37. Changes in major accounting policies as well as
new and amended standards

With the exception of the following changes, the outlined accounting policies were consistently applied to all periods presented in these consolidated financial statements.

Amendments and standards to be applied for the first time

The Group applied the following amendments to standards, and they were first adopted at 1 January 2017. None of the new regulations arising from this have any essential impact on UNIQA’s financial position.

Standard

 

Content

First time application by UNIQA

Impact on UNIQA

IAS 12

Income tax – recognition of assets from deferred taxes for unrealised losses

1 January 2017

Yes

IAS 7

Statement of Cash flows – Disclosure Initiative

1 January 2017

Yes

New and amended standards to be applied in the future

The IASB has also published a range of new standards that will be applicable in the future. The Group does not intend to adopt these standards early.

Standard

 

Content

First time application by UNIQA

Endorsement by the EU at 31 December 2017

Likely to be relevant for UNIQA

New standards

 

 

 

IFRS 9

Financial Instruments

1 January 2021

Yes

Yes

IFRS 15

Revenue from Contracts with Customers

1 January 2018

Yes

Yes

IFRS 16

Leases

1 January 2019

Yes

Yes

IFRS 17

Insurance Contracts

1 January 2021

No

Yes

IFRIC 23

Uncertainty over Income Tax Treatments

1 January 2019

No

Yes

Amended standards

 

 

 

Miscellaneous

Annual Improvements Project 2014–2016

1 January 2017

No

Yes

IFRS 4

Insurance Contracts – Applying IFRS 9 together with IFRS 4

1 January 2018

Yes

Yes

IFRS 2

Share-based Payment – Classification and Measurement of Transactions with Share-based Payments

1 January 2018

No

Yes

IAS 40

Investment Property – Clarification of Classification

1 January 2018

No

No

IFRIC 22

Foreign Currency Transactions and Advance Consideration

1 January 2018

No

No

IAS 28

Investments in Associates and Joint Ventures – Long-term Interests in Associates and Joint Ventures

1 January 2019

No

Yes

IFRS 9

Financial Instruments – Prepayment Features with Negative Compensation

1 January 2021

No

Yes

The following standards to be applied in future are expected to have a significant impact on reporting at UNIQA:

IFRS 9 – Financial Instruments

The IASB published the final version of IFRS 9 (Financial instruments) in July 2014. This replaces IAS 39 (Financial Instruments: Recognition and Measurement) in its entirety and comes into force effective 1 January 2018. The different effective dates applicable to IFRS 9 and IFRS 17 which must be applied to reporting periods as of 1 January 2021 would result in increased volatilities in profits and duplicate migration efforts for the transition period. As a result of this, the IASB published adjustments in 2016 to IFRS 4 (Insurance Contracts) which allow insurance companies to recognise certain profits or losses in other comprehensive income (overlay approach) or to defer the initial application time for IFRS 9 until IFRS 17 comes into force (deferral approach) as part of a transition process. UNIQA intends to adopt the deferral approach. This will be applied for reporting periods as of 1 January 2018. Under the deferral approach there must be a statement regarding how the insurance company stating its accounts qualifies for the temporary exception, and information must also be provided which enables a comparison with companies that are already drawing up their balance sheet in accordance with IFRS 9.

IFRS 9 is introducing new regulations on classification and measurement and on the impairment of financial assets plus regulations on the procedure for hedge accounting. The classification and measurement of financial liabilities remains unchanged compared to IAS 39.

The classification by measurement categories takes place on the one hand based on the business model used to manage the financial instruments, and on the other based on the features of the underlying contractual cash flow. Measurement at is only permitted if the contractual cash flows can be characterised as interest payments and repayments (SPPI criterion – Solely Payments of Principal and Interest”) and the asset is assigned to a business model that is aimed at holding financial instruments for the collection of contractual cash flows. The measurement not recognised in profit or loss is only permitted for those financial instruments which meet the SPPI-criterion and are assigned to a business model (hold and sell). All other assets are measured at fair value through profit or loss. There is also the option of recognising equity instruments not held for trading at in other comprehensive income.

The rules on impairment under IFRS 9 are applied to financial instruments which are recognised at fair value or at amortised cost in other comprehensive income. This way a risk provision must be formed for each financial instrument during initial recognition in the same amount as the defaults which are expected to occur within the next twelve months. The risk provision must be increased to a lifetime expected credit loss in the course of the subsequent measurements, if the probabilities of default increase significantly compared to the time of the initial recognition.

It must be assumed that the new classification rules under IFRS 9 will result in an increase in the number of financial instruments which are accounted for at fair value through profit or loss and that the volatility of the profits will likewise increase. Effects on equity can also be expected from the new impairment model for debt instruments.

