5. Technical provisions

Unearned premiums

For short-term insurance contracts, such as most property and casualty insurance policies, premiums relating to future years are reported as unearned premiums in line with the applicable regulations of US GAAP. The amount of these unearned premiums corresponds to the insurance cover granted proportionally in future periods.

Premiums levied upon entering into certain long-term contracts (e.g. upfront fees) are recognised as unearned premiums. In line with the applicable regulations of US GAAP, these fees are recorded in the same manner as the redemption of deferred acquisition costs.

These unearned premiums are in principle calculated for each individual policy and exactly to the day. If they are attributable to life insurance, they are included in insurance provision.

Insurance provisions

Insurance provisions are essentially established in the life and health insurance lines. Their carrying amount is determined based on actuarial principles on the basis of the present value of future benefits to be paid by the insurer less the present value of future net premiums the insurer expects to receive. Insurance provisions are also established in the property and casualty lines that cover life-long obligations (accident pensions and as well as pensions in motor liability insurance). Insurance provision of the life insurer is calculated by taking into account prudent and contractually agreed calculation principles.

For policies that are mainly of investment character (e.g. unit-linked life insurance), the provisions of FAS 97 are used to measure insurance provision. Insurance provision is arrived at by combining the invested amounts, the change in value of the underlying investments and the withdrawals under the policy.

Insurance provisions for health insurance are determined based on calculation principles that correspond to the “best estimate”, taking into account safety margins. Once calculation principles have been determined, they have to be applied to the corresponding partial portfolio for the whole duration (locked-in principle).

Provisions for unsettled claims

Provisions for unsettled claims in the property and casualty insurance lines contain the actual and the expected amounts of future financial obligations, including direct claims settlement expenses appertaining thereto, based on accepted statistical methods. This applies for claims already reported as well as for claims incurred but not yet reported (IBNR). In insurance lines in which past experience does not allow the application of statistical methods individual loss provisions are set aside.

For health insurance, provisions for unsettled claims are estimated on the basis of past experience, taking into consideration the known arrears in claim payments.

Life insurance is calculated on an individual loss basis with the exception of the provision for unreported claims.

Provision for the assumed reinsurance business generally complies with the figures of the cedents.

Provisions for premium refunds and profit participation

The provision for premium refunds includes the amounts for profit-related and non-profit related profit participation to which the policyholders are entitled on the basis of statutory or contractual provisions.

In life insurance policies with a discretionary participation feature, differences between local measurement and measurement in accordance with IFRSs are presented with deferred profit participation taken into account, whereby this is also reported in profit/(loss) for the period or in other comprehensive income depending on the recognition of the change in the underlying measurement differences. The amount of the provision for deferred profit participation generally comes to 85 per cent of the valuation differentials before tax.

Other technical provisions

This item contains provision for contingent losses for acquired reinsurance portfolios as well as provision for expected cancellations and premium defaults.

Liability Adequacy Test

The Liability Adequacy Test evaluates whether the established IFRS reserves are sufficient. For the life insurance portfolio, a best estimate reserve is compared with the IFRS reserve less the deferred acquisition costs plus unearned revenue liability (URL). This calculation is done separately each quarter for mixed insurance policies, pension policies, risk insurance policies, and unit-linked and index-linked policies.

Because UNIQA already uses the best estimate approach for calculating loss reserves in non-life, only unearned premiums are tested. Only business areas that show a surplus of less than 10 per cent at the time of the annual calculation are tested every quarter. In non-life insurance, the business areas tested are motor vehicle, general liability insurance and other.

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Gross
In € thousand	Unearned premiums	Insurance provision	Provision for unsettled claims	Provision for non-profit related premium refunds	Provision for profit-related premium refunds and/or policyholder profit participation	Other technical provisions	Total
Property and casualty insurance
At 1 January 2017	541,701	12,273	2,287,500	26,815	1,399	15,096	2,884,784
Foreign exchange differences	7,773	9	16,375	–2	46	366	24,566
Portfolio changes	12,508	–17	116,717				129,208
Additions		376		1,617	327	1,169	3,488
Disposals		–91		–188		–2,323	–2,603
Premiums written	2,639,699						2,639,699
Premiums earned	–2,638,167						–2,638,167
Claims reporting year			1,651,428				1,651,428
Claims payments reporting year			–840,646				–840,646
Change in claims previous years			–76,821				–76,821
Claims payments previous years			–662,186				–662,186
At 31 December 2017	563,515	12,550	2,492,366	28,242	1,771	14,308	3,112,751

