6.2 Estimates and assumptions made

6.2.1 Fair value

Assumptions applicable for determining the fair value of assets are presented in point 10.

6.2.2. Impairment Goodwill

Key assumptions made for the purpose of estimating the recoverable amount for subsidiaries are presented in point 27. Financial instruments measured at amortized cost

The assessment is made for all balance credit exposures (balance groups of credit exposures) in order to identify objective evidence for impairment. It is made in accordance with the most recent data on the day of value remeasurement. While determining the amount of impairment loss, the assessment of the estimations of amounts and realization dates of future cash flows is made. The estimations are based on assumptions concerning many factors, hence the real results may vary. This may lead to a future change in the amount of an impairment loss.

Individual assessment is valid for impaired exposure exceeding the adopted materiality or exposure thresholds (PLN 150 thousand for individual client and PLN 500 thousand for business client), or exposure for which there is no possibility of separating a group of assets with similar credit risk characteristics or the attempt to assess the parameters of the group is insufficient.

The individual assessment is based on an analysis of possible scenarios (business clients) or an Event Tree for possible events (individual clients). The probability of realization and expected salvages were assigned to each scenario or branch of the Tree. The standard Event Trees which represent different collection strategies were prepared for the individual clients. The assumptions for individual measurements are thoroughly described. The values of the salvages expected in individual measurements are compared to salvages realized quarterly.

The group measurement is based on the time the given exposure spends in the state of impairment; it takes into account the characteristics of a given group in terms of expected salvages. The hedges are recognized on the exposure level.

The credit exposures for which individual evidence of impairment loss was not identified are grouped with respect to the homogeneity principle concerning risk profile and the provision for exposure group for the coverage of losses incurred but not reported is created.

Impairment losses on assets held to maturity and loans and receivables are determined as the difference between the carrying amount of the asset and the present value of estimated future cash flows discounted using the effective interest rate determined upon initial recognition (original effective interest rate).

If in a subsequent period the amount of impairment decreases as a result of an event that occurred after the impairment, the previous impairment loss is reversed by adjusting the balance of impairment losses. The reversal amount is recognized in the statement of profit or loss under “Net result on realization and impairment losses on investments”. Equity instruments quoted on the regulated markets as well as participation units and investment certificates issued by investment funds

Impairment losses on equity instruments quoted on the regulated markets, units in open-end investment funds and certificates issued by closed-end investment funds classified as available for sale are recognized if at least one of these two conditions is met:

  • negative difference between the present value and cost represents at least 30% of the cost;
  • value of an asset as at the end of each of the 12 consecutive months is lower than the cost.

Impairment losses are not recognized if it is concluded that the aforesaid events may be reversed within 6 months from the balance sheet date or there are any other indications that the decreases may be temporary in nature. Receivables from insurers

Receivables from insurers are reviewed in order to determine possible occurrence of impairment indicators.

Firstly, impairment losses for individual assets are assessed. An impairment loss for individual asset is made for a single account receivable after an evaluation of the economic and financial situation of the debtor and the probability that the amount due will be paid. These receivables are not taken into account in group impairment losses.

As far as accounts receivable from debtors that are in liquidation or bankrupt are concerned, the impairment loss is based on the amount of receivables not covered by a guarantee or another security. If the debtor saw their bankruptcy petition dismissed and the debtor’s assets are not sufficient to satisfy the costs of bankruptcy proceedings, the total value of the account receivable is written-off.

An impairment loss for individual asset is increased when there are indications suggesting that the estimated amount which can be recovered has decreased or that the amount due, for which the impairment loss for individual asset was created, has grown. An impairment loss for individual asset is reversed if it is estimated that the amount which can be recovered exceeds previous estimates or if it has been confirmed that the receivables will be paid partially or in full. An impairment loss for individual asset is used if the receivables are to be partially or fully remitted or written-off.

Where no case-by-case estimates have been made, the impairment of receivables is assessed on a collective-basis, which provides grounds for a group impairment loss.

Non-life insurance

The group impairment loss is assessed on the basis of the adopted model of a permanent yet individually insignificant impairment assessment. In the model, the impairment loss is determined on the basis of collective assessment of impairment of receivables due from insurers grouped according to similar characteristics of the credit risk.

Mature receivables are subject to age analysis, depending on their overdue period. Mature receivables are reduced by the value of the receivables subject to impairment losses for individual assets. The group impairment loss is assessed according to individual overdue periods and on the basis of the uncollectible ratios of mature receivables that are determined on the basis of a historical analysis.

For non-matured receivables, the value of receivables that will probably become mature is determined on the basis of a historical analysis of the share of overdue receivables. The amount determined in this way is reduced by the value of the receivables subject to impairment losses for individual assets. On the basis of the remaining amount of receivables, an impairment loss in the amount of the uncollectible ratio of mature receivables for the shortest overdue period is determined.

