CIG PAnnonia LIFE INsurance PLC.
	SEPARATE Financial Statements and Business Report for the year 2022, prepared according to the international financial reporting standards accepted by the European Union

 

 

 

 

 

 Contents

 

 

Financial Statements

Statement of Comprehensive Income

Statement of Financial Position

Statement of Changes in Shareholders’ Equity

Statement of Cash Flows

Notes to Financial Statements

Business Report

  

 

 

CIG PAnnonia LIFE

INsurance PLC.

 

Separate Financial Statements for the year 2022, prepared according to the International Financial Reporting Standards accepted by the European Union

 

 

28 March 2023

 

Statement of Comprehensive Income			Data in THUF
	megj.	2022	2021 (restated)
Gross written premium		26 833 916	22 212 463
Changes in unearned premiums reserve		- 54 408	- 70 210
Earned premiums, gross		26 779 508	22 142 253
Ceded reinsurance premiums		- 843 646	- 276 241
Earned premiums, net	8	25 935 862	21 866 012
Premium and commission income from investment contracts	9	105 045	147 397
Commission and profit sharing due from reinsurers	10	313 302	2 381
Investment other income	11	234 246	11 576 963
Interest income based on effective rate		770 141	430 005
Yield on investment of associates	11	834 500	448 109
Other operating income	12	876 341	937 423
Other income		3 133 575	13 542 278
Total income		29 069 437	35 408 290
Claim payments and benefits, claim settlement costs	13	- 14 718 137	- 14 947 760
Recoveries, reinsurer’s share	13	124 314	64 082
Net changes in value of the life technical reserves and unit-linked life insurance reserves	14	- 2 104 825	- 12 009 427
Investment expenses	11	- 3 608 752	- 1 059 904
Impairment and impairment reversal of financial assets	11	- 7 072	- 6 258
Change in the fair value of liabilities relating to investment contracts	39	178 470	- 436 816
Investment expenses, changes in reserves and benefits, net		- 20 136 002	- 28 396 133
Fees, commissions and other acquisition costs	15	- 4 883 217	- 3 763 253
Other operating costs	16	- 1 712 780	- 1 707 839
Other expenses	17	- 757 369	- 307 792
Operating costs		- 7 353 366	- 5 778 884
Profit/Loss before taxation		1 580 069	1 233 273
Tax income/expenses	18	- 240 028	- 184 215
Deferred tax income/expenses	18	117 016	87 797
Profit/Loss after taxation		1 457 057	1 136 855
Comprehensive income, wouldn’t be reclassified to profit or loss in the future	19	- 602 294	- 574 917
Comprehensive income, would be reclassified to profit or loss in the future	19	- 3 129 280	- 1 616 687
Other comprehensive income		- 3 731 574	- 2 191 604
Total comprehensive income		- 2 274 517	- 1 054 749
Earnings per share (consolidated)
Basic earnings per share (HUF)	20	12,9	17,8
Diluted earnings per share (HUF)	20	12,8	17,7

 

 

Statement of Financial Position		Data in THUF
ASSETS	megj.	2022. december 31.	2021. december 31. (restated)
Intangible Assets	21	730 572	615 125
Property, plant and equipment	22	132 659	159 822
Right of use assets	23	276 578	385 461
Deferred tax asset	18	590 836	473 820
Deferred acquisition costs	24	1 434 785	1 251 601
Reinsurer’s share of technical reserves	36	457 684	178 930
Subsidiaries	25	4 200 772	4 068 923
Associates	25	51 753	51 753
Available-for-sale financial assets	26	-	21 507 125
Other financial assets at fair value	26	16 413 265	-
Investments for policyholders of unit-linked life insurance policies	27	86 205 307	85 664 010
Financial assets – investment contracts	28	5 167 307	5 237 951
Financial assets – derivatives		34 467	937
Receivables from insurance policy holders	29	2 707 547	1 832 689
Receivables from insurance intermediaries	30	123 576	32 481
Receivables from reinsurance	31	363 675	15 663
Other assets and prepayments	32	64 380	43 796
Other receivables	33	100 254	69 827
Intercompany receivables	34	111 972	70 617
Cash and cash equivalents	35	2 588 805	741 831
Total Assets		121 756 194	122 402 362
LIABILITIES
Technical reserves	36	18 466 109	16 633 261
Technical reserves for policyholders of unit-linked life insurance policies	38	86 205 307	85 664 010
Investment contracts	39	5 167 307	5 237 951
Loans and financial reinsurance	40	6 704	37 739
Liabilities from reinsurance	41	647 539	85 013
Liabilities to insurance policy holders	42	846 589	833 437
Liabilities to insurance intermediaries	43	218 089	156 728
Lease liabilities	44	318 781	414 318
Provisions	45	196 134	43 728
Other liabilities	46	1 375 321	1 042 756
Intercompany liabilities	47	30 371	11 577
Liabilities to shareholders	CF	30 253	19 929
Total Liabilities		113 508 504	110 180 447
NET ASSETS		8 247 690	12 221 915
SHAREHOLDERS’ EQUITY
Share capital	48	3 116 133	3 116 133
Capital reserve	48	4 019 111	4 019 111
Treasury shares	49	- 31 996	- 31 996
Other reserves	50	- 6 636 383	- 2 971 871
Retained earnings		7 780 825	8 090 538
EQUITY ATTRIBUTABLE TO THE COMPANY'S SHAREHOLDERS		8 247 690	12 221 915

 

 

Changes in Equity 2022											Data in THUF
	Notes	Registered capital	Capital reserve		Treasury shares		Other reserves			Retained earnings		Equity in total
Balance on 31 December 2021		3 116 133	4 019 111		- 31 996		- 2 971 871			8 090 538		12 221 915
IFRS 9 entry effect	5.2.4						67 062			- 67 062		-
Vlance on 1 January 2022		3 116 133	4 019 111		- 31 996		- 2 904 809			8 023 476		12 221 915
Total comprehensive income
Other comprehensive income	19						-3 731 574					-3 731 574
Profit after tax in reporting year										1 457 057		1 457 057
Transactions with equity holders, recognized in equity
Payment of divident										-1 699 708		-1 699 708
Balance on 31 December 2022		3 116 133	4 019 111		-31 996		-6 636 383			7 780 825		8 247 690

Changes in Equity 2021 restated									Data in THUF
	Notes	Registered capital	Capital reserve	Share based payment	Other reserves	Retained earnings				Equity in total
Balance on 31 December 2020		3 116 133	4 019 111	-	- 780 267	7 071 702				13 435 517
Effects of MRP Accounting policy change	5.2.3					- 126 857				- 126 857
Balance on 1 January 2021 (restated)		3 116 133	4 019 111	-	- 780 267	6 944 845				13 308 660
Total comprehensive income
Other comprehensive income	19				-2 191 604					-2 191 604
Profit after tax in reporting year (restated)						1 136 855				1 136 855
										-
Transactions with equity holders, recognized in equity										-
Treasury share purchase	49			-31 996						- 31 996
Deduction of share-based payments	3.11					8 838				-
Balance on 31 December 2021		3 116 133	4 019 111	- 31 996	- 2 971 871	8 090 538				12 221 915

 

Changes in equity 2021 (original)							Data in THUF
	Notes	Registered capital	Capital reserve	Share based payment	Other reserves	Retained earnings	Equity in total
Balance on 31 December 2020		3 116 133	4 019 111	-	-780 267	7 071 702	13 435 517
Total comprehensive income
Other comprehensive income	19				-2 191 604		-2 191 604
Profit after tax in reporting year						1 160 677	1 160 677
							-
Transactions with equity holders, recognized in equity							-
Treasury share purchase	49			31 996			31 996
Treasury share sales	49			-31 996		1 004	- 30 992
Deduction of share-based payments	3.11					8 838	-
Balance on 31 December 2021		3 116 133	4 019 111	-	- 2 971 871	8 242 221	12 405 594

Statement of Cash Flows		Data in THUF
	Notes	2022	2021 (restated)
Profit/loss after taxation		1 457 057	1 136 855
Modifying items
Depreciation and amortization	16	343 545	338 379
Derecognised asset	17	-345	- 7 083
Booked impairment	17	821 175	897 515
Result of assets sales	11	48 228	18 303
Share based payments	3.11	-	6 780
Exchange rate changes	11	- 116 237	- 24 252
Result of associates	11	- 843 661	- 436 156
Dividend from subsidiaries	5.2.3	-	- 11 953
Income taxes expenditure	18	240 028	184 215
Deferred tax	18	- 117 016	- 87 797
Interest received	11	- 731 319	- 429 994
Result of derivatives	11	- 23 161	7 502
Provisions	45	152 406	- 237 951
Derecognition of leasing assets	23	8 358	290
Interest cost	11	3 203	6 630
Change of active capital items:		-	-
Increase / decrease of deferred acquisition costs (-/+)	24	- 183 184	- 115 527
Increase / decrease of investments for policyholders of unit-linked life insurance policies (-/+)	27	- 541 297	- 11 542 275
Increase / decrease of financial assets – investment contracts (-/+)	28	70 644	- 1 007 882
Increase / decrease of receivables from insurance contracts and other receivables (-/+)	29, 30,33	- 1 263 332	1 612
Increase / decrease of reinsurer’s share from technical reserves (-/+)	36	- 278 753	288 832
Increase / decrease of intercompany receivables (-/+)	34	- 41 355	10 618
Increase /decrease of other assets and active accrued and deferred items (-/+)	32	- 20 585	- 32 653
Increase / decrease of technical reserves (+/-)	36	1 832 847	3 214 595
Increase / decrease of liabilities from insurance (-/+)	41, 42, 43	637 039	162 019
Increase / decrease of investment contracts (+/-)	39	- 70 644	1 007 882
Increase / decrease of technical reserves due to unit-linked life insurance (+/-)	36	541 297	11 542 275
Increase / decrease of intercompany payables (+/-)	47	18 795	- 32 231
Increase / decrease of other liabilities (+/-)	46	332 566	561 704
Increase / decrease in liability to equity holders (+/-)		-	-
Paid Income Taxes	18	- 206 244	- 158 751
Cash flows from operating activities		2 070 055	5 247 941

 

Statement of Cash Flows (cont.)					Data in THUF
Cash flow from investing activities		Notes		2022		2021 (restated)
Purchase of debt instruments (-)		26		- 8 918 985		-   16 494 820
Sales of debt instruments (+)		26		10 227 462		14 596 673
Sales and purchases of capital intruments (+/-)		26		12 413		-
Purchase of tangible and intangible assets (-)		21, 22		- 328 838		-         454 924
Sales of tangible and intangible assets (+)		21, 22		998		25 666
Result of derivatives		11		- 10 369		2 666
Equity increase in subsidiaries (cost assumption)		25		- 1 000 000		-     3 500 000
Interest received		11		791 780		627 794
Dividend received		11		843 661		448 109
Cash flow from investing activities				1 618 122		-        4 748 836
CASH FLOW FROM FINANCING ACTIVITIES		megj.
Lease repayment payment		44		- 98 212		- 53 533
Lease interest payment		44		- 10 329		- 8 458
Repayment of loans and their interests		41		- 34 656		- 117 862
Purchase of treasury shares		49		-		- 31 996
Dividend payment				- 1 701 797		-
CASH FLOW FROM FINANCING ACTIVITIES				- 1 844 994		- 211 849
Impacts of exchange rate changes				3 791		5 174
Net increase / decrease of cash and cash equivalents (+/-)				1 846 974		292 430
Cash and cash equivalents at the beginning of the period				741 831		449 401
Cash and cash equivalents at the end of the period				2 588 805		741 831

Notes to the financial statements

1        General Information

CIG Pannónia Life Insurance Public Limited Company (registered office: 1097, Budapest, Könyves Kálmán krt. 11. B; company registration number: 01 10 045857; registry court: Court of Registration of the Budapest-Capital Regional Court) (hereinafter: Company or Insurer) is registered in Hungary which was established as a Private Limited Company on 26 October 2007.

On 4 November 2009, the General Meeting decided on the change of the Insurer's operating form a Private Limited Company to a Public Limited Company. The public sale of CIGPANNONIA shares lasted from October 11, 2010 to October 22, 2010, during which the total amount of new publicly traded shares (10,850,000 shares) was registered and the Insurer received a total of HUF 9.3 billion new capital.

Since 12 April 2012 the Securities of the Insurer are traded in the BSE Shares Class “A” and after in the “premium” category and the shares are included in the BUX basket.

The Insurer started its sales activities on May 26, 2008 and continued its activities as of January 1, 2010 under the name CIG Pannónia Életbiztosító cPlc. Starting in May 2009, it started selling its products in Romania, and in September 2010 in Slovakia, however from 2016 in these countries the Insurer only manages the previously acquired portfolio.

The parties signed a contract on 7 October 2016 according to which the Company acquired 98.97% ownership interest in MKB Life Insurance cPlc. while its subsidiary, CIG Pannónia First Hungarian General Insurance Ltd. acquired 98.98% ownership interest in MKB General Insurance cPlc from Versicherungskammer Bayern. The acquisition was registered by the Registry Court in case of the Issuer on 18 January 2017 and in case of the Issuer’s subsidiary on 25 January 2017 and thus the CIG Group acquired 98.98% of MKB General Insurance cPlc and 98.97% of MKB Life Insurance cPlc as at 1 January 2017.

On 30 June 2017, the Court of Registration of the Budapest-Capital Regional Court registered the merger of Pannónia Life Insurance cPlc. (formerly MKB Life Insurance cPlc.) into CIG Pannónia Életbiztosító Plc. and the merger of Pannónia General Insurance cPlc (formerly MKB General Insurance cPlc) into CIG Pannónia First Hungarian General Insurance Ltd.

