they represent an asset or a liability, are added up and accordingly disclosed separately. These disclosure criteria must also be applied to the reinsurance contracts held, which must also be reported separately from primary insurance. The respective carrying amounts of inward reinsurance are included in primary insurance.

The amounts recognised in the consolidated income statement and other comprehensive income are to be disaggregated into an insurance service result, comprising insurance revenue and insurance service expenses, and insurance finance income or expenses. Investment components may not be recognised in either insurance revenue or insurance service expenses.

The balances of reinsurance held must also be recognised separately from the amounts of primary insurance in the income statement and in other comprehensive income. In contrast to primary insurance, there is an option to report the insurance service result for the reinsurance as a single amount. UNIQA makes use of this option.

All the changes in the risk adjustment of non-financial risk can be shown in the insurance service result. The changes do not need to be broken down into an insurance service result and an insurance finance result. UNIQA makes use of this option.

Insurance revenue: contracts that are not measured using the premium allocation approach

Insurance revenue represents the amount of consideration for the provision of services under insurance contracts and represents the change in liability for remaining coverage. The expected consideration should cover the following items:

• The losses expected for the reporting period at the beginning of the year and the costs allocated to the contracts. Amounts allocated to the loss component of the liability for remaining coverage, repayments of investment components, insurance acquisition cash flows and transaction-based taxes collected on behalf of third parties (e.g. insurance tax) are excluded from this.

• The change in the risk adjustment for non-financial risks. This does not include changes that relate to future service (adjustment of the contractual service margin), or amounts allocated to the loss component of the liability for remaining coverage.

• Amount of the contractual service margin recognised in profit or loss for the services provided in the period.

• Experience adjustments for premium receipts that relate to current and past service.

• The part of the premium which relates to the offsetting of acquisition cash flows. The allocation is made pro rata temporis to the reporting period to be allocated. Assuming that insurance contracts are priced in such a way that the insurance acquisition cash flows are earned back, the same amount is also recognised as insurance service expenses.

Insurance revenue: contracts measured using the premium allocation approach

Under the premium allocation approach, the insurance revenue for a period corresponds to the amount of premium revenues expected for the period. To allocate the service provided under the insurance contract to the current period, the expected premium revenues are allocated on the basis of the passage of time.

Insurance service expenses

Insurance service expenses are recognised in the income statement as soon as they are incurred and include:

• incurred claims and other incurred insurance service expenses,

• amortisation of the acquisition cash flows,

• loss component and the reversal of this loss component,

• adjustments to the provisions for unsettled claims (excluding those adjustments from discounting),

• insurance service expenses may not include any investment components.

Insurance service result from reinsurance held

The insurance service result includes the amounts reimbursed by the reinsurer, the premiums allocated to the period, and any gains or losses from the change in the loss-recovery component.

Technical financial result

Changes in the carrying amount resulting from the effect of changes in the time value of money and financial risk must be reported under insurance finance income or expenses.

Insurance finance income or expenses also includes changes in the underlying items.

For both the general measurement model and the variable fee approach, the OCI option in accordance with IFRS 17.88(b) is applied where the respective allocated financial instruments on the asset side are also measured through other comprehensive income. This option is exercised at the level of the portfolio of insurance contracts. The amounts not recognised in other comprehensive income are determined by systematic allocation over the term of the group of insurance contracts and recognised in the income statement.

The discount rate (“locked-in yield curve”) determined at initial recognition is applied for contracts measured according to the general measurement model and the premium allocation approach.

For contracts measured using the general measurement model and for which changes in the assumptions related to financial risks have a substantial effect on the amounts paid to policyholders, the allocation is made on the basis of a constant rate over the remaining duration of the group of contracts.

For contracts measured using the variable fee approach, the amounts recognised in the income statement correspond to the amount recognised in profit or loss for the underlying reference values.

The tables below show the changes in net assets and liabilities from insurance contracts. After the presentation of the change in the liability for remaining coverage and the liability for incurred claims from primary insurance and reinsurance, the change in the measurement components of contracts that are not measured using the premium allocation approach is presented for primary insurance and reinsurance contracts.

For the year 2025, a reconciliation of individual line items in the tables below to the consolidated income statement and to other comprehensive income is not possible, as the SIGAL Group, which was disposed of during the financial year, is not included.

Analysis of remaining coverage and incurred claims

Analysis of remaining coverage and incurred claims for reinsurance contracts

Analysis by measurement components – contracts not measured according to the premium allocation approach