Life insurance

The group impairment loss is assessed for receivables which are not subject to impairment losses for individual assets. Receivables are grouped according to similar credit risk characteristics which indicate the debtor’s ability to repay the entire debt. It is also allowed to group receivables according to criteria different than how long they have been overdue, as long as it allows for a more accurate estimate of the value of the group impairment loss. Calculations are carried out separately for each insurance product or groups of insurance products.

The amount of group impairment losses is estimated using the models which are created and updated on the basis of data concerning debt collection in respective groups sharing similar characteristics, based on historical data with respect to uncollectible in particular categories of being overdue.

6.2.3. Assumptions made in estimation of technical provisions for non-life insurance

When calculating a provision for capitalized value of annuities, estimated future increase of an average annuity is based on historical data taking into account other information that may result in an increase in the value of annuities in the future (for instance, increased insurance awareness, legislation changes etc.).

Based on the forecast inflation and the pay growth rates, the technical rate of 3.6% and the growth rate of 3.9% were applied to all annuities, both as at 31 December 2016 and 31 December 2015.

As regards life annuities, the period during which annuity claims are paid is determined based on publicly available statistics, such as, for example, the Polish Life Expectancy Tables (PLET) published by the Central Statistical Office in Poland. Additionally, calculation of the provision for capitalized value of annuity claims includes the cost of their future management in the amount of 3% of the value of paid claims.

The final estimated value of claims and benefits paid in the provision development triangles, as well as an analysis of sensitivity of the net result and equity to changes in the assumptions made for determining provisions for the capitalized value of annuities are presented in point Methodologies used to calculate the IBNR provision and the old portfolio provision are described in point

6.2.4. Assumptions made in estimation of technical provisions for life insurance products

Provisions for life insurance equal the value of liabilities arising from the concluded insurance contracts. It is determined as a difference between the current value of expected claims and the current value of expected premiums using the so-called net premium method. The calculation of provisions includes all claims and premiums provided for in the contracts as contractual liabilities and receivables, irrespective of the fact whether the contract will be maintained by the insurer until the end of the period or terminated. The assumptions for the frequency of events under insurance coverage, i.e. mortality, incidence proportion and accident rate is determined based on publicly available statistics, such as PLET in Poland, or based on own statistics developed on the basis of historical data for individual classes of products found in the portfolio.

The assumptions used in the calculation of life insurance provision are determined separately for individual insurance products at the time of determining premium rates and marketing a given product. Every year, the approved assumptions are verified in terms of adequacy. In the case when any of the originally determined assumptions is found to be insufficient, the adjustments are made; however, in the case of lack of insufficiency, the lock-in-assumptions are applied.

Frequency of events covered by insurance

The calculation of provisions includes data on the guaranteed amount insured and benefits, data concerning age and sex of individual policyholders, as well as the assumptions on the age and sex structure of the coinsured (family members of the insured) in the case of group employee insurance and individually continued and family insurance.

For insurance contracts with discretionary participation features and old portfolio insurance, life insurance provision covers also previously granted share in profit in the form of insurance amounts and premiums adjustments and realignment of granted benefits, including revaluation of annuities done by PZU Życie.

An analysis of sensitivity of the net result as well as equity to changes in the assumptions made for determining the value of technical provisions for life insurance is presented in point

6.2.5. Calculation of provisions for employee benefits

Provisions for retirement and death benefits (as presented in point 40) are estimated using actuarial methods with the application of appropriate actuarial techniques and assumptions:

  • discount rates, in accordance with the yield curve for zero-coupon Treasury bonds,
  • mortality rate at the level specified in PLET,
  • anticipated pay growth rates in respective PZU Group entities,
  • employee turnover ratio (differing due to, among other things, the employee’s age, duration of employment, and sex) and
  • disability rate (entitlement to a disability pension) as a relevant percentage of the mortality rate.

6.2.4. Estimated provisions for disputes

Provisions for disputes are estimated using the individual method, taking into account the probability of an outflow of cash, including economic benefits to settle the obligation. Outflow of cash is regarded as probable if the event is more likely than not to occur, i.e. the probability that the event will occur is greater than the probability that it will not.

Detailed description and amounts of provisions for disputes are presented in points 41 and 48.

6.2.7. Deferred tax assets and liabilities

PZU Group entities estimated taxable future income taking into account the possibility of realization of negative temporary differences due to a tax loss incurred by these companies. No deferred tax assets concerning unused tax loss were recognized in result of the estimations. Unrecognized deferred tax assets and liabilities are presented in point 42.


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