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Risk related to financial assets
Table below presents the results of the analysis of the net financial result and PZU Group’s revaluation reserve sensitivity to changes in interest rate risk, exchange risk, and equity instruments price risk. The analysis does not take into account the effect of changing interest changes for insurance or investment contracts presented as liabilities and Alior Bank receivables from customers.
| Sensitivity of assets portfolio (in PLN million) | Change of risk factor | 31 December 2016 | 31 December 2015 | ||
| Impact on net financial result | Impact on equity | Impact on net financial result | Impact on net financial result | ||
| Interest rate risk | drop by 100 bps | 334 | 36 | 601 | 149 |
| increase by 100 bps | (316) | (34) | (548) | (142) | |
| Foreign currency risk | increase by 20% | 143 | 103 | 89 | 15 |
| drop by 20% | (143) | (103) | (89) | (15) | |
| Equity instruments risk | increase by 20% | 595 | 308 | 545 | 207 |
| drop by 20% | (595) | (308) | (545) | (207) | |
Financial assets exposed to exchange risk include deposit transactions and debt instruments used to hedge payments from technical provisions denominated in foreign currencies, exposures to equity instruments listed on stock exchanges other than WSE, investment fund units and certificates, exposures to derivatives denominated in foreign currencies and financial assets of consolidated foreign insurance companies.
Risk pertaining to technical rates and mortality
Table below shows a sensitivity analysis of the net result and equity to changes in the assumptions used to calculate the capitalized annuities. The analysis does not take into account the impact of changes in valuation of the deposits taken into consideration in calculation of the reserve on the net financial result and equity.
| sensitivity of provisions | Impact of assumptions on: | |||
|---|---|---|---|---|
| net financial result | equity | |||
| 31 December 2016 | 31 December 2015 | 31 December 2016 | 31 December 2015 | |
| Change in assumptions used to calculate the provisions for capitalized annuities net of reinsurance in non-life insurance (in PLN million) | ||||
| Technical rate – increase by 0.5 p.p. | 398 | 412 | 398 | 412 |
| Technical rate – decrease by 1.0 p.p. | (1,030) | (1,064) | (1,030) | (1,064) |
| Mortality 110% of existing value | 124 | 127 | 124 | 127 |
| Mortality 90% of existing value | (138) | (142) | (138) | (142) |
| Change in assumptions for annuities in life insurance (in PLN million) | ||||
| Technical rate – decrease by 1 p.p. | (29) | (32) | (29) | (32) |
| Mortality 90% of existing value | (11) | (12) | (11) | (12) |
| Change in assumptions for provisions for insurance and investment contracts with DPF in life insurance, excluding annuities (in PLN million) | ||||
| Technical rate – decrease by 1 p.p. | (2,112) | (2,157) | (2,112) | (2,157) |
| Mortality 110% of existing value | (891) | (902) | (891) | (902) |
| 110% of morbidity and injury rates | (153) | (179) | (153) | (179) |
Banking activity
Estimates of the BPV for Alior Bank, which determines the estimated change in measurement of a given transaction/item due to a parallel shift of a yield curve by 1 bp are presented in the tables below.
At 31 December 2016 (in PLN thousand)
| Currency | up to 6 months | 6 months – 1 year | 1 year – 3 years | 3-5 years | 5-10 years | Total |
| PLN | (19) | 305 | 605 | 111 | (433) | 569 |
| Other currencies | (6) | 9 | (40) | (44) | (36) | (117) |
| Total | (25) | 314 | 565 | 67 | (469) | 452 |
At 31 December 2015 (in PLN thousand)
| Currency | up to 6 months | 6 months – 1 year | 1 year – 3 years | 3-5 years | 5-10 years | Total |
| PLN | (192) | 17 | 370 | (140) | 30 | 85 |
| Other currencies | (13) | (5) | (27) | (21) | (6) | (72) |
| Total | (205) | 12 | 343 | (161) | 24 | 13 |
In order to measure currency risk, Alior Bank applies a Value at Risk model which means a potential loss of value on the foreign exchange currency positions held, simultaneously maintaining the assumed confidence level and position holding period. To determine VaR, Alior Bank applies a variance and covariance method, maintaining a 99% confidence level. The value is determined daily for given areas responsible for risk taking and managing, separately and jointly. As at 31 December 2016, maximum loss on currency portfolio held by the Bank (managed under a business accounting book), determined on the basis of VaR in a 10-day horizon, could amount to PLN 280 thousand (PLN 106 thousand as at 31 December 2015), at the 99% confidence level assumed.
The risk was more extensively presented in the Alior Bank financial statements.