UNIQA is currently at the project stage of the technical model development for the SPPI-decision tree and of system integration of the SPPI-logic developed for the Group’s entire securities portfolio. According to initial rough estimates, the overwhelming proportion of UNIQA’s securities portfolio will pass the SPPI-test, as this is of a simple interest payment and repayment nature. The second project phase associated with the SPPI-criterion involves the systematic quality assurance and detailed analysis of more complex financial instruments.

The business model to which the financial instruments are assigned is crucial for the purposes of arriving at a comprehensive assessment of the impact of IFRS 9. It must be assumed that the “hold and sell” business model is the appropriate business model for insurance companies. Its objective is to hold financial assets in order to collect contractual cash flows on the one hand and on the other to generate cash flows from selling them. However, it will only become clear in the final interaction with IFRS 17 which options are exercised with respect to the business models applied in order to manage the volatility on profits mentioned above.

IFRS 16 – Leases

The new leasing standard replaces IAS 17 and governs the reporting of leases. UNIQA acts both as a lessee and a lessor. There are no material adjustments to accounting on the lessor side necessary as a result of the introduction of IFRS 16. With contracts for which UNIQA is the lessee, the contracts previously classified as operating leases would now be subject to capitalisation in the form of a right-of-use asset with a corresponding leasing obligation.

The standard will be applied to reporting periods beginning on or after 1 January 2019. UNIQA has selected the modified retrospective assessment for the initial application. There are around 2,000 contracts across the entire Group which fall within the scope of IFRS 16 and for which UNIQA is lessee. Most of the portfolio is made up of standard contracts that are not very complex and on the whole relates to real estate and operating and office equipment. The lease payments recorded each year amount to around €30 million. Most of the contracts feature a term of between three to five years. However, there is an increase in the total assets and liabilities stated in the balance sheet as a result of the capitalisation of the usage right and the statement of the corresponding obligation as a liability, although this is not expected to exceed 0.3 per cent of the total assets according to initial estimates. There will be no material impact on the items in the income statement and no differences in the statements made as a result of the regulations in IFRS 16.

UNIQA will exercise the option not to capitalise the usage rights for short-term leases and contracts for low-value assets.

IFRS 17 – Insurance Contracts

IFRS 17 was published in May 2017 and covers the classification, recognition and measurement of insurance contracts. The previous standard IFRS 4 ceases to be effective as a result of IFRS 17.

IFRS 17 describes the regulations for presenting assets and liabilities arising from insurance contracts on the balance sheet. Three key approaches to mapping are included in IFRS 17:

  • The general measurement model represents the basic model for mapping insurance contracts. The profit from entering into insurance contracts is assessed in this as the contractual service margin (CSM) which forms a separate liability item in order to avoid stating an immediate profit. The planned dissolution of the CSM over the contractual term results in an insurance undertaking’s profit. At the same time the CSM also acts as a buffer in the event of adjustments to actuarial items. The general measurement model applies to all insurance contracts which fall within the scope of IFRS 17, unless any of the following exceptions applies.
  • The premium allocation approach is a simplified form of the general measurement model which applies to contracts for which the measurement under the premium allocation approach does not result in any material change as compared with the general management model, or which feature a term of less than one year. In its basic form the premium allocation approach corresponds with existing property and casualty insurance in which a type of unearned premium is formed. However, claim provisions also need to be accounted for on the balance sheet in this simplified approach based on an expected cash value plus a .
  • The variable fee approach is a further variation on the general measurement model for insurance contracts whose payments are contractually linked to the income from certain reference values (direct participating features). The CSM is variable in this approach as a result of the .
  • The approach and the measurement of insurance contracts take place at the group level. The insurance contracts are pooled in portfolios, with portfolios characterised by the fact that contracts contained within these are exposed to similar risks and are managed together. How-ever, these contracts must be divided further into at least three subgroups:
    • group of contracts that already involve a loss when the contract is formed,
    • group for which it is unlikely that the contracts will involve a loss during the term of the contract, or
    • remaining group.

Insurance contracts that have been issued at an interval of more than one year cannot belong to the same group.

UNIQA will apply the standard retrospectively for the first time in the reporting period starting on 1 January 2021.

The actuarial measurements were outlined in more detail in 2017 based on the preliminary studies already carried out. Model calculations were completed for these for the portfolio of UNIQA Österreich Versicherungen AG, which holds a significant part of UNIQA’s insurance portfolio. The models created for these will continue to be consistently tracked and developed over the next few years and also gradually rolled out to other Group companies. The pilot projects show that intensive use of resources can still be expected until final implementation of IFRS 17. This relates to both the adaptation of the actuarial model as well as the corresponding IT systems in the finance area.

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.
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.
Risk margin
Under Section 161 of the Austrian Insurance Supervision Act 2016, the risk margin is an add-on to the best estimate to ensure that the value of technical provisions equates to the amount that insurers and reinsurers would need so that they are able to assume and satisfy their insurance and reinsurance obligations.
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.