CIG Pannónia Life Insurance Plc. concluded a strategic cooperation agreement with MKB Bank cPlc. on 11 April 2017. According to the agreement, the two companies concluded a long-term cooperation, the pension and life insurance products of CIG Pannónia are sold in the branches of MKB Bank, while the agents of CIG Pannónia is also selling the products of MKB Bank to the clients. With the strategic cooperation of the Company and MKB Bank, the mutually beneficial cooperation between the companies continued to strengthen.

At the beginning of 2018, the Insurer entered into a strategic cooperation agreement with KONZUM Nyrt. On April 27, 2018, according to the resolution of the General Meeting of 30 January 2018, the Company acquired a 6.56% stake in KONZUM Investment and Property Management Plc. In addition, in an OTC trade the Company purchased 1,368,851 shares at a price of HUF 3,000 each, representing 6.56% of the 20,860,000 KONZUM shares in circulation at that time.

On 25th April 2018 the Central Bank of Hungary has authorized by its decision No. H-EN-II-38/2018. the acquisition of qualified influence of KONZUM Investment and Asset Management Plc. over CIG Pannonia Life Insurance Public Limited Company based on direct ownership exceeding the 20% limit, and over CIG Pannonia First Hungarian General Insurance Public Limited Hungary based on indirect ownership exceeding the 20% limit. By the Transaction KONZUM Plc. subscribed 23,466,020 pieces of dematerialized “A” series ordinary shares issued by the Insurance Company with the face value of HUF 40, and with the issue value of HUF 350. As a result of the Transaction, the KONZUM Plc. acquired the 24,85% direct ownership over the Insurance Company. The Court of Registration has passed the resolution number 01-10-045857/370 on 8 May 2018with the effect of the registration of the increase of the share capital, so the share capital of the Company has been increased to 3,777,130,400 Hungarian Forints and the amount of the shares issued by the Company to 94,428,260 pieces. The private placement of shares was launched on the Budapest Stock Exchange on 21 September 2018.

On 29 November 2018, the Board of Directors of the Company decided to establish the Employee Stock Option Program (hereinafter referred to as “MRP”). The establishment of the MRP took place in order to implement the Remuneration Directives adopted by the Company's General Meeting. Based on the decision of the Board of Directors on April 5, the Company transferred to the CIG Pannonia MRP a total of 374,006 CIGPANNONIA ordinary shares held by the Company as non-cash contributions to cover performance rewards through the MRP. After the transfer of shares, the Company does not hold CIGPANNONIA shares anymore.

The Annual General Meeting of the Company held on April 17, 2019 with decree of 8/2019. (04.17.) decided to reduce the share capital of the Company, as a result of which the share capital decreased from HUF 3,777,130,400 to HUF 3,116,132,580. The Company implemented the capital reduction by reducing the nominal value of the registered “A” series ordinary registered shares (94,428,260 pieces) of HUF 40 in the amount of 33 HUF per share, the way of carrying out the reduction was to reduce the nominal value of the shares. This change is subject to the Company Court Registry with decision of Cg.01-10-045857 / 395. The Company's share capital consisted of 94,428,260 ordinary registered shares (“A” series) with a nominal value of HUF 33 each. All rights and obligations relating to the new shares are in accordance with the rights and obligations attached to the former shares in accordance with the provisions of the Company's Articles of Association and Act V of 2013 on the Civil Code. The share exchange date was September 26, 2019. The capital reduction represented 17.5 percent of the Company's equity as of December 31, 2018, based on which the total amount of the payment was HUF 3 billion, HUF 31.96 per share. The Company fulfilled the payment in September 2019.

At the meeting held on June 29, 2020, the Board of Directors of the Company decided on the increase of the share capital of the Company (hereinafter: Share Capital Increase). The Share Capital Increase was carried out by the Company in such a way that it increased the nominal value of 94,428,260 dematerialized voting shares with a nominal value of HUF 33 each, issued by the Company, to HUF 100 per share. With its announcement on 4 August 2020, the Company postponed the share exchange required in connection with the Share Capital Increase. The share exchange was postponed in order (i) to comply fully with the regulation dated on 17 June 2017 (2017/1129) of the European Parliament and the Council and (ii) in view of the fact that the Extraordinary General Meeting of the Company convened on 14 August 2020 intended to decide on the reduction of the Company's share capital. Subsequently, the General Meeting of the Company decided on 14 August 2020 to reduce the share capital of the Company with its resolution No. 22/2020 (VIII.14) (“Share Capital Reduction”). As a result, the share capital of the Company decreased from HUF 9,442,826,000 to HUF 3,116,132,580. The share capital reduction was carried out by the Company in such a way as to reduce the nominal value of 94,428,260 dematerialized voting shares with a nominal value of HUF 100 each, issued by the Company, to HUF 33 per share.

This change was entered in the register of companies by the number Cg.01-10-045857/439. order of the Registry Court of the Metropolitan Court. In view of the registration of the Share Capital Reduction in the meantime, the registration of the Share Capital Increase has become obsolete, so KELER Ltd. will not create registered shares of the “A” series with a nominal value of HUF 100 and issued on the regulated market. However, taking the fact into account that a new series of shares was issued as a result of the Share Capital Decrease, the ISIN identifier of the newly issued series “A” ordinary shares with a nominal value of HUF 33 has changed, therefore the Company has carried out a technical share exchange. The first trading day of the new ordinary shares with a nominal value of HUF 33 (HU0000180112) on the Budapest Stock Exchange was on 9 December 2020.

On 27 November 2020, the Board of Directors of the Company amended its dividend policy. According to the Company's new dividend policy, after realistic provisioning to take advantage of acquisition and non-organic growth opportunities is a primary goal. Dividends should be paid by taking into account the Solvency Capital Requirement and the Company's liabilities, financial and management plans. The funds available above this, which can be paid as forms of dividends, may be paid as dividends to the stakeholders.

Hungarikum Insurance Broker Ltd. announced that it had made a conditional (with the official authorization) agreement with OPUS GLOBAL Plc. on 24 September 2020 on the acquisition of Company's 23,466,020 series “A” dematerialized ordinary shares with a nominal value of HUF 33, representing 24.85% of the Company's share capital. Subsequently - but before the approval of the HFSA - on 20 October 2020, the Hungarikum Insurance Broker Ltd. purchased an additional 400,000 ordinary shares in a stock exchange transaction, for which reason its direct voting rights in the Company exceeded 5%.

The HFSA authorized Hungarikum Insurance Broker Ltd. to acquire a qualified influence in the Company based on direct ownership exceeding the 20% threshold but not exceeding 33% with its resolutions No. H-EN-II-128/ 2020.  The HFSA’s decision also extended Hungarikum Alkusz Ltd. acquiring a qualifying influence in the Company's subsidiary, CIG Pannónia Első Magyar Általános Biztosító Ltd., based on indirect ownership exceeding the 20% threshold but not reaching 33%. The HFSA authorized Keszthelyi Holding Ltd. and Erik Keszthelyi to acquire a qualifying influence in the Company and in the Company's subsidiary CIG Pannónia Első Magyar Általános Biztosító Ltd. based on direct ownership exceeding the 10% threshold but not exceeding 20% with its resolutions No. H-EN-II-129/ 2020 and No. H-EN-II-130/ 2020. The rate of the Hungarikum Alkusz Ltd. direct share at the end of 2020 is 32.86%, the number of its ordinary shares amounted to a total of 31,025,072.

Pursuant to the authorization of the Articles of Association, the Board of Directors relocated the registered office of the Company with effect from 1 February 2021, the new registered office: 1097 Budapest, Könyves Kálmán krt. 11. B. The Company also relocated the registered office of its subsidiaries with the same effective day.

The Board of Directors of the Company (with the no. 19/2020. (IV.24.) authorized by a resolution of the Board of Directors within the competence of the General Meeting) for the purpose of providing benefits to the MRP organization, with the help of MKB Bank Plc., on 29 March 2021, purchased 100,000 treasury shares at an average price of HUF 319 (no payment was made from the MRP Organization during the concerned period). The shares provided covers future payments subject to the terms and conditions of the MRP Organization, which are conditional and deferred, as well as maintenance obligations. As a result of the transaction the Company’s treasury shares inventory has increased from 0 pieces to 100,000 pieces, which was 0.10 % of the amount of issued shares. The treasury shares were transferred to the MRP Organization on 6 May 2021.

HUNGARIKUM Biztosítási Alkusz Ltd. (registered office: H-8086 Felcsút, Fő utca 65., company registration nr.: 07 09 028910, tax ID nr.: 13010133-4-07, acting on its behalf: Erik Keszthelyi, managing director) (Acquirer, later: Designated Acquirer) and MKB Bank Public Limited Company (registered office: H-1056 Budapest, Váci u. 38., company registration nr.: 01-10-040952, tax ID nr.: 10011922-4-44) as investment service provider entrusted pursuant to Section 68 (4) of Tpt., for the reason and in order to achieve the goal of gaining influence to the extent specified in Section 68 (1) (b) of the Capital Markets Act CXX of 2001 (Tpt.), have submitted a mandatory public takeover bid for the purchase of registered ordinary shares issued by the Company (ISIN: HU0000180112) with a face value of HUF 33 (i.e. thirty-three forints) each. On June 18, 2021 the aforesaid takeover bid was submitted to the MNB (the Central Bank of Hungary) as Supervisory Authority for approval as well as to the Board of Directors of the Target Company, initiating its immediate publication.

The Board of Directors of the Company – following the information published in a transparent manner, including the disclosure of interim processes – and the Designated Acquirer and the investment service provider informed the Investors on the 7 September 2021 that the Offer had been approved by the HFSA by its decision H-KE-III-529/2021 dated 6 September 2021. The offer period lasted from 09:00 on 10 September 2021 to 12:00 on 11 October 2021.

Immediately after receiving the decision of the Supervisor, the Designated Acquirer initiated the publication of the result of the supervision procedure and the approved tender offer, indicating the start and end date of the acceptance deadline (ie. for the period from 10 September 2021 to 11 October 2021), which the Target Company complied with within the legal deadline.

In accordance with the statement sent on 13 October 2021, the Designated Acquirer and the investment service provider informed the investors and other participants of the capital market about the result after the deadline October 13, 2021 for acceptance of the Offer.

During the period open for the acceptance of the mandatory public takeover bid the shareholders have made valid declaration of acceptance regarding a total of 12,592,366 CIGPANNONIA shares. The Designated Offeror took over all validly offered shares, as a result of which the direct influence of the Designated Offeror together with its previous shares changed from 32.96% to 46.30% in the Target Company.

Based on the notification made by VINTON Vagyonkezelő Kft. to the Company on 18 October 2021, VINTON sold 11,140,311 CIGPANNONIA shares, representing 11.79% of the Company's shares - it was the subject of the public takeover bid, during and under the conditions set out therein. As a result of the transaction on 18 October 2021, the number of voting shares directly owned by VINTON decreased from 11,140,311 to 0 and thus represents 0% of the total number of shares issued.

All such announcements were immediately communicated by the Company through its announcement at the official publication sites, as well as the fact that the number of shares held by the Hungarikum Biztosítási Alkusz Ltd. in the Company changed to 52,397,438 through the acquisition of 8,680,000 shares, bringing the proportion of his voting shares to 55.48% - crossing up the Tpt. threshold value determined in accordance with Section 61 (1) and (3).

In 2021 and 2022, after the above announcement, Hungarikum Biztosítási Alkusz Ltd. further increased its ownership share through shares acquired on the stock exchange, by notifying the Company in a transparent manner of certain acquisitions of ownership in the stock exchange – even those that do not reach the limit value. Thus, the proportion of voting shares changed finally to 54,311,474 shares, bringing the proportion of its voting shares to 57.52%.

On 1 October 2021 the Company took over the portfolio of insurance contracts previously managed by the Dimenzió Mutual Insurance and Self-Help Association, amounting to approx. HUF 1 billion, mainly consisting of traditional insurance products. The owners of the contracts, which are mainly pension insurance contracts, automatically became customers of CIG Pannónia Life Insurance with the transfer. The settlement of the stock transfer was completed by the end of 2021.

The Company entered into a cooperation agreement with BNP Paribas Cardif Life Insurance Ltd. and BNP Paribas Cardif Insurance Ltd. on 14 October 2021. Pursuant to the agreement, the above contracting parties intend to extend their cooperation in the field of credit insurance previously exclusively related to the mortgage loans of MKB Bank Plc. to a wider range of products and customers. The subject and content of the agreement fit well into the framework of the previously published Growth Strategy, which contains development directions and goals. It should be assessed and contributes to the goal of the CIG Pannonia Insurer becoming a reliable, dominant-sized and stable composite insurer with a portfolio of life and non-life products in the coming period.

The Company decided on 23 December 2021 to increase the share capital of EMABIT by an additional HUF 5,000,000, as a result of which the new share capital of EMABIT increased to HUF 1,070,000,000. The share capital increase has taken place through the private placement of 5 new dematerialized registered ordinary shares with a nominal value of HUF 1,000,000 and an issue value of HUF 400,000,000, with the payment of a cash contribution - having the same rights as the shares previously issued. The full share capital increase has been performed by the Company as the sole owner of EMABIT. Simultaneously with the share capital increase, the Company placed the difference between the issue and the nominal value of the shares, i.e. HUF 1,995,000,000, in the capital reserve of EMABIT. According to the information published by the Company on 30 December 2021, increase of the share capital took place by issuing new shares in accordance with the Company's new strategic vision, financing the operation of the business units restarted by EMABIT and the growth of the portfolio.

