3. Other investments

Classification

The Group classifies non-derivative financial assets to the following categories: “Financial assets measured at through profit or loss”, “Loans and receivables” and “Financial assets available for sale”.

Non-derivative financial liabilities are classified as measured at .

Derivatives are recognised as financial assets or liabilities at fair value through profit/(loss).

Recognition and derecognition

Loans, receivables and issued debt securities are recognised from the date on which they arise. All other financial assets and liabilities are recognised for the first time on the settlement date. Financial assets are derecognised when the contractual rights to cash flows from an asset expire or the rights are transferred to receive the cash flows in a transaction in which all major risks and opportunities connected with the ownership of the financial asset are transferred.

Financial liabilities are derecognised when the contractual obligation is fulfilled, extinguished or expired.

Derivatives are recognised on the day of contractual agreement.

Measurement

With the exception of loans, investments are listed at their .

Financial assets recognised at fair value through profit or loss

Financial assets are recognised at fair value through profit or loss if the asset is either held for trading or is designated at fair value and recognised in profit and loss (fair value option). These include ABS bonds, structured bonds, hedge funds and investment certificates whose original classification fell within this category.

The fair value option is applied to structured products that are not split between the underlying transaction and the derivative, but are accounted for as a unit. Unrealised gains and losses are recognised in profit/(loss) for the period.

Derivatives are used within the limits permitted under the Austrian Insurance Supervisory Act for investments and for increasing earnings. All fluctuations in value are recognised in profit/(loss) for the period. Financial assets from derivative financial instruments are recognised under other investments. Financial liabilities from derivative financial instruments are recognised under financial liabilities.

Available-for-sale financial assets

are initially measured at fair value plus directly attributable transaction costs. Subsequently, available-for-sale financial assets are measured at fair value and corresponding value changes are, with the exception of impairment and foreign exchange differences in the case of available-for-sale debt securities, recognised in the accumulated profits in equity. When an asset is derecognised, the accumulated other comprehensive income is reclassified to profit/(loss) for the period.

Loans and receivables

When first recognised, such assets are measured at their fair value plus directly attributable transaction costs. Subsequently, they are measured at amortised cost using the effective interest method.

Non-derivative financial liabilities

When first recognised, non-derivative financial liabilities are measured at fair value less directly attributable transaction costs. Subsequently, these financial liabilities are measured at using the effective interest method.

Investments are broken down into the following classes and categories of financial instruments:

At 31 December 2017

In € thousand

Variable-income securities

Fixed-income securities

Loans and other investments

Derivative financial instruments

Investments under investment contracts

Total

Financial assets recognised at fair value through profit or loss

29,415

314,881

0

165,037

60,419

569,753

Available-for-sale financial assets

856,090

15,973,566

0

0

0

16,829,656

Loans and receivables

0

212,446

470,966

0

0

683,412

Total

885,505

16,500,894

470,966

165,037

60,419

18,082,821

of which fair value option

29,415

314,881

0

0

0

344,297

At 31 December 2016

In € thousand

Variable-income securities

Fixed-income securities

Loans and other investments

Derivative financial instruments

Investments under investment contracts

Total

Financial assets recognised at fair value through profit or loss

44,264

231,009

0

135,122

59,924

470,318

Available-for-sale financial assets

671,692

15,818,859

0

0

0

16,490,551

Loans and receivables

0

462,527

730,076

0

0

1,192,603

Total

715,957

16,512,394

730,076

135,122

59,924

18,153,472

of which fair value option

44,264

231,009

0

0

0

275,273

Impairments

Non-derivative financial assets

Financial assets not designated at fair value through profit or loss are tested on every reporting date to determine whether there is any objective indication of impairment. For debt instruments and assets in the category “Loans and receivables”, this test is executed within the framework of an internal impairment process. If objective indicators suggest that the value currently attributed is not tenable, an impairment is recognised.

Objective indications that financial assets are impaired are:

  • the default or delay of a debtor,
  • the opening of bankruptcy proceedings for a debtor, or signs indicating that such proceedings are imminent,
  • adverse changes in the rating of borrowers or issuers,
  • changes in the market activity of a security, or
  • other observable data that indicate a significant decrease in the expected payments from a group of financial assets.

In the case of an investment in an equity instrument, a significant or prolonged decline in the fair value below its cost is also objective evidence of impairment. A significant decrease is a decrease of 20 per cent, and a prolonged decline is one that lasts for at least nine months.