Health insurance
At 1 January 2017	7,780	2,660,066	158,203	10,684	44,621	561	2,881,916
Foreign exchange differences	–52	170	–489	–1	0	8	–363
Portfolio changes	16	3,582	1,265				4,863
Additions		135,247		9,797	26,404	102	171,549
Disposals		–26		–8,900	–19,480	–14	–28,420
Premiums written	1,041,964						1,041,964
Premiums earned	–1,038,981						–1,038,981
Claims reporting year			648,054				648,054
Claims payments reporting year			–551,643				–551,643
Change in claims previous years			52,083				52,083
Claims payments previous years			–141,980				–141,980
At 31 December 2017	10,727	2,799,040	165,494	11,580	51,545	657	3,039,042

Life insurance
At 1 January 2017		10,774,952	139,844	3,923	919,019	4,795	11,842,533
Foreign exchange differences		–1,798	298	–1	368	0	–1,132
Portfolio changes		22,454	–103		–7,109		15,242
Additions		160,605		907	3,638	1,002	166,152
Disposals		–748,603			–107,968	–1,142	–857,713
Claims reporting year			1,608,701				1,608,701
Claims payments reporting year			–1,455,481				–1,455,481
Change in claims previous years			32,473				32,473
Claims payments previous years			–156,255				–156,255
At 31 December 2017		10,207,610	169,477	4,829	807,948	4,655	11,194,519

Total
At 1 January 2017	549,482	13,447,291	2,585,547	41,422	965,038	20,452	17,609,233
Foreign exchange differences	7,721	–1,619	16,184	–3	415	374	23,071
Portfolio changes	12,524	26,019	117,879		–7,109		149,314
Additions		296,228		12,320	30,369	2,273	341,190
Disposals		–748,720		–9,089	–127,448	–3,479	–888,736
Premiums written	3,681,663						3,681,663
Premiums earned	–3,677,148						–3,677,148
Claims reporting year			3,908,183				3,908,183
Claims payments reporting year			–2,847,770				–2,847,770
Change in claims previous years			7,735				7,735
Claims payments previous years			–960,422				–960,422
At 31 December 2017	574,242	13,019,200	2,827,337	44,650	861,264	19,620	17,346,312

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Reinsurers' share
In € thousand	Unearned premiums	Insurance provision	Provision for unsettled claims	Provision for non-profit related premium refunds	Provision for profit-related premium refunds and /or policyholder profit participation	Other technical provisions	Total
Property and casualty insurance
At 1 January 2017	23,021	13	151,227			2,158	176,419
Foreign exchange differences	588	0	505			–2	1,092
Portfolio changes	657		1,034				1,691
Disposals		–1				–366	–366
Premiums written	143,175						143,175
Premiums earned	–141,538						–141,538
Claims reporting year			30,932				30,932
Claims payments reporting year			–14,339				–14,339
Change in claims previous years			2,169				2,169
Claims payments previous years			–26,215				–26,215
At 31 December 2017	25,903	12	145,312			1,791	173,019

Health insurance
At 1 January 2017	281	995	582				1,857
Foreign exchange differences	9	–21	0				–12
Portfolio changes	9						9
Additions		262					262
Disposals		–76					–76
Premiums written	1,116						1,116
Premiums earned	–1,214						–1,214
Claims reporting year			920				920
Claims payments reporting year			–893				–893
Change in claims previous years			1,019				1,019
Claims payments previous years			–1,598				–1,598
At 31 December 2017	200	1,159	31				1,391

Life insurance
At 1 January 2017		141,556	4,789			–178	146,166
Foreign exchange differences		–38	22			0	–16
Portfolio changes		–2,313					–2,313
Additions		252				195	447
Disposals		–3,234					–3,234
Claims reporting year			23,226				23,226
Claims payments reporting year			–20,930				–20,930
Change in claims previous years			2,457				2,457
Claims payments previous years			–4,088				–4,088
At 31 December 2017		136,223	5,477			17	141,716

Total
At 1 January 2017	23,302	142,563	156,598			1,980	324,443
Foreign exchange differences	597	–59	528			–2	1,064
Portfolio changes	666	–2,313	1,034				–614
Additions		514				195	709
Disposals		–3,311				–366	–3,676
Premiums written	144,291						144,291
Premiums earned	–142,752						–142,752
Claims reporting year			55,078				55,078
Claims payments reporting year			–36,162				–36,162
Change in claims previous years			5,644				5,644
Claims payments previous years			–31,901				–31,901
At 31 December 2017	26,103	137,394	150,820			1,808	316,126