EMABIT entered into a partnership agreement with UNION Vienna Insurance Group Biztosító Plc. (registered office: 1082 Budapest, Baross u. 1., company registration number: 01-10-041566) on 11 November 2021. Thanks to the agreement it will further expand its range of non-life insurance as an integral part of the implementation of the Growth Strategy and will offer travel and home insurance to its retail customers from April 2022. On the non-life insurance line, EMABIT has entered the retail market with its Iránytű travel and LakóTárs home insurance, and has also been awarded the Qualified Consumer Friendly Home Insurance rating by the Hungarian National Bank on 9 March 2022.

On 22 February 2022, the Company and its 100% owned subsidiary EMABIT entered into a 20-year framework agreement with MKB Bank Plc. (Registered seat: 1056 Budapest, Váci u. 38.; Reg. no.: 01-10-040952) and Magyar Bankholding Ltd. (1134 Budapest, Kassák Lajos utca 18.; Reg. no.: 01-10-140865). Pursuant to the framework agreement, according to the implementation and timing of its terms, Magyar Bankholding Ltd. undertook to distribute and sell only the products of the CIG Pannónia Group with respect to products belonging to the life and non-life insurance segments through all sales channels of its member banks controlled and managed by a qualified majority, i.e. MKB Bank Plc., Budapest Bank Ltd. and Takarékbank Ltd. (member banks).

The establishment of the framework agreement is expected by the parties to create the long-term conditions for making full use of the synergies inherent in a banking-insurance cooperation, for which the parties have undertaken - specifying the detailed rules, modalities, financial terms, rights and obligations of their cooperation - to establish targeted cooperation agreement(s) in a regulated form and manner. All this is embodied on one hand in the banking product sales activities and the related sales promotion activities, on the other hand in the exclusive insurance sales activity and related sales promotion activity by Magyar Bankholding Ltd. and its member banks.

The Company signed a similar strategic agreement with Euroleasing Pénzügyi Szolgáltató Zrt, the largest player in the leasing market, in the second quarter of 2022.

With its decision no. H-EN-II-115/2022 dated 13 July 2022 Magyar Nemzeti Bank also authorized that - likewise based on the referred Agreement with BNP Paribas Cardif insurers - BNP Paribas Cardif Életbiztosító Zrt.’s contract portfolio containing all group life insurance contracts (insurance contracts belonging to the risk group of group credit coverage life insurance) and to which the insurance contracts are contracted by MKB Bank Nyrt., as the legal successor of BUDAPEST Hitel- és Fejlesztési Bank Zártkörűen Működő Részvénytársaság, are transfered to CIG Pannónia Életbiztosító Nyrt. with effect of 1 September 2022. Following the transfer of the portfolio, CIG Pannónia Biztosítók will be the insurer of the portfolio of contracts specified in the license of the Magyar Nemzeti Bank, which will be reinsured by BNP Paribas Cardif Biztosítók.

At the same time the Magyar Nemzeti Bank (Hungarian National Bank, MNB) with its decision no. H-EN-II-115/2022 dated 13 July 2022 also authorized, that BNP Paribas Cardif Biztosító Zrt.'s contract portfolio containing all group non-life insurance contracts (credit coverage insurance resulting from non-life insurance contracts [except residential property insurance with credit coverage clause], insurance against various financial losses, other residential property insurance insurance contracts) and to which the insurance contracts are contracted by MKB Bank Nyrt., as the legal successor of BUDAPEST Hitel- és Fejlesztési Bank Zártkörűen Működő Részvénytársaság, are transfered to CIG Pannónia Első Magyar Áltános Biztosító Zrt. with the effect of 1 September 2022. The portfolio transfer took place on 1 September 2022 for both insurers.

On 15 December 2022, the Company and EMABIT, together as CIG Pannónia Group, and MKB-Pannónia Egészség- és Önsegélyező Pénztár (headquarters: 1056 Budapest, Váci u. 38.; registration number: 01-04-0000198; tax number: 18232761-1-41) (MKB EP) entered into a long-term, fixed-term (for five years and extendable for another five years) strategic cooperation agreement in order to fully harness the synergies in the cooperation between the fund and the insurance company - thus providing other insurance services (primarily health insurance services) within the applicable legal framework’s possibilities to the fund's membership of more than 200,000 people.

Company’s registered office:      1097, Budapest, Könyves Kálmán krt. 11. B

fax:                                            +36-1-247-2021

Phone:                                       +36-1-5-100-200

webpage:                                  www.cigpannonia.hu

 

1.1.     Owners

The owners of the Company are Hungarian and foreign private individuals and legal entities, the number of shareholders is 5,753 at 31 December 2022. A share of above 10% is owned by Hungarikum Biztosítási Alkusz Ltd., who has a 57.52% share through owning 54,311,374 shares.

Dr. Gábor Móricz has a total of 3,365,000 (3.56%) CIGPANNONIA ordinary shares. Kaptár Befektetési Zrt., which is in close contact with Dr. Gábor Móricz, has a total of 3,500,000 (3.71%) ordinary shares.

The ownership structure:

Owners description	Number of shares	Ownership ratio	Voting right
Domestic private individual	29 723 593	31.47%	31.48%
Domestic institution	63 328 431	67.07%	67.07%
Foreign private individual	137 037	0.15%	0.15%
Foreign institution	22 540	0.02%	0.02%
Nominee, domestic private individual	1 158 518	1.23%	1.23%
Nominee, foreign private individual	18 100	0.02%	0.02%
Nominee, foreign institution	32 726	0.03%	0.03%
Unidentified item	7 315	0.01%	0.01%
Total	94 428 260	100%	100%

The Insurer charged KELER Ltd. with keeping the shareholders' register. If, during the ownership verification, an account manager with clients holding CIGPANNONIA shares does not provide data regarding the shareholders, the owners of the unidentified shares are recorded as “unidentifiable item” in the shareholders’ register.

Insurer implemented Regulation (EU) No 596/2014 of the European Parliament and of the Council on market abuse (MAR Regulation) and implemented technical standards for the precise format used for the preparation and updating of the insider list (10 March 2016) Regulation (EU) No 2016/347 and so maintains an insider list. The Insurer publishes a prohibited trading period for insiders every year on its website.

1.2.     Supervisory Board

Chairman:	János Tima
Members:	Erika Vada
	Ákos Veisz (until 19.04.2022)
	Ildikó Ginzer (from 05.05.2022)

1.3.     Audit Committee

Chairman:	János Tima
Members:	Erika Vada
	Ákos Veisz (until 19.04.2022)
	Ildikó Ginzer (from 05.05.2022)

1.4.     Remuneration and Nomination Board

	István János Fedák dr
	Péter Bogdánffy dr.
	Zsuzsanna Ódorné Angyal

1.5.     Board of Directors

Chairman:	Zoltán Polányi (until 16.01.2023)
	dr. Bogdánffy Péter (2023.01.16-tól)
Members:	dr. Fedák István János
	Ódorné Angyal Zsuzsanna
	dr. Dakó Gábor Miklós (2022.05.10-től)

The Insurer shall disclose the amount of actual remuneration for the performance of elected officers annually in the form of a declaration of assurance on its website.

1.6.     Management

Primary CEO, Chief Executive Officer:	Zoltán Polányi (until 16.01.2023)
	István János Fedák dr. (from 16.01.2023, under authorisation)
Chief Executive Officer:	István János Fedák dr.
Chief Financial Officer:	Árpád Szűcs
Deputy CEO responsible for corporate governance and prudential compliance:	Gábor Miklós Dakó dr.
Deputy Chief Sales Officer of Bank Insurance:	Zoltán Kőrösi (from 01.02.2023: Deputy CEO Sales Division)
Deputy CEO Retail Division:	Kóka Antal (from 01.02.2023)
Deputy CEO for Legal and Business Support:	Dr. Kozma Dávid (from 01.02.2023)
Chief Accounting Officer:	Alexandra Tóth
Chief lawyer and Data protection officer:	Dávid Kozma dr.
Chief actuary:	Géza Szabó
Responsible for actuarial function:	Melinda Márton
	Gábor Varga
Chief Risk Officer and Responsible for risk management:	Diána Hajdú (from 05.01.2022 until 21.02.2022)
	Norbert Kozma (from 23.05.2022)
Head of internal audit:	Erika Marczi dr.
Head of compliance:	Katalin Déri dr.
Responsible for consumer protection:	Zsuzsanna Faránkiné Nagy
	Anna Sternóczky dr. (from 03.10.2022 until 29.01.2023)
	Krisztina Hollósy-Papp (from 29.01.2023)
Senior doctor:	Katalin Halász dr.
Investment relations:	Emese Stodulka

 

1.7.     Data of the signatories of the annual report

István János Fedák dr.

Primary Chief Executive Officer

1026 Budapest, Küküllő street 6.

Géza Szabó

Chief actuary

1123 Budapest, Csörsz street 13.

Public data of the person who is responsible for the financial statements:

Alexandra Tóth

Chief Accounting Officer

8996 Zalacséb, Ady Endre str. 6.

Registration number: 206 012

1.8.     External auditor

In the case of the Insurer, LXXXVIII. (1) of Act LX. statutory audit is mandatory.

Data of the auditor:

Mazars Kft.

1139 Budapest, Fiastyúk utca 4-8., 2^nd floor

Registration number: 000220

Molnár Andrea Kinga, registered auditor

Chamber membership number: 007145

 

The fees charged by the registered auditor for services for the 2022 business year were as follows:

-      Review of the consolidated and standalone financial statements prepared by the Insurer in accordance with International Financial Reporting Standards (“IFRS”) and the issuance of an audit report (together with the related Solvency II Review of the Annual Report), and

-        the preparation of a supplementary report in accordance with Article 71 (4) - (7) (Insurance Act) for (for individual supervisory report) and in addition, the verification of the information contained in the remuneration report under the SRD Act,

-        altogether: HUF 26,500 thousand +2% plus VAT.

2        Statement of compliance with the international financial reporting standards and basis of measurement

2.1    Compliance with the International Financial Reporting Standards

These separate financial statements have been prepared in accordance with the International Financial Reporting Standards that have been adopted by the European Union (EU IFRSs). The EU IFRSs include standards and interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC). The Company also prepares and publishes the consolidated financial statements on its website.

2.2    First Application

IFRS 1 First-time adoption of International Financial Reporting Standards contains guidelines for first-time adopters to facilitate and assist the transition process and make it more transparent. Based on the standard, the first-time adopter is the company who prepares its first financial statements according to the IFRSs. IFRS financial statements are the first annual financial statements in which the Company transfers to IFRSs by expressly and unrestrictedly declaring that these financial statements comply with IFRSs.

Until 31 December 2017 CIG Pannónia Life Insurance Plc. prepared its individual financial statements in accordance with the Hungarian Accounting Act. According to Section 9/A of the accounting law for listed insurance corporations as annual periods beginning after 1 January 2018 it is mandatory to prepare individual financial statements according to IFRS instead of Hungarian Accounting Act. CIG Pannónia Life Insurance Plc. has prepared its separate financial statements of 2018 accoring to the IFRS for the first time, however the company prepared earlier consolidated financial statements in which it expressed unrestrictedly that those complied with IFRSs. The Company as mother company became later a first-time adopter in its separate financial statements than in the consolidated financial statements. Therefore, in the separate financial statements the assets and liabilities are recognized at their value of the consolidated financial statements without the consolidating entries.

 

 

2.3    Basis for measurement

The valuation basis for financial statements is the original cost, except for the following assets and liabilities that are stated at fair value: derivative financial instruments, financial instruments at fair value through profit or loss and available-for-sale financial instruments valued at fair value against comprehensive result.  

2.4    Functional and presentation currency

The financial statements are presented in Hungarian forints (HUF), which is the Company’s presentation currency. The Hungarian forint (HUF) is the functional currency of the Company. The financial statements are presented in Hungarian forints (HUF), rounded to the nearest thousands, except as indicated.

2.5    Use of estimates and assumptions

The preparation of financial statements in compliance with the EU IFRSs requires management to make judgments, estimates and assumptions that affect the applied accounting policies and the reported amounts of assets and liabilities, income and costs. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised, if the revision affects only that year, or in the year of the revision and future years if the revision affects both current and future years. The estimates used by the Company are presented in Note 4 Estimates and Assumptions.

3        Summary of significant accounting policies

The significant accounting policies applied to prepare the financial statements are set out below. The accounting policies have been applied consistently to the periods of operation presented by these financial statements.

3.1  Shares in separate financial statements

The accounting policy chosen for the measurement of shares under IAS 27 determines the range of methods that can be used to determine the carrying amount of a share.

On the basis of its accounting policy decision, the Company may choose the following three valuation principles for the subsequent measurement of the shares in the individual financial statements, which shall be determined by share groups.

•     Cost method

•     Fair value method (as Financial Instrument)

•     Equity Method

The Insurer decided to use the cost method for the valuation of its insurance subsidiaries, other subsidiaries and other shareholdings.

The Company’s strategic share in OPUS GLOBAL Plc (previously Konzum Plc) is valued by the fair value method against other comprehensive income. With respect to strategic interest, the Company applied the “designation” option under IFRS 1 in connection with paragraph 5.7.5 of IFRS 9 when transitioning to individual IFRSs, which allows for the irrevocable decision of equity-type investments to be measured against equity. Thus, any change in the fair value of the strategic interest is recognized in other comprehensive income and no impairment loss is recognized in respect of the strategic interest.