Financial assets measured at amortised cost

Impairment is calculated as the difference between the carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate of the asset. Losses are recognised in profit/(loss) for the period. If there are no realistic chances of recovering the asset, an impairment has to be recognised. In case of an event that causes a reversal of impairment losses, this is recognised in profit/(loss) for the period. In the event of a definitive non-performance, the asset is derecognised.

Available-for-sale financial assets

Impairment of is recognised in profit/(loss) for the period by reclassifying the losses accumulated in equity. The accumulated loss that is reclassified from equity to profit/(loss) for the period is the difference between the acquisition cost, net of any redemptions and amortisations and current fair value, less any impairment loss previously recognised in profit or loss. If the fair value of an impaired, available-for-sale debt instrument increases in a subsequent period and the increase can be objectively related to an event occurring after the impairment was recognised, the impairment is reversed, with the amount of the reversal recognised in profit or loss. Reversals of impairment losses of equity instruments held at fair value cannot be recognised in profit/(loss) for the period.

Determination of fair value

A range of accounting policies and disclosures requires the determination of the fair value of financial and non-financial assets and liabilities. UNIQA has defined a control framework with regard to the determination of fair value. This includes a measurement team, which bears general responsibility for monitoring all major measurements of fair value, including Level 3 fair values, and reports directly to the Group Management Board.

A regular review is carried out of the major unobservable inputs and the measurement adjustments. If information from third parties (e.g. price quotations from brokers or price information services) is used to determine fair values, the evidence obtained from third parties is examined in order to see whether such measurements meet the requirements of , including the level in the fair value hierarchy to which these measurements are attributable. Major items in the measurement are reported to the Audit Committee.

As far as possible, UNIQA uses data that are observable on the market when determining the fair value of an asset or a liability. On the basis of the inputs used in the valuation techniques, the fair values are assigned to different levels in the fair value hierarchy:

  • Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities. At UNIQA these primarily involve quoted shares, quoted bonds and quoted investment funds.
  • Level 2: valuation parameters that are not quoted prices included in Level 1 but which can be observed for the asset or liability either directly (i.e. as a price) or indirectly (i.e. derived from prices), or are based on prices on markets that have been classified as inactive. The parameters that can be observed here include, for example, exchange rates, yield curves and volatilities. At UNIQA these include in particular quoted bonds that do not fulfil the conditions under Level 1, along with structured products.
  • Level 3: valuation parameters for assets or liabilities that are not based or are only partly based on observable market data. The valuations here primarily involve application of the

discounted cash flow method, comparative procedures with instruments for which there are observable prices and other procedures. As there are no observable parameters here in many cases, the estimates used can have a significant impact on the result of the valuation. At UNIQA, it is primarily other equity investments, private equity and hedge funds, ABS and structured products that do not fulfil the conditions under Level 2 that are assigned to Level 3.

If the inputs used to determine the fair value of an asset or a liability can be assigned to different levels of the fair value hierarchy, the entire fair value measurement is assigned to the respective level of the fair value hierarchy that corresponds to the lowest input significant for the measurement overall.

UNIQA recognises reclassifications between different levels of the fair value hierarchy at the end of the reporting period in which the change occurred.

Valuation process and methods

Financial instruments measured at fair value

For the valuation of capital investments, techniques best suited for the establishment of corresponding value are applied. The following standard valuation techniques are applied for financial instruments which come under Levels 2 and 3:

  • Market approach
    The valuation method in the market value-oriented approach is based on prices or other applicable information from market transactions which involve identical or comparable assets and liabilities.
  • Income approach
    The income approach corresponds with the method whereby the future (expected) payment flows or earnings are inferred on a current amount.
  • Cost approach
    The cost-oriented approach generally corresponds to the value which would have to be applied in order to procure the asset once again.

Non-financial assets and loans

The fair value of investment property is determined within the scope of the impairment test.

The loans are accounted for at amortised cost. Any required impairment is determined with due regard to the collateral and the debtor’s creditworthiness.

Financial liabilities

The fair value of financial liabilities and is determined using the discounted cash flow method. Yield curves and CDS spreads are used as inputs.