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Net
In € thousand	Unearned premiums	Insurance provision	Provision for unsettled claims	Provision for non-profit related premium refunds	Provision for profit-related premium refunds and/or policyholder profit participation	Other technical provisions	Total
Property and casualty insurance
At 1 January 2017	518,681	12,260	2,136,273	26,815	1,399	12,937	2,708,366
Foreign exchange differences	7,184	9	15,869	–2	46	368	23,475
Portfolio changes	11,851	–17	115,683				127,517
Additions		376		1,617	327	1,169	3,488
Disposals		–91		–188		–1,958	–2,237
Premiums written	2,496,524						2,496,524
Premiums earned	–2,496,629						–2,496,629
Claims reporting year			1,620,496				1,620,496
Claims payments reporting year			–826,307				–826,307
Change in claims previous years			–78,990				–78,990
Claims payments previous years			–635,971				–635,971
At 31 December 2017	537,612	12,538	2,347,053	28,242	1,771	12,516	2,939,733

Health insurance
At 1 January 2017	7,499	2,659,072	157,622	10,684	44,621	561	2,880,058
Foreign exchange differences	–61	191	–489	–1	0	8	–351
Additions		134,985		9,797	26,404	102	171,288
Disposals		50		–8,900	–19,480	–14	–28,344
Premiums written	1,040,848						1,040,848
Premiums earned	–1,037,767						–1,037,767
Claims reporting year			647,134				647,134
Claims payments reporting year			–550,750				–550,750
Change in claims previous years			51,064				51,064
Claims payments previous years			–140,382				–140,382
At 31 December 2017	10,526	2,797,881	165,463	11,580	51,545	657	3,037,651

Life insurance
At 1 January 2017		10,633,396	135,055	3,923	919,019	4,974	11,696,366
Foreign exchange differences		–1,760	276	–1	368	0	–1,117
Portfolio changes		24,767	–103		–7,109		17,555
Additions		160,353		907	3,638	807	165,705
Disposals		–745,369			–107,968	–1,142	–854,479
Claims reporting year			1,585,474				1,585,474
Claims payments reporting year			–1,434,551				–1,434,551
Change in claims previous years			30,016				30,016
Claims payments previous years			–152,168				–152,168
At 31 December 2017		10,071,387	164,000	4,829	807,948	4,638	11,052,803

Total
At 1 January 2017	526,180	13,304,728	2,428,950	41,422	965,038	18,472	17,284,790
Foreign exchange differences	7,124	–1,560	15,656	–3	415	375	22,007
Portfolio changes	11,858	28,333	116,845		–7,109		149,927
Additions		295,714		12,320	30,369	2,078	340,481
Disposals		–745,409		–9,089	–127,448	–3,113	–885,059
Premiums written	3,537,372						3,537,372
Premiums earned	–3,534,396						–3,534,396
Claims reporting year			3,853,104				3,853,104
Claims payments reporting year			–2,811,608				–2,811,608
Change in claims previous years			2,090				2,090
Claims payments previous years			–928,521				–928,521
At 31 December 2017	548,138	12,881,806	2,676,517	44,650	861,264	17,812	17,030,187

The interest rates used as an accounting basis for the insurance provision were as follows:

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For
In per cent	Health insurance	Life insurance
2017
For insurance provision	1.50 – 5.50	0.00 – 4.00
For deferred acquisition costs	1.50 – 5.50	2.49 – 2.54

2016
For insurance provision	1.50 – 5.50	0.00 – 4.00
For deferred acquisition costs	1.50 – 5.50	2.50 – 3.12

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Development of the provision for deferred profit participation
In € thousand	31/12/2017	31/12/2016
At 1 January	837,520	905,019
Fluctuation in value, available-for-sale securities	–330,639	152,924
Revaluations of defined benefit obligations	515	–1,127
Revaluations through profit or loss	228,772	–15,330
Reclassifications held for sale	0	–203,967
At 31 December	736,168	837,520

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Claims payments
In € thousand	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017	Total
Financial year	596,020	680,427	751,599	773,996	714,267	778,329	798,573	729,222	734,691	746,846	814,664
1 year later	910,954	1,020,882	1,130,543	1,138,253	1,068,406	1,142,524	1,174,639	1,106,066	1,106,222	1,118,644
2 years later	988,825	1,108,613	1,228,232	1,229,475	1,177,160	1,255,972	1,285,030	1,204,327	1,202,760
3 years later	1,029,929	1,152,195	1,286,633	1,276,504	1,225,202	1,308,792	1,334,305	1,251,179
4 years later	1,061,900	1,178,204	1,311,375	1,300,643	1,251,970	1,339,606	1,362,980
5 years later	1,078,782	1,197,413	1,327,499	1,318,705	1,266,660	1,358,361
6 years later	1,090,094	1,208,719	1,341,509	1,329,655	1,278,874
7 years later	1,098,971	1,219,432	1,350,716	1,338,526
8 years later	1,107,299	1,228,579	1,358,874
9 years later	1,109,434	1,233,379
10 years later	1,114,559