The Insurer may choose from three methods for the valuation of shares under the cost method at the time of the IFRS transition:

•     Cost in accordance with IAS 27, “as if it has always applied IFRS”

•     Value used in the Hungarian individual financial statements as a deemed cost

•     Fair value as a deemed cost

In the case of shares measured at cost, the Insurer used the value used in the Hungarian individual financial statements as a deemed cost for the transition by other subsidiaries and other shareholdings. The Company has decided to use fair value as a deemed cost in respect of insurance subsidiaries. For this purpose, the Company performed a discounted cash flow assessment of its insurer subsidiary as of the date of transition and the amount calculated from the discounted cash flow method was the basis of cost.

As the Insurer decided, at the time of transition, to measure interests at cost determined in accordance with IAS 27, it should perform an impairment test for shares on the basis of IAS 36. If there is an indication that the share is impaired, the recoverable amount of the share shall be determined. The recoverable amount is the higher of the value in use (typically the value determined by the discounted cash flow method) or the fair value less cost to sell. If the recoverable amount is lower than the cost of the asset, impairment is recognized.

3.2       Foreign currency translation

Foreign currency transactions are recorded in the reporting currency by applying the exchange rate between the reporting currency and the foreign currency at the date of the transaction to the amount of foreign currency. Exchange rate differences arising on the settlement of monetary items at rates different from those at which they were initially recorded during the periods are recognized in the statement of comprehensive income in the period in which they arise.

Monetary assets and liabilities denominated in foreign currencies are re-translated at the functional currency rate of exchange prevailing at the end of reporting period. Items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Foreign exchange differences on trade receivables and payables and on borrowings are recorded as investment income or expense. The impacts of period-end translations are accounted in the profit for the period, expect for non-monetary items valued at fair value against other comprehensive result, where the impact of the translation is recorded under other comprehensive income.

Foreign exchange rate gains and losses resulting from the year-end revaluation of financial assets denominated in foreign currency valued at amortized cost and valued at fair value against other comprehensive income shall be accounted for as follows:

- amortized cost value determined in foreign currency, converted to the functional currency at the closing exchange rate, less

- amortized cost value determined in functional currency at the beginning of the period, adjusted by: interest calculated using the effective interest method, where applicable, impairment, and payments during the period (adjusting items expressed in functional currency).

3.3       Policy classification – separation of insurance and investment contracts

Insurance policies are defined as contracts under which the Company accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. The insurance risk is significant if, and only if, it is deemed at the inception of the policy that an insured event could cause the Company to have to finance significant additional payments in any scenario. Such policies remain insurance policies until all rights and obligations are extinguished or expire.

Until now, for determining the insurance risk for each contract, it was determined how, in the case of a regular fee payment, the initial sum at risk is proportional to the amount of the initial regular premium and the initial top-up payment, or in the case of a single premium, the additional risk premium for the single premium.

The Company considered risks that reached 5 percent to be significant. Policies with significant insurance risks were accounted as insurance policies; for policies which did not meet this condition, and if there was a top-up premium payment at the start, the components related to single/regular and top-up premium payments were initially separated; the latter were accounted as investment contracts. The Company carried out again the test outlined above for components related to single/regular premium payments. If the test revealed that the insurance risk was significant, the component was accounted as an insurance policy, otherwise as an investment contract.

In the case of portfolios obtained by the acquisition of MKB Life Insurance Ltd., the Company has retained the original classification of insurance / investment qualification of the contracts, evaluating them at the time of the issuance of the insurance contract. Regarding this portfolio, contracts under 10% risk ratio were qualified as investment contracts. Investment contracts determined according to this ratio form a run-off portfolio.

The Group treats the contracts taken over from the Dimenzió Mutual Insurance and Self-Help Association as insurance contracts, as customers can choose a life annuity for each product in question and its risk share (payments after 85 years) is higher than 5% of the reserve. The contracts form an expiring portfolio.

As of the second quarter of 2022, the Company clarified its accounting for the separation of the contract’s individual components during the separation of insurance and investment contracts. It continues to compare the initial investment and the service payments when determining the significance of insurance risk.

The policyholder's initial investment includes the first regular installment or the single premium, as well as any top-up premiums that they wish to pay together with the first regular installment or the single premium. The initial settled premium is the regular/single or top-up premium credited to the contract up to the date of policy issue.

In the future, the Insurer classifies a unit-linked contract as an insurance contract if the initial settled premium is positive and the maximum of the sums of the guaranteed insurance, the additional risk service and all the rider related to the contract reaches at least 5% of the initial settled premium or if the initial settled premium premium is zero and the sum of the guaranteed insurance, the additional risk service and all the riders related to the contract is positive.

3.4       Insurance policies

IFRS 4 allows the Company until 01.01.2023 to account for insurance policies in accordance with previous accounting policies. Accordingly, the Company presents insurance policies in its financial statements prepared according to the EU IFRSs, in accordance with past practice in compliance with the Hungarian accounting act (Act C of 2000 on Accounting), the decree of the government on the allocation of reserves (Government Decree 43/2015 (III.12.) issued on solvency and technical reserves of the insurers and reinsurers) and in line with its own reservation policy until 31.12.2022 (i.e. for the last time for these financial statements) as follows:

The IFRS 4 Insurance Contracts Standard exempts insurers from the obligation to apply IAS 8 standard accounting policies to their own accounting policies:

(a) insurance contracts issued by the insurer (including related acquisition costs and intangible assets); and

(b) its reinsurance contracts.

However, IFRS 4 does not exempt the insurer under IAS 8 10-12 paragraph:

• Provisions for future claims should not be recognized as an obligation if those claims arise from insurance contracts that did not exist at the end of the reporting period (such as catastrophe reserves and equalization reserves);

• the insurer must perform a liability adequacy test;

• remove a financial liability (or a part of financial liability) from its statement of financial position when and only it is terminated - that is, when the obligation specified in the contract has been met, it is canceled or expired.

·      must not offset:

o    The reinsurance assets against the related insurance liabilities or

o    income or expenses arising from reinsurance contracts against expenses or income from related insurance contracts;

·  consider whether the reinsurance assets are impaired.

The insurer has the opportunity to continue the following

·  valuation of insurance liabilities without discounting;

·  presenting contractual rights for future investment management fees at a value that exceeds their fair value as compared to current fees charged by other market participants for similar services. Most likely the initial fair value of these contractual rights equals the acquisition costs paid for them, unless future investment management fees and related costs are not consistent with market comparative information;

·  the use of non-uniform accounting policies for affiliates’ insurance contracts (and related deferred acquisition costs and related intangible assets, if any). If the accounting policy applied is not unified, the insurer may change it if the change does not make the policies applied even more diversified and complies with the other requirements of IFRS.

The insurer does not need to change its accounting policies for insurance contracts to eliminate excessive prudence. However, if the insurer determines the value of insurance contracts already with sufficient prudence, it should not install further prudence.

3.4.1  Gross written premium

Premiums are recognized as income when earned. Premiums are recognized before the deduction of commissions and before any sales-based taxes or duties. When policies lapse due to non-receipt of premiums or lapse of interest, then all the related earned but not received premium income or cancelled premium related to lapse of interest is offset against premiums. In accordance with the reservation policy the Company also establishes a cancellation reserve for premiums due but not received and for premiums might be cancelled due to lapse of interest (see Note 3.4. 4.(f)).

3.4.2   Claims and benefits

Claims, including payments relating to surrenders, are accounted for in the accounting period in which they are incurred. When claims are reported the Insurer allocates an RBNS reserve totalling the amount of the expected payment; when the claims are paid the reserve is released and then the claim payment becomes settled. At the end of each reporting date a reserve is established for claims incurred but not yet reported (IBNR, see Note 3.4., 4. (c)). Reinsurance recoveries are accounted for in the same period as the related claim.

3.4.3  Acquisition costs

Acquisition costs comprise all direct and indirect costs arising from the selling of insurance policies. Deferred acquisition costs are recognized in the financial statements at the amount by which the direct acquisition costs and other deferrable first year commissions exceed the cost coverage initially collected, but no more than the entire amount of the initial cost coverage. All other acquisition costs are expensed as incurred.

Amortization is settled in accordance with the coverage of the relevant policies in accordance with the product plan and local regulations. The Insurer, in accordance with the accounting principle of accruals the accrual of acquisition costs, delimits the portion of the acquisition costs that are covered by subsequent insurance premiums and which costs have not been taken into account by the Insurer as a factor reducing reserves, for the subsequent years. In later years, it will be released upon receipt of the cost premium in the insurance premium. The accruals for each contract, the sum of the incoming funds, and the combined use of the current depreciation key form the aggregate value of the accrual. The Insurer shall accrue only the costs that may be directly related to the acquisition. If future earnings are not expected to cover the accrued expenses, the Insurer will settle the accruals appropriately at a reduced rate and eliminate the decrease as an expense immediately. For unit-linked products, this amortization is recognized over the first two years of the policies.

For unit-linked contracts issued before 1 January 2022, the Company used the contract conclusion and maintenance fees charged in their entirety for the amortization of contract cost accruals. The Company reviewed the amount of other acquisition, operating costs and insurance surcharges incurred in connection with unit-linked contracts (not included in the calculation of acquisition cost accruals).The other costs incurred are significant (their level increased in 2022 due to the introduction of the insurance surtax), therefore, in the case of unit-linked contracts issued from 2022, the contract conclusion and maintenance fee is only partially used for the amortization of contract cost accruals. The validated cost partly covers the Company's other costs not included in the calculation of the accrual for acquisition costs.

The Company accrues all commissions of annually renewed products and rider covers and the accrued acquisition costs are resolved proportionally over time.

Other renewal commission and direct and indirect acquisition costs arising on developments and amendments to existing policies are expensed as incurred.

 

3.4.4  Measurement of technical liabilities

a)     Unearned premium reserve

The proportion of written gross premiums (Risk premiums in case of unit-linked products) attributable to subsequent periods is deferred as an unearned premium reserve on a time proportional basis. Changes in this reserve are recognized in the profit or loss for the period.

b)    Actuarial reserves

Actuarial reserves – related to the life segment – are calculated according to the product plans and HAL requirements in a prospective way (with the exceptions of some products taken over from the Dimenzió Mutual Insurance Association (hereafter: Dimenzió), for which the reserve calculation is retrospective according to the product plan). The amount of the reserve equals the discounted present value of the future liabilities less the discounted present value of future premiums, applying a predefined technical interest rate for discounting.

The Company in respect of some products applies the Zillmer reserve allocation method, which means that future benefits are taken into account on the expense side of the actuarial reserve, while future Zillmer premiums are considered on the income side. The Zillmer premium is the amount of the net premium and the portion of the premium used to amortize acquisition costs. When applying the Zillmer reserve method the Insurer assumed that the continuous cost coverage in the premium and the actual costs incurred would be the same in each period. For gross reserve allocation all of the expenses (benefits and costs) are shown on the expense side and the Zillmer premium on the income side. This method implies that the gross reserve amount could turn negative due to the negative value of the cost reserve. However, the Insurer follows the prudent approach of not booking any negative reserve; actuarial reserves must reach a minimum value of zero, while any negative amount of the Zillmer reserve is recognized under deferred acquisition costs.

c)   Claim reserves

Reported but not settled claim reserve (RBNS) is based on the difference between the total estimated costs of all claims incurred, reported and the paid claims in respect of these together with related future claim settlement costs; the value of the reserve is determined per claim based on expert estimates.

The Company lowers the amount of the RBNS reserve with the other reserves used to cover the event (e.g. unit-linked reserves not yet withdrawn, or regression reserve).

The Company allocates an itemized regression reserve in extent of the expected recover of regressable claims.

When allocating the claim reserves the incurred but not reported claim reserve (IBNR) is calculated separately. In accordance with the local GAAP requirements, in the life insurance segment (in case of the sectors operating more than 3 years) the IBNR is calculated by statistical estimation with the method of the run-off triangles, based on available statistics. In case of sectors, which are not operating more than 3 years or operating based on an individual contract, the IBNR is calculated as the higher of 6% of earned premiums for the year, or the average sum insured of a product.

d)    Reserve for premium refunds dependent on profit

If the investment return on the assets behind the actuarial reserve exceeds the yield that is priced according to the product plan, then the excess yield repayment policy should be followed in determining the portion of the surplus yield that the policyholders have. In the case of traditional savings products, policyholders usually have at least 80 percent of the surplus yield, but at least the amount of the insurance contract terms. Crediting to the actuarial reserves are made once every calendar year. If this surplus yield has not yet been settled at the reporting date the Company is obliged to increase the reserve for premium refunds dependent on profit according to the Hungarian regulations. The reserve is calculated on an accumulative, retrospective basis.

If a security valued at fair value against other comprehensive income serves as cover for the actuarial reserve, the Company will also allocate a reserve for premium refunds dependent on profit also for the bonus on such security. If the return is negative, the reserve is not reduced.

e)     Reserve for premium refunds independent of profit

For policies where the conditions – no-claims or claim– dictate that the Company undertakes a conditional premium refund, a reserve for premium refunds independent of profit is allocated to cover the amount of the expected premium refund.