Valuation techniques and inputs in the determination of fair values

Assets

Price method

Input factors

Price model

Fixed-income securities

 

 

 

Listed bonds

Listed price

Unlisted bonds

Theoretical price

CDS spread, yield curves

Present value method

Unquoted asset backed securities

Theoretical price

Discounted cash flow, single deal review, peer

Variable-income securities

 

 

 

Listed shares/investment funds

Listed price

Private equities

Theoretical price

Certified net asset values

Net asset value method

Hedge funds

Theoretical price

Certified net asset values

Net asset value method

Other shares

Theoretical value

WACC, (long-term) revenue growth rate, (long-term) profit margins, control premium

Expert opinion

Derivative financial instruments

 

 

 

Equity basket certificate

Theoretical price

CDS spread, yield curves

Black-Scholes Monte Carlo N-DIM

CMS floating rate note

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

LIBOR market model, Hull-White-Garman-Kohlhagen Monte Carlo

CMS spread certificate

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Contract specific model

Fund basket certificate

Theoretical price

Deduction of fund prices

Contract specific model

FX (Binary) option

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes-Garman-Kohlhagen Monte Carlo N-DIM

Option (Inflation, OTC, OTC FX options)

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes Monte Carlo N-DIM, contract specific model, inflation market model NKIS

Structured bonds

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes-Garman-Kohlhagen Monte Carlo N-DIM, LMM

Swap, cross currency swap

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black-Scholes-Garman-Kohlhagen Monte Carlo N-DIM, Black–76-model, LIBOR market model, contract specific model

Swaption, total return swaption

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Black - basis point volatility, contract specific model

Variance, volatility, correlation swap

Theoretical price

CDS spread, yield curves, volatilities (FX, cap/floor, swaption, constant maturity swap, shares)

Contract specific model, Heston - Monte Carlo optimal strategy

Investments from investment contracts

 

 

 

Listed shares/investment funds

Listed price

Unlisted investment funds

Theoretical price

CDS spread, yield curves

Present value method

Valuation hierarchy

Assets and liabilities measured at fair value

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2017

31/12/2016

31/12/2017

31/12/2016

31/12/2017

31/12/2016

31/12/2017

31/12/2016

Available-for-sale financial assets

 

 

 

 

 

 

 

 

Variable-income securities

727,791

394,259

125

6,761

128,173

270,673

856,090

671,692

Fixed-income securities

13,145,667

11,501,701

2,520,819

3,890,571

307,081

426,587

15,973,566

15,818,859

Total

13,873,458

11,895,959

2,520,944

3,897,332

435,254

697,260

16,829,656

16,490,551

Financial assets recognised at fair value through profit or loss

 

 

 

 

 

 

 

 

Variable-income securities

0

0

17,684

25,058

11,732

19,206

29,415

44,264

Fixed-income securities

174,829

92,683

79,138

77,540

60,915

60,786

314,881

231,009

Derivative financial instruments

20

0

84,249

73,728

80,767

61,393

165,037

135,122

Investments from investment contracts

56,630

58,318

971

1,606

2,818

0

60,419

59,924

Total

231,479

151,001

182,042

177,932

156,232

141,385

569,753

470,318

Assets in disposal groups held for sale

0

3,763,960

0

357,583

0

32,212

0

4,153,754

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2017

31/12/2016

31/12/2017

31/12/2016

31/12/2017

31/12/2016

31/12/2017

31/12/2016

Financial liabilities

 

 

 

 

 

 

 

 

Derivative financial instruments

0

0

22,502

30,555

2,307

0

24,809

30,555

Total

0

0

22,502

30,555

2,307

0

24,809

30,555

Fair values of assets and liabilities measured at amortised cost

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2017

31/12/2016

31/12/2017

31/12/2016

31/12/2017

31/12/2016

31/12/2017

31/12/2016

Investment property

0

0

0

0

2,217,627

2,248,279

2,217,627

2,248,279

Loans and receivables

 

 

 

 

 

 

 

 

Loans and other investments

0

0

327,579

576,340

143,387

153,736

470,966

730,076

Fixed-income securities

50,356

51,499

152,994

340,994

32,360

94,785

235,711

487,279

Total

50,356

51,499

480,574

917,335

175,747

248,521

706,677

1,217,355

Assets in disposal groups held for sale

0

0

0

0

0

5,852

0

5,852

In € thousand

 

Level 1

 

Level 2

 

Level 3

 

Total

31/12/2017

31/12/2016

31/12/2017

31/12/2016

31/12/2017

31/12/2016

31/12/2017

31/12/2016

Financial liabilities

 

 

 

 

 

 

 

 

Liabilities from loans

0

0

0

0

13,837

14,968

13,837

14,968

Total

0

0

0

0

13,837

14,968

13,837

14,968

Subordinated liabilities

1,065,171

927,240

0

0

0

0

1,065,171

927,240

Transfers between Levels 1 and 2

In the reporting period transfers from Level 1 to Level 2 were made in the amount of €198,974 thousand (2016: €1,346,667 thousand) and from Level 2 to Level 1 in the amount of €1,506,647 thousand (2016: €1,074,490 thousand). These are attributable primarily to changes in trading frequency and trading activity.