Cumulated payments and provision for unsettled claims
In € thousand	2007	2008	2009	2010	2011	2012	2013	2014	2015	2016	2017
Financial year	1,157,006	1,259,054	1,392,902	1,401,783	1,337,566	1,444,917	1,489,270	1,475,068	1,476,130	1,515,928	1,615,166
1 year later	1,142,314	1,259,435	1,405,975	1,395,983	1,348,006	1,436,610	1,472,322	1,457,929	1,449,504	1,495,915
2 years later	1,147,451	1,272,176	1,410,426	1,404,598	1,350,674	1,449,431	1,495,723	1,437,879	1,429,766
3 years later	1,146,234	1,271,441	1,407,144	1,392,071	1,353,309	1,454,301	1,489,480	1,413,637
4 years later	1,151,828	1,269,188	1,401,274	1,394,923	1,353,437	1,447,394	1,474,842
5 years later	1,160,358	1,266,219	1,402,704	1,401,018	1,351,386	1,447,991
6 years later	1,160,625	1,272,535	1,405,034	1,399,677	1,349,836
7 years later	1,162,715	1,276,077	1,411,355	1,397,935
8 years later	1,159,032	1,282,654	1,412,051
9 years later	1,155,644	1,282,802
10 years later	1,158,678

Settlement gains/losses	–3,034	–149	–696	1,741	1,549	–598	14,637	24,242	19,738	20,013		77,444
Settlement gains/losses before 2007												–649
Total settlement gains/losses												76,795
Provision for unsettled claims for accident years before 2007
Provision for unsettled claims	44,119	49,423	53,177	59,409	70,962	89,631	111,863	162,459	227,006	377,270	800,503	2,045,822
												260,811
Plus other reserve components (internal claims regulation costs, etc.)												185,732
Provisions for unsettled claims (gross) at 31 December 2017												2,492,366

Premiums

Total premiums written. All premiums from contracts written in the financial year from business acquired by the company directly and as inward reinsurance.

Unearned premiums

The part of the premiums that represents the compensation for the insurance period after the reporting date but which has not yet been earned as at the reporting date. Except in the case of life insurance, unearned premiums must be stated in the balance sheet as a separate item under the technical provisions.

US GAAP

US Generally Accepted Accounting Principles.

Premiums

Total premiums written. All premiums from contracts written in the financial year from business acquired by the company directly and as inward reinsurance.

Acquisition costs

The amount paid to acquire an asset in cash or cash equivalents or the fair value of another form of compensation at the time of acquisition.

Unearned premiums

Insurance provision

Provision in the amount of the existing obligation to pay insurance benefits and reimbursements, predominantly in life and health insurance. The provision is determined using actuarial methods as a balance of the present value of future obligations less the present value of future premiums.

FAS

US Financial Accounting Standards that set out the details on US GAAP (Generally Accepted Accounting Principles).

Insurance provision

Best estimate

Calculation based on the best estimate. This is the probability-weighted average of future cash flows taking into account the expected present value and using the relevant risk-free yield curve.

Duration

Duration refers to the weighted average term of an interest rate-sensitive investment or of a portfolio and is a measure of risk for the sensitivity of investments in the event of changes to interest rates.

Provisions for unsettled claims

Also known as a claims reserve; takes into account obligations from claims that have already occurred as at the reporting date but which have not yet been settled in full.

Reinsurance

An insurance company insures part of its risk via another insurance company.

Profit participation

Policyholders have a reasonable right under statutory and contractual regulations to the company’s surplus profits generated in life and health insurance. The level of this profit participation is determined again each year.

IFRSs

International Financial Reporting Standards. Since 2002 the term IFRSs has applied to the overall concept of standards adopted by the International Accounting Standards Board. Standards already adopted beforehand continue to be referred to as International Accounting Standards (IASs).

Profit participation

Deferred acquisition costs

These include the costs of the insurance company incurred in connection with the acquisition of new or the extension of existing contracts. Costs such as acquisition commissions as well as costs for processing applications and risk assessments are some of the items to be recorded here.

Best estimate

Calculation based on the best estimate. This is the probability-weighted average of future cash flows taking into account the expected present value and using the relevant risk-free yield curve.