In accordance with the elapsed time from the risk-bearing date and the future bonus payment date, taking the determined conditions of the expected bonus into account, a part of the expected bonus payment is allocated for each policy where the conditions for a premium refund prevail on the reporting date.

f)      Cancellation reserve

A The Company allocates a cancellation reserve in accordance with the local GAAP to provide coverage for the expected cancellations due to non-payment or termination. In view of the product structure at the Company, the impact of the premium income received to cover refunds due to eliminating, reducing and temporarily suspending risks, as well as written premium receivables to be adjusted for the above reasons is not significant, and therefore the Company does not believe it is necessary to allocate a cancellation reserve on these grounds. In the case of all unit-linked insurance, the Insurer shall create a cancellation reserve in respect of the unpaid premiums. The reserve is 100% of the outstanding receivables. In case of traditional products, the cancellation reserve is based on the premium earned but not paid, for whose part expected to be cancelled the Group forms its cancellation reserve.

g)    Unit-linked life insurance reserves

Premiums paid for unit-linked products net of costs as specified in the terms and conditions are invested into an investment portfolio chosen by the policyholder and all investment risks are borne by the policyholder. Certain risk premiums and cost coverages are deducted from this investment. Unit-linked reserves are measured based on the underlying net asset value of the unitized investment funds on a continuous basis and as on the reporting date.

In respect of determining the amount of the unit-linked reserve, and ensuring the value of the underlying asset cover, the Company takes into account that the reserve level of the policies shall provide appropriate cover for those liabilities of the future that aren’t covered by future premium incomes. For certain products, which have been sold before the Ethical Life Insurance Regulation entered into force, the level of reserves at the beginning of the life-cycle (typically in the first three years) is determined by several significant external factors, such as investment environment, yield level, the payment cycle as chosen by the client, and those are uncontrollable by the Company.

Due to the possible uncertainty of the mentioned factors, theoretically the applied reserves could be found insufficient, therefore the Company should increase the reserves of the policies, without the availability of the suitable coverage.

To avoid this situation, the Insurer uses prudent assumptions while estimating the sufficient amount of the reserves (in case of the years, when risk of the external/non-controllable factors are high), therefore the unexpected change of the yield environment or choosing an unfavourable payment cycle from the Company’s point of view, couldn’t cause under-reserving in the portfolio level.

After the beginning of the life-cycle of the products (typically from the fourth year), the mentioned uncertainty decreases. The Company adjusts by policies the sufficient level of the underlying reserves (until the end of the initial cost deduction period) annually. This adjustment is made by reallocating the deemed and real units.

h)    Other technical reserves

The Group allocates other technical reserves for unit-linked life insurance policies on policy basis where the clients were entitled to a loyalty bonus benefit based on the terms and conditions and the terms of the loyalty bonus exist at the balance sheet date. Cross selling between policies (the expected probability of losing the right) is not taken into account. The Insurer calculates the amount and the growth rate of the reserve in a way that reserve allocation is made at the same time when cost coverages are deductible from the policies, and the reserve for premium refunds should cover bonus refunds to policyholder on the due date of loyalty bonuses.  The Company also shows the reserve for other bonuses for the Pannonia Loyalty Program. At the moment, the reserve corresponding to the amount of the final Pannonia Loyalty Bonus is created for contracts that are also eligible for (normal) loyalty bonus and Pannonia Loyalty Bonus (thus covering both reserve charges).

Certain contracts of the “Értékmegőrző” product are also eligible for bonus promises. For eligible contracts, the bonus reserve is created continuously, with a 4% probability of cancellation.

 

 

With regard to the portfolio taken over from the Dimenzió Insurance Association, we form other technical reserves for three reasons:

(1)        To cover the expected liability arising from the longevity risk of Dimenzió HNY annuity. We believe that the reserve calculated along to the original (1990) mortality table is not sufficient to meet the annuity payment obligations. Therefore, a recalculation of the liability is performed with an adjusted mortality table, so that no technical interest is applied and this is recorded as other reserves.

(2)        Cost reserve for acquired stock. During the evaluations prior to the takeover of the Dimenzió portfolio, the Insurer concluded that the cost deductions of the Dimenzió products and the accounting reserves formed on the basis of the product plans do not provide sufficient coverage to cover the maintenance costs of the portfolio. For this reason, of a significant part of the surplus reserve received on the transfer of the stock, the Insurer forms other technical reserves for the expenses expected to arise until the validity of the taken over contracts. The reserve includes the Insurer's administrative, investment and claims settlement costs per contract, as well as the costs of maintaining the contract registration system of the Dimenzió portfolio.

(3)        Other reserve for the "Kincsem” product’s accident services. The product includes a built-in accident service, for which the coverage until the end of the expected term is formed as other reserves, based on the methodology adopted from Dimenzió.

In case of the "Twilight" product, the Insurer will offer a discount from the insurance premium due at the last year of the premium payment period, depending on the premium payment period and the age of entry. For this premium discount, the Insurer forms other technical reserve, which is based on the premium payable in the last year. However, when forming the reserve, we also take the expected cancellation into account (due to non-payment of fees, redemption) and the expected mortality until the due date of the given fee.

i)      Reserve on probable future losses

Probable future losses are covered by the Insurer under a separate reserve accounted within other technical reserves. At the reserve allocation the Company takes the past results of the line of business into account, the losses may arise in the future and the active policies in the portfolio at the date of examination. The level of the reserve is equal to the probable future loss.

j)      Liability adequacy test

At each reporting date, an assessment is made using current estimates of future cash flows as to whether the recognized technical reserves less deferred acquisition costs are sufficient to cover future cumulated cash flows. If that assessment shows that the carrying amount of the liabilities (less DAC) is insufficient in light of the estimated future cumulated cash flows, the deficit is recognized first as impairment of DAC then by allocating additional reserves.

3.5    Investment contracts

3.5.1  Division of investment contracts, premiums paid

Contracts that primarily involve the transfer of financial risks (the insurer does not transfer significant insurance risk, such as long-term savings contracts) are not accounted for by the Insurer as insurance contracts, but as investment contracts and are divided into two parts:

·        to a financial liability, which is accounted for in accordance with IFRS 9, and

·        to an investment service contract part, which (the related income) is accounted for in accordance with IFRS 15.

The Insurer's investment contracts include unit-linked contracts that do not meet the definition of an insurance contract.

Amounts repayable to the investor are accounted for using deposit accounting methods, under which the amounts received reduced by the cost coverage specified in policy terms are recognized directly in the statement of financial position as financial liabilities to the investor. For the settlement of liabilities, see point 3.5.4.

For the accounting of fees charged in the framework of investment contracts as income, see point 3.5.5.

3.5.2  Services

In case of investment contracts, benefits paid are not included in the statement of comprehensive income, their effects are presented as a reduction of the investment contract liabilities.

 

 

 

3.5.3  Acquisition costs

Acquisition costs comprise all direct and indirect costs arising from the sale of investment contracts. All acquisition costs are expensed as incurred. The portion of the accounted acquisition costs, which is covered by subsequent premiums for the investment contract, or if the policy is cancelled, then by returned commissions from brokers, is deferred until the cost coverage is received by the Company. The Company assesses the probability of recovery of deferred acquisition costs on an individual basis. If the coverage is not likely to be received for the deferred costs, or if the investment contract is cancelled, the Company cancels the deferral and accounts the cost to profit or loss (under Premiums, commissions and other acquisition costs).

3.5.4  Liabilities

All investment contract liabilities are designated on initial recognition as held at fair value through profit or loss by the Insurer, since the Insurer manages these financial liabilities, together with the related assets (investments), on a fair value basis. The financial liability in respect of investment contracts is measured based on the underlying net asset value of the unitized investment funds on the reporting date.

In addition, other accounting insurance technical reserves related to investment contracts (other than unit-linked reserves) are reclassified to the provisions balance sheet line.

3.5.5  Premium and commission income from investment contracts

Premium income includes various premiums charged on investment and insurance policies, the amount of which is determined by the product conditions (e.g. administration fee, management fee, fee for changing the asset fund, risk fee).

Fees charged for investment management services provided are recognized as revenue in the period when the services are provided, for single premium contracts, the fund-proportional management fee dominating the deductions is a similar amount for each year. In the case of contracts with regular fees, the deduction of the management fee varies in proportion to the managed assets. The contract conclusion and administration fees are charged by the Insurer at the beginning of the term, at the same time as the service - i.e. registration and creation of the contract in the systems - is incurred. The costs charged to the customer in relation to the payment of the services are recognized when the services are paid for.

3.6   Income and expenses relating investments

Income and expenses relating investments comprise dividend and interest income, interest expenses, gains and losses from exchange rate differences, and gains and losses (both unrealized and realized) arising from net fair value changes of financial assets measured at fair value through profit or loss. Interest received in respect of interest-bearing financial assets measured at fair value through profit or loss is included in net gains and losses arising from fair value changes. Interest income, and expenses from loans, receivables and funds is accounted using the effective interest rate method. Interest income calculated using the effective interest rate method is included in a separate line of the comprehensive income statement (Interest income calculated using the effective interest method).

3.7    Other operating income

3.7.1  Income from the fund management

Fund management fees are deducted by the Company directly to the unit-linked funds according to the product conditions and booked in other operating income.

3.7.2  Income of pending charges

In case of regular premium unit-linked life insurance policies pending charge occurs, when the Insurer is entitled to distract costs, but the policyholder does not have sufficient accumulation units for the deduction. The date of cost deduction is the date of emergence. Based on the accounting rule of matching whether expenditure occurs (risk exists, administration, service occurs) in parallel income should have been accounted for. In case of emerging pending charge income is booked as other operating income and receivables from insurance policies and other receivables. The income related to pending charge is derecognized through profit or loss when the actual costs are deducted according to product conditions, and the concerning incomes realizing through to the reduction of unit-linked reserves.

3.7.3  Recognition of other income related to the acquisition of stock

In parallel with the acquisition of the insurance portfolio of the Dimenzió Insurance Association, the Company is entitled to income from its consortium partner, which is expected to be realized financially within four years. As the Company is entitled to this revenue in connection with the transfer of the portfolio, the two transactions cannot be separated according to the principle of offsetting and matching.

As IFRS 4 does not establish a specific set of rules for the recognition of portfolio acquisition income, the Company determines the recognition of other income related to portfolio acquisition in accordance with the principles of matching and IFRS 15 as follows. Revenue recognition is separated from financial realization and the share from the total expected revenue in the given period is resolved into profit or loss parallel to the incurring and expiring of the estimated services related to the acquired stock. The Company recalculates the estimated run-off of the service on a quarterly basis.

3.8       Leases

The four criteria below must be combined with a lease to be considered a lease under IFRS 16:

- the asset can be identified

- the lessee has the right to obtain substantially all the economic benefits of the use

- the lessee controls the use of the asset

- the contract is a leasing contract or contains lease.

Short term leases (less than 12 months without a purchase option) and low value assets are excluded from the standard as simplification option.

The lessee shall disclose in its statements of financial position the depreciable asset that represents the right of use in the financial statement and the liability for leasing payments on the liability side. While depreciation and interest component are recognized as an expense in the income statement.

The insurer idefinied the following leasing contracts, which were examined in detail:

- software leasings

- server leasings

- office equipment leasing (e.g. printers)

- office lease

- car lease

In the case of software leasing, the lessee may choose, in accordance with IFRS 16.4, not to apply the requirements of the standard and continue to account for the cost of the lease as an expense. The Company uses this exemption and treats software leases in accordance as well.

In connection with the servers, several points of the definition are fulfilled by the existing contract. However, since the server capacity is rented in a server park where not all capacity is occupied by the part used by the insurer or the servers are not specifically identifiable or detachable, therefore, according to IFRS 16: B20, the lease of the servers does not fulfill all criteria of financial leasing.

In the case of printers and other office equipment, the Company has identified contracts for which the terms of the lease definition are met. For these contracts, the Company intends to make use of the simplification of low-value leases, as the value of the leased assets identified in these contracts is not significant.

In the case of office rent and car rent (based on IFRS 16: 13-15), components related to a lease agreement, such as operating fees or other service charges, must be separated, these components are eligible as expenses. The termination date of the contract of office rent is 31.01.2026, the length of car rental contracts is 36-60 months.

After the separation of the other components, the lease contract meets the terms of the leasing definition, so the central office leased by the Company is classified as a lease in accordance with IFRS 16. The value of the right of use asset equals the discounted present value of the leasing payments, which were depreciated linearly by the Company over the lifetime of the contract.

When discounting the leasing payments, the effective interest rate is defined as the current (valid at the start date) EULIBOR (plus the interest premium used in the 2017 financial reinsurance contract (3.15%)), which represents the market interest rate available to the Company.

When transitioning to the IFRS 16 standards, the Company decided to use the modified retrospective approach (IFRS 16. C8-C11): the occurring margins are accounted for in their entirety within the equity at the moment of the transition (01.01.2019), therefore the previous period does not need to be presented, under the principle, that the Company has used the same standard ever since.

3.9  Determining operating costs and expenses

The total costs and expenses incurred by the Insurer in its operations are shown in a separate section of the statement of comprehensive income. The Insurer shows here the following cost and expense items

 

 

·          Fees, commissions and other acquisition costs:

In this line, costs that are incurred at the same time or over a number of years are incurred which result from the conclusion of an insurance contract. Acquisition costs include costs directly related to the insurance contract, such as the cost of acquisition and maintenance fees, incentive and other production incentive bills, invoiced and non-invoiced costs paid to external bodies for advertising, the cost of constructing a policy and the cost of incorporating the insurance contract into the portfolio of insurers and the cost of issuing insurance policies, such as the personnel costs and directly attributable costs, travel and other reimbursement expenses of colleagues in the acquisition function; reimbursement of expenses paid to external bodies for distribution, operating and maintenance costs of business offices, if any.

·          Other operation costs

Other operating expenses include the cost of collecting insurance premiums, portfolio management, managing shareholdings and fees, and managing outward and inward reinsurance.  This includes the cost of staff, if they do not include acquisition costs, claims settlement costs or investment costs, as well as salaries and contributions paid to elected officials for their duties, and other reimbursements to them. Planned amortization of office equipment and office machines and intangible assets should also be included here if it is not directly attributable to sales, claims settlement or investment.