Level 3 financial instruments

The following table shows the changes to the fair values of financial instruments whose valuation techniques are not based on observable inputs.

In € thousand

RZB shares

Fixed-income securities

Other

Total

At 1 January 2016

135,848

0

65,359

201,207

Transfers to Level 3

0

347,585

221,544

569,129

Gains and losses recognised in profit or loss

0

0

–928

–928

Gains and losses recognised in other comprehensive income

–9,777

–1,242

–2,208

–13,227

Purchases

0

80,244

9,703

89,947

Sales/redemptions

0

0

–3,478

–3,478

Reclassification as assets in disposal groups held for sale

0

0

–4,005

–4,005

At 31 December 2016

126,071

426,587

285,987

838,645

At 1 January 2017

126,071

426,587

285,987

838,645

Transfers from Level 3 to Level 1

–126,071

0.0

0.0

–126,071

Transfers to Level 3

0

107,276

1,741

109,017

Gains and losses recognised in profit or loss

0

–24,697

9,579

–15,119

Gains and losses recognised in other comprehensive income

0

–1,573

2,178

605

Purchases

0

99,756

11,284

111,040

Sales/redemptions

0

–300,268

–24,462

–324,730

Changes from currency translation

0

0

–7

–7

Change in basis of consolidation

0

0

–4,202

–4,202

At 31 December 2017

0

307,081

282,098

589,178

The transfers between levels 2 and 3 were made as a result of changes in the observability of the relevant inputs. Due to the merger of Raiffeisen Zentralbank Österreich Aktiengesellschaft (RZB), Vienna, with Raiffeisen Bank International AG (RBI), Vienna, UNIQA now only holds shares in RBI. Following the market listing of RBI these now have Level 1 input parameters, resulting in a transfer of the former RZB shares to Level 1.

Sensitivities

For the most important financial instruments in Level 3, an increase in the discount rate by 100 basis points results in a reduction in the value of 3.7 per cent (2016: 2.0 per cent). A reduction in the discount rate by 100 basis points results in a 3.7 per cent increase in value (2016: 2.8 per cent).

Loans and other investments

In € thousand

Carrying amounts

31/12/2017

31/12/2016

Loans

 

 

Loans to affiliated unconsolidated companies

0

1,800

Mortgage loans

17,150

22,189

Loans and advance payments on policies

8,409

8,359

Other loans

7,576

7,685

Total

33,135

40,033

Other investments

 

 

Bank deposits

327,579

576,340

Deposits retained on assumed reinsurance

110,252

113,703

Total

437,831

690,043

Total sum

470,966

730,076

The carrying amounts of the loans and other investments correspond to their fair values. The measurement is based on collateral and the creditworthiness of the debtor; for deposits with banks it is based on quoted prices.

Impairment of loans

In € thousand

31/12/2017

31/12/2016

At 1 January

–25,832

–33,843

Allocation

–1,025

–697

Use

19,056

7,919

Reversal

1,502

815

Currency translation

–39

–26

At 31 December

–6,339

–25,832

Contractual maturities of loans

In € thousand

Fair values

31/12/2017

31/12/2016

Up to 1 year

2,625

5,369

More than 1 year and up to 5 years

8,575

9,892

More than 5 years up to 10 years

12,377

13,317

More than 10 years

9,558

11,456

Total

33,135

40,033

Fair value
The fair value is the price that would be collected in an ordinary business transaction between market participants for the sale of an asset or that would be paid for transferring a liability.
Amortised cost
Amortised costs are costs of acquisition less permanent impairment (e.g. ongoing depreciation and amortisation).
Fair value
The fair value is the price that would be collected in an ordinary business transaction between market participants for the sale of an asset or that would be paid for transferring a liability.
Hedging
Hedging against unwanted changes in exchange rates or prices using an appropriate offsetting item, particularly derivative financial instruments.
Available-for-sale financial assets
The available-for-sale financial assets include financial assets that are neither due to be held to maturity, nor have they been acquired for short-term trading purposes. Available-for-sale financial assets are measured at fair value. Fluctuations in value are recognised in other comprehensive income in the consolidated statement of comprehensive income.
Amortised cost
Amortised costs are costs of acquisition less permanent impairment (e.g. ongoing depreciation and amortisation).
Available-for-sale financial assets
The available-for-sale financial assets include financial assets that are neither due to be held to maturity, nor have they been acquired for short-term trading purposes. Available-for-sale financial assets are measured at fair value. Fluctuations in value are recognised in other comprehensive income in the consolidated statement of comprehensive income.
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).
Subordinated liabilities
Liabilities that can only be repaid following the rest of the liabilities in the event of liquidation or bankruptcy.