·          Other expenses

Other expenditures include non-standard items related to the operation of the Insurer, eg.     

·        impairment of receivables

·        write off bad debts

·        insurance tax expenditures.

·        fines and fees

·        extraordinary depreciation

·        amount of assumed debt

·        given donations

·        assets delivered free of charge

·        insurance surtax expenditures

The insurance surtax (extra profit tax levied on the insurance sector in 2022 and 2023) is calculated by the Company based on the principles of IFRIC 21 in parallel with the gross written premium, since the tax is payable based on the gross written premium for the given year.

3.10  Income from state subsidies

When presenting state subsidies, the Insurer examines whether the criteria set as preconditions for financial realization are expected to be met. The subsidy is accounted for in the period when they are recognized by the company in parallel to the related costs it intends to compensate, to ensure systematic adequacy. [IAS 20.12]

Revenue-related subsidies may be reported separately as “other revenue” or can be deducted from related expenditure. [IAS 20.29] The Company has opted for net accounting and will thus deduct from expenses. The cost-reducing item (the amount of subsidy for the costs incurred) is entered in the financial statements in accordance with the principle of matching.

3.11  Employee benefits

The Insurer applies IAS 19 to accounting for employee benefits. Employee benefits are all forms of consideration provided by the company for employee service, not only in cash but benefits in kind.

Grouping employee benefits:

Short-term employee benefits: employee benefits (other than severance pay) that become fully due within twelve months of the end of the period in which the employee has performed the related work.

Post-employment benefits: employee benefits granted under formal or non-formal arrangements (other than severance pay) that are due upon termination of employment.

Other long-term employee benefits: are employee benefits (other than post-employment benefits and severance pay) that do not become fully due within twelve months of the end of the period in which the employee renders the related work. 

Termination benefits: Employee benefits that may become payable due to the decision of the company to terminate the employee's employment before the normal retirement date or the employee's decision to accept voluntary termination in exchange for these benefits.

In 2014, the Insurer first launched a share-based payment program for its leading employees, details of which are given in Note 4.4.

On 29 November 2018, the Company decided to establish the Employee Ownership Program (hereinafter referred to as “MRP”). The establishment of the MRP took place in order to implement the Remuneration Directives adopted by the General Meeting of the Company. The MRP Organisation is a separate legal entity, over which CIG Pannónia Life Insurance Plc., as a final mother company, exercises control along the IFRS 10 criteria, as with the application of the remuneration policy it influences its earnings to be distributed, and defines its revenue and liabilities.

On 05.04.2019 CIG Pannónia Life Insurance Plc. transferred its treasury shares to CIG Pannónia Life Insurance Employee Ownership Programme Organisation (MRP). Besides transferring its own shares, the Company also offered a purchase option of CIGPANNONIA shares to the MRP. The grant date evaluation of the option constitutes the initial evaluation of the liabilty, decreased by the option fee paid by MRP.

During the grant date valuation and the subsequent valuation date valuation of employee share-based payments was determined using the Cox-Ross-Rubinstein binomial tree method. To determine the value of the options, the risk-free yield for model calculations was determined by the relevant risk-free yield curves published by EIOPA, and the exchange rate standard deviation was determined using the experimental exchange rate data. In assessing this option, the Company took the trading data of CIGPANNONIA shares into account for the last two years.

As these options of MRP and the CIGPANNONIA shares transferred to MRP are presented at their fair value (which, according to the Hungarian accounting rules, requires a fair valuation in the case of the MRP), the Company, with respect to its separate financial report, until 2022 likewise applied the fair valuation in the case of claims against MRP.

In 2022, the Company reviewed the valuation of the receivables and payables against MRP with respect to its separate financial report and determined that the optional receivables and payables against MRP are in fact nettable, as MRP is considered a paying agent that pays the benefits. The other part of the receivables against MRP is the value of the own shares transferred to MRP. Since the MRP is a separate legal entity, the Company did not consider the own shares in the MRP as an item reducing its own equity until 2022 in its separate financial report.

However, if we consider MRP as a paying agent, the exchange rate differences stemming from the revaluation of own shares should not be recognized in the result, since the items related to own shares are to be accounted for as changes in equity. In the Company's opinion, treatment as a paying agent results in a more accurate presentation in the financial statements, therefore from 2022 the exchange rate difference accounted for on own shares transferred to MRP will not be recognized in the result and the shares will be recognized as an item reducing equity in the amount paid for them. The change in accounting policy has also been retrospectively adjusted by the company for the comparative period.

The receivables from MRP were valued against the Company’s results in fair value, because IAS 39.9 11A states, that the FVPTL can be chosen if the accounting mismatch can be decreased by this. In this case, as the valuation of the option and the shares in the MRP organisation is done in fair value according to the Hungarian accounting regulation, this accounting mismatch can be decreased within the Life Insurance Company also by using fair value valuation of the MRP receivable.

As of 2019 performance bonuses for fulfilling and superseding the company’s budgets are – according to the remuneration policy – paid for the employees through the MRP organisation. The remuneration policy allows for the payments of bonuses, as outlaid in employment contracts, to be partially deferred. If after 2021 the bonus targets are met, 70% of the payments are due in cash to the employees, while 10-10-10% of the bonus is due in shares in the following years through the MRP. In this case, 70% of the bonus is an employee benefit accounted for under IAS 19. Regardless of the position of the parties, the remaining 30% is, as defined in the remuneration policy, executed in the form of shares and is therefore a share-based payment under IFRS 2.

The main attributes of the benefit are as follows. The date the benefit is granted is the date on which the parties mutually understood the terms of the benefit. This is the date when the parties sign the bonus agreement. The bonus vesting period are the 4 business years to which the bonus agreement applies; however, the performance criteria must be evaluated for the business year to which the agreement applies. A further three-year deferred performance criterion needs to be applied for the payment of the additional 10-10-10%. IFRS 2 does not lay down specific rules for the valuation of the benefit, but according to IFRS 2 BC106-118 the valuation of a payment principally defined in a fixed amount should not differ because the form of its payment (i.e. whether it is paid in cash or in shares).

Based on the above, the Company recognizes with regards to this benefit the fixed amount for the given year, continuously settled against the capital. In the course of valuation, the Company considers expected changes in performance criteria and vesting conditions using historical data of the previous periods.

3.12  Income taxes

Tax expense includes actual and deferred taxes for the current year. Actual and deferred tax is recognized in profit or loss unless it relates to an item that is accounted for in equity or other comprehensive income because it is recognized in equity or other comprehensive income with the related item.

The effective tax is the tax that is expected to be payable on the taxable profit for the year in question at the effective or substantially effective tax rates at the balance sheet date.

Deferred tax is recognized for temporary differences between the carrying amounts of assets and liabilities recognized in the statement of financial position and recognized for taxation purposes. Deferred tax assets are recognized for deferred tax when it is probable that sufficient future taxable profit will be available against the deferred tax asset. The amount to be set as deferred tax receivable is expected to be recoverable from the tax losses in the medium term, that is the tax expected to be deductible according to the Company's business plans and the effective tax rate. The Company previously defined ‘medium term’ as 6 years, which was reduced to 4 years in 2022 due to the volatile economic environment. Deferred tax assets and liabilities are measured using the tax rates expected to apply to taxable income in the years in which the temporary differences are reversed. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities which relate to income taxes imposed by the same taxation authority and the Company intends to settle its current tax assets and liabilities on a net basis. 

3.13 Intangible assets

Intangible assets are carried at cost less accumulated amortization and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the given item. Amortization is recognized on a straight-line basis over the estimated useful lives of the assets. Estimated useful lives and the amortization method are reviewed at the end of each annual reporting period, with the effects of any changes in estimates being accounted for on a prospective basis.

Subsequent expenditure related to intangible assets is capitalized only if this results in future economic benefits for the Company. All other subsequent costs are accounted for as expense in the period when incurred. The Insurer only has intangible assets with definite useful lives; amortization rates of 14.5%-33% are applied. Amortization is charged to profit or loss under other operating costs.

Goodwill acquired in business combinations is initially recognized under intangible assets in accordance with Note 4.4. Goodwill is subsequently presented at cost less any impairment losses.

3.14 Property, plant and equipment

All items of property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the given item. Subsequent expenses related to items of property, plant and equipment are capitalized only if this results in future economic benefits for the Insurer. All other subsequent costs are accounted for as expense in the period when incurred. Any components of property, plant and equipment that have a significant value compared to the total cost of the asset are treated separately from the asset. So high-value components of a device with different useful lives are recorded and depreciated separately.

Depreciation is recorded from the date of first use and is calculated using the straight-line method over the estimated useful lives. Major renovations are depreciated over the remaining useful life of the related asset or to the date of the next major renovation, whichever is earlier. The following depreciation rates are applied:

Residual values and useful lives are reviewed, and adjusted, if necessary, at the end of each reporting period. The carrying amount is written down immediately to the asset’s recoverable amount if it is higher than the estimated recoverable amount. (see note 3.13) 

Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are recognized in the profit or loss for the period. 

Property, plant and equipment include computers, office equipment, fixtures and vehicles at cost less accumulated depreciation and impairment losses. Acquisitions below HUF 200 thousand are written off in the year of acquisition.

3.15 Impairment of non-financial assets

Assets are tested for impairment if internal or external circumstances indicate that the asset may be impaired. Depreciated or amortized assets and cash generating units are tested for impairment if there is any indication that the carrying amount may not be recoverable.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash-flows (cash-generating units). An impairment loss is recognized for the amount by which the asset or cash-generating unit’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

3.16 Financial assets

A financial instrument is any contract that creates a financial asset for one economic entity and a financial liability or equity instrument for another economic entity.

3.16.1         Initial recognition

All financial assets are initially diplayed and derecognized on the trade date when the Insurer becomes a party to the contract creating the financial asset, including when the purchase or sale of a financial asset is under a contract whose terms require delivery of the financial asset within the timeframe established by the market concerned (regular way trade). All financial assets are initially measured at fair value plus, in the case of financial assets not classified as at fair value through profit or loss, transaction costs which are directly attributable to the acquisition of the financial asset.

The fair value of the financial asset at initial recognition is usually the transaction price (i.e. the fair value of the consideration paid). However, if part of the consideration is not given or received for the financial asset, but for something else, the Insurer valuates the fair value of the financial asset and recognizes it at this value. The part of the consideration paid that exceeds the fair value of the financial asset at the time of acquisition is accounted for by the Insurer according to the relevant standard. The principles for determining fair value are described in chapter 4.24 of the accounting policy.

Financial assets and liabilities are netted and presented in the statement of financial position when, and only when, the Insurer has a legal right to offset the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

3.16.2         Classification and valuation of financial assets

Upon initial recognition, the Insurer classifies its financial assets into the following three groups based on the business model for managing financial assets and the contractual cash flow characteristics of the financial asset:

• financial assets valued at fair value through profit or loss,
• financial assets valued at fair value against other comprehensive income,
• financial assets valued at the amortised cost.

3.16.2.1    Equity instruments

Equity instruments are instruments that represent the residual interest in the assets of an entity after deducting all of its liabilities.

As a general rule, the valuation of investments in equity instruments (which applies to all investments in equity instruments that do not qualify as equity investments in subsidiaries) must be made at fair value through profit or loss.

However, at the time of initial recognition, the Insurer may irrevocably decide to present subsequent changes in the fair value of the investment in certain equity instruments, which are otherwise valued at fair value through profit or loss, in other comprehensive income ("FVOCI option"), provided that the equity instrument is not held for trading and is not a contingent consideration recognized by the acquirer of a business combination within the scope of the IFRS 3 standard either. The decision is made by the CEO and the Chief Accounting Officer on an instrument-by-instrument basis, taking ALCO's recommendation into account.

Dividends from equity instruments where the Insurer used the FVOCI option must be recognized in profit or loss.

3.16.2.2    Debt instruments

When classifying debt instrument financial assets, the Insurer considers two aspects:

·        the business model used to manage the financial assets, and

·        the contractual cash flow characteristics of the financial instrument.

The Insurer values its financial assets at amortized cost if both of the following conditions are met and the given financial asset was not irrevocably designated as valued at fair value through profit or loss upon initial recognition:

·        the financial asset is held by the Insurer based on a business model designed to hold financial assets to collect contractual cash flows; and

·        the contractual conditions of the financial asset at specified dates result in cash flows that are exclusively payments of principal and interest on the outstanding principal amount.

Debt instruments are valued at fair value against other comprehensive income by the Insurer if both of the following conditions are met and the given financial asset was not irrevocably designated as valued at fair value through profit or loss upon initial recognition:

·        the financial asset is held by the Insurer based on a business model that achieves its goal by collecting contractual cash flows and selling the financial assets; and

·        the contractual conditions of the financial asset at specified dates result in cash flows that are exclusively payments of principal and interest on the outstanding principal amount.

The Insurer classifies all other debt instrument-type financial assets in the category valued at fair value through profit or loss.

3.16.3         Business model test

The Insurer's business models have been defined at a level that reflects how it manages groups of financial assets together in order to achieve a particular business objective. The Insurer's business model is not dependent on the management's intentions regarding specific instruments.

Accordingly, this condition does not reflect an instrument-by-instrument classification approach, but was defined at a higher level. Nevertheless, the Insurer may use several business models to manage its financial assets.

The Insurer's business model refers to the way in which it manages its financial assets; it determines whether the cash flows from the financial asset arise from the collection of contractual cash flows, the sale of financial assets, or both.

The Insurer's business model applied to manage financial assets can typically be observed through the activities carried out to achieve the objectives of the business model. When evaluating the business model applied to the management of financial assets, the Insurer takes all relevant evidence into account. Such relevant evidence includes, but is not limited to, the following:

a)   how it evaluates the performance of the business model and the financial assets held under the business model, and how it needs to report these to its key management personnel;

b)   risks affecting the performance of the business model (and the financial assets held under the model) and, in particular, how these risks are managed;

c)   how business managers are remunerated (for example, whether the remuneration depends on the fair value of the assets under management or on the contractual cash flows collected).

When defining the business model, the Insurer takes the frequency into account, value and schedule of sales from the given portfolio in previous periods, the reason for the sales and expectations for future sales activity. However, sales alone do not define the business model and therefore cannot be analysed separately. The information related to previous sales and expected future sales are much more evidence of how the Insurer's objectives related to the management of financial assets are realised, as well as the way cash flows are realised. When evaluating information on previous sales, the Insurer takes the reasons for the sales and the conditions valid at the time of the sale into account (compared to the current conditions).

When defining the business model, the Insurer does not take the so-called "worst case" or "stress" scenarios into account that cannot reasonably be expected. If the cash flows are realized in a different way than expected by the Insurer when evaluating the business model (for example, it sells more or less financial assets than planned), this does not lead to a previous period error, and does not affect the classification of the previously recognized and still existing financial assets held under the same business model. When evaluating the business model, the Insurer takes all relevant information available into account, as well as the way cash flows were realised in the past.

The individual business model documentations include what, during its business model test, the Insurer considers to be significant or imminent sales when evaluating the frequency and volume of past and future sales from the given portfolio.

The Insurer defined the following business models for its portfolio:

Name of business model	Content and main features of the business model
Business model for holding financial assets to collect contractual cash flows ("HTC")	It aims to realise the cash flows of the asset by collecting contractual payments made over its lifetime. Sales are not an integral part of the business model, but a contingent element of it, although sales are not incompatible with this business model.
Business model to collect and sell contractual cash flows of financial assets (“HTCAS”)	Both the collection of the contractual cash flows of the assets and their sale are an integral part of the business model. This business model typically has more sales than the HTC business model.
Other business model	For example: holding for trading or handling on a fair value basis.

 

 

In the case of its financial assets, the Insurer defines the business model at the portfolio level, for which it has identified the following portfolios:

·        Financial assets related to life insurance linked to investment units accounted for as insurance contracts

·        Financial assets related to investment contracts

·        Financial assets serving as collateral for reserves of traditional (non-unit-linked) life insurance contracts

·        Own investments (multiple portfolios)

·        Derivatives

·        Cash accounts and bank deposits

·        Other financial receivables (these include: trade receivables, loans granted, income-type accruals, asset management fee receivables, other financial receivables not mentioned above)

The Insurer manages the portfolios of financial assets related to life insurance linked to investment units accounted for as insurance contracts and financial assets related to investment contracts on a fair value basis (together with the related insurance obligations, and in the case of investment contracts together with the related financial obligations), therefore the Insurer has established that the business model of these portfolios is Other business model.

The business model of traditional (non-unit-linked) life insurance contracts with its financial assets serving as collateral for reserves is such, that the Insurer, in addition to collecting the contractual cash flows from these financial assets, carries out substantial buying and selling activities in this portfolio in order to rebalance the investment portfolio in alignment with movements in the related insurance portfolio, thus ensuring that the related insurance liabilities are covered by the cash flows of the investment portfolio. Therefore, the Insurer determined that both the collection of contractual cash flows and sales are an integral part of the business model for this investment portfolio, so the business model for this investment portfolio is HTCAS.

In the case of own investments, the Insurer defines sub-portfolios and establishes the business model separately for each sub-portfolio.

The business model of derivatives is the Other business model, since they meet the definition of "held for trading" in IFRS 9.

The Insurer wishes to collect only the contractual cash flows from both the Cash accounts and bank deposits, as well as the Other financial receivables, therefore the business model of this portfolio is HTC.

In the case of the Other financial receivables listed above, the Insurer's objective, without exception, is exclusively to collect the contractual cash flows, so their business model is HTC in all cases (together, documented as one sub-portfolio).In the case of Other financial receivables not listed above, the Insurer defines sub-portfolios as necessary and establishes the business model for each sub-portfolio separately.

The Insurer always documents the performed business model tests by portfolio (or, where applicable, by sub-portfolio). For each financial asset, the Insurer keeps records in such a way that the business model can be determined from the records.

If the Insurer acquires or creates financial asset(s) that cannot be included in any of the portfolios already documented from a business model perspective, the Insurer defines a new portfolio and (if necessary) sub-portfolios and prepares the relevant documentation.

If the insurer acquires a portfolio of contracts together with the financial assets related to the contracts, it considers whether its objective is to sell or hold those assets, when determining the business model at the time of initial recognition. If the objective is sales, then the business model for these is Other business model (in addition to documenting a new portfolio for the purpose of business model testing), if it is holding, then the Insurer classifies these assets in the appropriate portfolio for its insurance or investment contracts and defines the business model accordingly (i.e. a new portfolio is not documented for business model test purposes).

3.16.4         Analysis of contractual cash flows ("SPPI test")

At the time of initial recognition, the Insurer performs an analysis of the contractual cash flows of the debt instrument-type financial assets, based on which it determines that the contractual conditions of the given financial asset at specified dates result in cash flows that are exclusively payments of principal and interest on the outstanding principal amount ("SPPI test passed") or not ("SPPI test not passed").

 

 

 

When applying the above

·        equity is the fair value of the financial asset at the time of initial recognition;

·        the interest includes the consideration for the time value of money, the credit risk related to the principal amount outstanding during a specified period, and other basic lending risks and costs, as well as the profit margin.

The Insurer evaluates in the currency in which the financial asset is denominated, whether the contractual cash flows are solely payments of the principal and the interest due on the outstanding principal amount.

The Insurer analyses the contractual terms of the financial assets to determine whether they result in cash flows that are solely payments of principal and interest on the outstanding principal amount, i.e. whether they are consistent with the terms of a basic loan agreement. This includes analysing contractual terms that may change the timing or amount of contractual cash flows. When examining contractual cash flows, the Insurer considers the following:

·        the nature of the possible conditional events (triggers) that induce a change in the schedule or amount of the contractual cash flows;

·        leverage;

·        prepayment and extension conditions;

·        modifications related to the time value of money (e.g. periodic revaluation of interest rates)

3.16.5         Financial assets valued at amortized cost

The valuation of financial assets valued at amortized cost is carried out at amortized cost after initial recognition.

The amortized cost of a financial asset is the value of the financial asset determined at initial recognition, reduced by capital repayments, increased or decreased by the cumulative amortization of the difference between the value determined at initial recognition and the value at maturity calculated using the effective interest rate

The amortized cost of a financial asset is the gross book value of the financial asset before adjustment for expected credit losses.

The effective interest rate is the rate at which the estimated future cash payments or cash receipts over the expected life of the financial asset can be discounted exactly to the gross book value of the financial asset.

When determining the effective interest rate of financial assets (except for impaired financial assets acquired or incurred), the Insurer estimates future cash flows, taking all contractual terms of the financial instrument into account, with the exception of expected credit losses. In the case of impaired financial assets acquired or incurred, the Insurer applies a so-called credit-adjusted effective interest rate, which takes expected credit losses into account in addition to the estimated future cash flows.

The calculation of the effective interest rate includes all fees and charges paid by the contracting parties to each other or received from each other, which are an integral part of the effective interest rate, as well as transaction costs and all other premiums or discounts.

Interest income accounted for using the effective interest method is determined by applying the effective interest rate to the gross book value of the financial asset, with these exceptions:

a)   for impaired financial assets, the effective interest rate must be applied to the amortized cost,

b)   for POCI financial assets, the credit-adjusted effective interest rate must be applied to the amortized cost.

The gross book value of a financial asset is its amortized cost, before adjustment for expected credit losses. In the case of assets valued at amortized cost, the Insurer considers the related transaction costs, fees and commissions as part of the cost and takes them into account during the calculation of the effective interest rate. Accordingly, interest and amortization costs are accounted for using the effective interest rate method.

The Insurer evaluates receivables, other receivables, and intercompany receivables at amortized cost.

 

 

 

 

 

 

3.16.6         Financial assets valued at fair value against other comprehensive income

The Insurer classifies the following instruments in the category of financial assets valued at fair value against other comprehensive income:

·        equity instruments that it designated as such during initial recognition

·        debt instruments for which, as a result of the business model test, it was determined that the purpose of the business model is to collect the contractual cash flows associated with the debt instrument and at the same time the sale of the financial assets, and as a result of the SPPI test, at specified dates defined by the contractual conditions of the financial asset, the generated cash flows are solely payments of the principal and the interest due on the outstanding principal amount.

Gains and losses on financial assets valued at fair value against other comprehensive income - with the exception of profit or loss due to impairment, interest according to the effective interest rate method, and exchange rate gains and losses - are recognized by the Insurer in other comprehensive income until the financial asset is derecognized or reclassified.

The Insurer recognizes the interest calculated using the effective interest rate method, the loss due to impairment, as well as the exchange rate gain and loss in the result. In this case, the amounts recognized in the result are the same as the amounts that the Insurer would recognize in the result if the financial asset was valued at amortized cost.

The amounts recognized in other comprehensive income cannot be subsequently transferred to the result in the case of equity instruments valued at fair value against other comprehensive income.

If the Insurer receives dividend income from equity instruments valued at fair value against other comprehensive income, it is accounted for in the result as dividend income.

There is no impairment requirement for equity instruments valued at fair value against other comprehensive income.

The Insurer evaluates its financial assets serving as collateral for the reserves of traditional (non-unit-linked) life insurance contracts and the securities in its equity portfolio at fair value against other comprehensive income.

3.16.7         Financial assets valued at fair value through profit or loss

All debt instruments that do not meet the conditions for valuation at amortized cost or at fair value against other comprehensive income are classified as financial assets at fair value through profit or loss, including derivative instruments that qualify as assets, which must later be valued at fair value through profit or loss.

As a general rule, equity instruments are also classified in this category, with the exception of those for which the Insurer chose valuation against other comprehensive income during the initial recognition.

Financial assets valued at fair value through profit or loss also include

·        financial assets related to unit-linked life insurance contracts accounted for as insurance contracts, and

·        financial assets related to investment contracts

as in their case the business model is Other business model.

Financial assets valued at fair value through profit or loss also include

·        financial assets serving as collateral for the reserves of traditional (non-unit-linked) life insurance contracts, and

·        own investments

which are invested in investment funds. The reason for this is that these investments do not meet the SPPI test and the conditions for being designated as fairly valued against other comprehensive income, as they are by definition not equity instruments.

Financial assets valued at fair value through profit or loss are valued at fair value after initial recognition, changes in fair value - including interest, dividends, exchange rate differences on foreign currency revaluation - are recognized in profit or loss, under other investment income and investment expense.

3.16.8         Reclassification of financial assets

The Insurer will reclassify affected financial assets if and only if it changes the business model used for the management of financial assets.

These changes are expected to be rare. Such changes are determined by the senior management, as a result of external or internal changes affecting the Insurer that are material to the operation of the Insurer. Any change in the business model is documented by the Insurer and the documentation includes the approval of the CEO and the Chief Accounring Officer, a description of the change and the justification of the materiality of the change, which is documented in the ALCO meeting documents.

If the Insurer reclassifies its financial assets, it must apply the reclassification prospectively from the date of reclassification. The Insurer may not restate previously recognized profits and losses (including profits and losses due to impairment) and interest.

The date of the reclassification is the first day of the [calendar quarter] period following the date of the documented change of the business model.

3.16.8.1    Reclassification from the category valued at amortized cost

Into the category valued at fair value through profit or loss

If the Insurer reclassifies a financial asset from the amortized cost valuation category to the fair value against profit or loss category, the fair value of the financial asset must be valued at the time of the reclassification. The gain or loss resulting from the difference between the previous amortized cost and the fair value of the financial asset is recognized in profit or loss.

Into the category valued at fair value against other comprehensive income

If the Insurer reclassifies a financial asset from the category valued at amortized cost to the category valued at fair value against other comprehensive income, the financial asset must be reclassified at the fair value valid at the time of the reclassification. The gain or loss resulting from the difference between the previous amortized cost of the financial asset and its fair value is recognized in other comprehensive income. The valuation of the effective interest rate and the expected credit loss will not change as a result of the reclassification. The recognized expected credit loss must be derecognized (i.e. it will no longer be recognized as an adjustment to the gross book value) and from the date of the reclassification (in the same amount) must be recognized and disclosed as an accumulated impairment loss in other comprehensive income.

 

3.16.8.2    Reclassification from the category valued at fair value against other comprehensive income

Into the category valued at amortized cost

If the Insurer reclassifies a financial asset from the category valued at fair value against other comprehensive income to the category valued at amortized cost, the financial asset must be reclassified at the fair value valid at the time of the reclassification. The accumulated profit or loss previously recognized in other comprehensive income is removed by the Insurer from the equity and adjusted against the fair value of the financial asset at the time of reclassification. As a result, the valuation of the financial asset at the time of reclassification is as if it had always been valued by the Insurer at amortized cost. This modification affects other comprehensive income, but does not affect the profit or loss, so it is not a modification due to reclassification.

If a financial asset is reclassified between the valued at amortized cost category and the valued at fair value against other comprehensive income category, the recognition of interest income does not change, the Insurer continues to apply the same effective interest rate, and the valuation of expected credit losses does not change, as both valuation categories use the same impairment approach. However, if the Insurer reclassifies the financial asset from valued at fair value against other comprehensive income category to valued at amortized cost category, the expected credit loss changes the gross book value of the financial asset from the date of the reclassification.

Into the category valued at fair value through profit or loss

If the Insurer reclassifies a financial asset from the valued at fair value against other comprehensive income category to the valued at fair value through profit or loss category, the financial asset must still be valued at fair value. The accumulated profit or loss previously recognized in other comprehensive income must be reclassified from equity to profit or loss as a reclassification adjustment at the time of reclassification.

3.16.8.3    Reclassification from the category valued at fair value through profit or loss

Into the category valued at amortized cost or valued at fair value against other comprehensive income

If the Insurer reclassifies a financial asset from the valued at fair value through profit or loss category to the valued at amortized cost category, the fair value of the financial asset at the time of reclassification becomes the new gross book value of the asset and the effective interest rate will be determined based on the fair value of the asset at the date of reclassification.

3.16.9         Derecognition of financial assets

Before assessing whether and to what extent it is appropriate to derecognize a financial asset, the Insurer determines whether to apply the derecognition requirements to a part or all of a financial asset (or a group of similar financial assets).

The Insurer derecognizes financial instruments if

•     its rights to the contractual cash flows cease or expire, or

·        the related contractual rights to collect the cash flows from the asset are transferred by the Insurer, thereby transferring the essential benefits and risks resulting from ownership, or

·        the related contractual rights to collect the cash flows from the asset are transferred by the Insurer, but it substantially neither transfers nor retains the risks and benefits resulting from ownership, nor does it retain control over the financial asset, or

•     the Insurer writes off the financial asset in whole or in part ("write-off")

The Insurer also derecoignizes financial assets in the event of significant contractual changes, as the rights to the original contractual cash flows have also expired in this case.

The Insurer must recognize the rights and obligations arising or retained as a result of the transfer as separate assets or liabilities.

When derecognizing debt instruments valued at fair value against other comprehensive income, the accumulated profit or loss previously recognized in other comprehensive income must be reclassified from other comprehensive income to the profit or loss.

When deregognizing equity instruments valued at fair value against other comprehensive income, the Insurer reclassifies the profit or loss accumulated in other comprehensive income to the retained earnings.

In the case of financial assets valued at amortized cost, the result on derecognition is determined as the difference between the book value and the consideration received (including any new assets received, less any liabilities assumed) and is shown in profit or loss, under other investment income or investment expenses.

3.16.10     Replacements/modifications of financial assets

As for the rules for accounting of modifications in financial assets, the rules for modifications in financial liabilities are to be applied analogically.

The replacement of debt instruments under significantly different conditions between the current creditor and debtor must be accounted for as the termination of the original financial asset and the recognition of a new financial asset. Similarly, a significant modification of the terms of an existing financial asset, or a part of it (regardless of whether it was caused by the debtor's financial difficulties or not) must be accounted for as the termination of the original financial asset and the recognition of a new financial asset.

In this regard, the Insurer considers the conditions to be materially different, and the modifications to be material in each case, if the present value of the cash flows under the new conditions - including the premiums paid reduced by the premiums received - calculated on the date of the modification, discounted at the original (or, in the case of a floating rate financial asset, the current) effective interest rate, differs by at least 10 per cent from the gross book value of the original financial asset.

If the original financial asset was impaired, the Insurer will consider whether it needs to write off a part of it due to the modification and will write it off, if necessary. The gross book value of the original asset is the gross book value after any write-off.

 

 

 

 

If the above-mentioned values do not differ by 10%, the Insurer will still consider a modification of the conditions to be material if one of the following qualitative factors applies

·        the currency of the instrument changes,

·        the instrument's interest rate changes from fixed to floating or vice versa,

·        other changes in conditions occur which, according to the management's particular and documented judgment, significantly change the instrument's risks.

With regards to accounting:

•        If the replacement of debt instruments takes place under significantly different conditions, or the modification of the existing financial asset is material, the Insurer derecognizes the financial asset on the date of modification/replacement and recognizes a new financial asset in the books at fair value on the date of derecognition. The difference between the two values is recognized in the profit or loss, under other investment income or investment expenses. Any costs or fees incurred in connection with the transaction are recognized as a gain or loss related to the termination of the liability.

•        If the replacement is not on significantly different conditions, or the modification of the existing financial asset is not material, the Insurer does not derecognize the original financial asset, but recalculates its gross book value and accounts for the adjustment a gain or loss in the profit or loss under other investment income or investments expenses.

Modification gain or loss is the difference between

·        the discounted present value of the cash flow estimated during the expected term of the modified financial instrument at the original interest rate (with the current effective interest rate in the case of a financial asset with a floating interest rate) on the date of the modification and

·        the gross book value of the original financial asset (taken after accounting for possible write-offs).

In the above present value calculation, the expected credit losses are not to be taken into account in the cash flows, except in the case of a POCI financial asset, when the discounting must be done not with the effective interest rate, but with the credit-adjusted effective interest rate.

The costs or fees incurred in connection with the transaction modify the book value of the financial asset and are amortized over the remaining term of the modified financial asset using the effective interest method.

3.16.11     Retroactive application

The Insurer applies the IFRS 9 standard retroactively in accordance with the IAS 8 Accounting policies, changes in accounting estimates and errors standard. The Insurer applied the modified retroactive transition method with the following exceptions:

Data for the comapartive period have not been restated.

•  The differences between the previous book value of financial assets and liabilities and the book value valid at the beginning of the reporting period which includes the date of first application (i.e. on 1 January 2022) were shown by the Insurer in the opening retained earnings of 1 January 2022.

•  The Insurer determined the business model in which the Insurer holds its financial assets based on the facts and circumstances existing at the time of the initial application of IFRS 9

•  If a debt instrument has a low credit risk upon initial application of IFRS 9, the Insurer assumed that the credit risk of the debt instrument has not increased materially since the initial recognition.

3.17    Impairment of financial assets

The Insurer accounts for expected credit losses in the case of the following financial assets not valued at fair value through profit or loss:

•     financial assets of the debt instrument type valued at fair value against other comprehensive income (for equity instruments, impairment is not disclosed),

•     financial asset valued at amortization cost.

3.17.1         General rules of impairment

The Insurer recognizes the expected credit loss on the reporting date for all financial assets subject to the impairment requirements.

Expected credit losses are probability-weighted estimates of credit losses incurring over the expected life of the financial asset (i.e. the present value of the total expected cash flow shortfall). Estimates of expected credit losses must always reflect the possibility of both the occurrence and non-occurrence of a credit loss, even if the most likely outcome is that no credit loss will occur. Estimates of expected credit losses must reflect an unbiased and probability-weighted amount, which is determined through the evaluation of various possible outcomes.

When determining the credit loss, the Insurer also takes forward-looking information into account.

The Insurer assumes that the credit risk of a financial asset has not increased significantly since the initial recognition, if it is determined that the credit risk of the financial asset is low on the reporting date.

3.17.2         Settlement of 12-month expected credit loss (Stage 1)

The Insurer valuates the expected credit loss of a given financial asset (Stage 1) at an amount equal to the 12-month expected credit loss in the following cases:

·      the credit risk of the financial asset is low on the reporting date, or

·      is the credit risk of the financial asset is not low on the reporting date, but it did not increase significantly from the initial recognition up until the reporting date.

·      The 12-month expected credit loss is a portion of the expected lifetime credit loss. It embodies the expected credit loss that may arise in the 12 months after the reporting date, resulting from events of default related to the financial instrument.

3.17.3         Settlement of expected credit losses over the lifetime (Stage 2 and Stage 3)

The Insurer recognizes the lifetime expected credit loss on each reporting date in the following cases:

·      if the credit risk of the financial asset concerned has increased significantly since the initial recognition – taking all reasonable and justifiable information into account, including forward-looking information – but the financial asset is not impaired ("Stage 2 financial assets");

·      if the relevant financial asset is impaired on the reporting date ("Stage 3 financial asset");

·      in the case of trade receivables (the Insurer uses a simplified model to determine the expected credit loss)

Lifetime expected credit loss is the expected credit loss resulting from all possible events of default over the expected lifetime of the financial instrument.

3.17.4         Impairment (Stage 3) criteria

The Insurer defines the following as criteria for impairment (Stage 3):

·      Overdue payment of more than 90 days for a part of the receivables from a given partner exceeding immateriality (i.e. more than x% of the total receivables) (in this case, all receivables from the same partner are to be classified as Stage 3)

·      significant, known financial difficulties of the partner on the reporting date, including the initiation of bankruptcy or liquidation proceedings against the partner (in this case, all receivables from the same partner are to be classified as Stage 3)

·      it becomes likely that the partner will go bankrupt or be forced to undergo other financial reorganization (in this case, all receivables from the same partner are to be classified as Stage 3)

3.17.5         Changes in credit risk

For its government securities and externally rated financial assets other than government securities - if they are not low credit risk at the reporting date - the Insurer considers a deterioration of at least 2 notches in the rating as a significant increase in credit risk.

If, in the previous reporting period, the Insurer valued the recognized loss of a financial asset at an amount equal to the lifetime credit loss, but decides that the credit risk of the financial asset concerned has not increased significantly since the initial recognition on the current reporting date, the recognized loss on the current reporting date is recognized at an amount equal to the 12-month expected credit loss (i.e. it is reclassified from Stage 2 to Stage 1).

In the case of financial assets valued at amortized cost and at fair value against other comprehensive income, the Insurer recognizes in profit or loss as an impairment gain or loss the amount of expected credit losses (or reversals) by which amount the recognised loss needs to be adjusted to the amount determined at the reporting date.

 

3.17.6         Financial assets with low credit risk

The credit risk of a financial asset is considered low if the default risk of the financial asset is low, the borrower's ability to meet its short-term contractual obligations to pay cash flows is strong, and an unfavorable change in economic or business conditions in the longer term may possibly (but not necessarily) weaken the borrower's ability to meet its contractual obligations to pay cash flows.

The Insurer considers financial assets with an external rating of BBB- (Standard&Poors rating) or better, recommended for investment ("investment grade") as low credit risk.

3.17.7         Special rules of impairment

3.17.7.1     Impairment of government securities and corporate bonds

In order to determine the impairment of government securities and corporate bonds, he Insurer first determines at each reporting date whether the security is in Stage 1, Stage 2 or Stage 3.

Impairment is calculated using the following formula for government securities and corporate bonds classified as Stage 1 and Stage 2:

where

ECL:= expected credit loss at the reporting date

PD (probability of default):= 1-year PD if the security was classified as Stage 1 on the reporting date; lifetime PD, if the security was classified as Stage 2 on the reporting date

LGD (loss given default): estimated loss rate at default

EAD (exposure at default): the gross book value of the security on the reporting date

The PD is estimated on the basis of Weibull curves fitted to time series of sovereign or corporate default rates corresponding to the rating category of the latest available Standard & Poor's at the reporting date.

To estimate LGD, the Insurer uses a study on external sovereign debt restructuring cases and approximates LGD by the average of the face value reduction haircut values reported in this study for several countries.

To estimate the LGD of corporate bonds the Insurer applies:

·        for bank bonds - a study on the rates of return of European banks;

·        for corporate bonds – 45% as agreed in the Basel II framework.

The Insurer considers forward-looking information in such a way that, in addition to the base scenario ("Base case"), it also considers an optimistic scenario ("Upturn case") and a pessimistic scenario ("Downturn case"). In the Upturn case, it is assumed that the rating of the given government security improves by 1 notch compared to the reporting date (if this improvement is still possible), and that the rating at the reporting date is Stage 1. In the Downturn case, the Insurer assumes that the rating of the given government security deteriorates by 1 notch compared to the reporting date, and that the rating at the reporting date is Stage 2. In addition to the Base case, the Insurer calculates the expected credit losses for the Upturn case and the Downturn case using the above method and considers the weighted average of the three results as the credit loss on the reporting date. The weights are determined by the management on each reporting day, as a result of an expert estimate.

The Insurer valuates its Stage 3 government securities individually. In each case, it performs cash-flow estimates in 2 scenarios. It takes the present value of the estimated cash flows for both scenarios and weights them according to management's judgment. To calculate the present value, the Insurer uses the original effective interest rate (in the case of a floating interest rate paper, it discounts with the current effective interest rate). The Insurer recognizes the expected credit loss as the difference between the resulting weighted cash-flow present value and the gross book value at the reporting date.

3.17.7.2    Impairment of cash and cash equivalents

The Insurer determines the expected credit loss of its cash and cash equivalents (bank account balances) on the reporting date as follows

where

ECL:= expected credit loss at the reporting date

PD (probability of default):= 1-year PD, which the Insurer takes from the latest available annual Standard&Poors default rate study at the reporting date. Regardless of the rating, the Insurer approximates the 1-year PD with the 1-year default rate for financial institutions determined in the year of the study.

The Insurer does not have fixed deposits with banks longer than one year, so as a simplification, it does not perform a stage classification, but calculates with a 1-year PD.

LGD (loss given default): estimated loss rate at default, which the Insurer takes from an external study. We used the LGD study "Cruces, J. J., & Trebesch, C. (2013). Sovereign defaults: The price of haircuts. American economic Journal: macroeconomics, 5(3), 85-117", which is the first comprehensive database of investor losses ("haircuts") for foreign banks and bondholders. The database covers 180 cases from 68 countries between 1970 and 2010. For its LGD estimate the Insurer used the weighted average of 19 Central and Eastern European cases found in this study as a basis.

EAD (exposure at default): the bank account balance at the reporting date.

3.17.7.3    Impairment of intercompany receivables

For financial receivables from subsidiaries and associated companies, the Insurer did not recognize expected credit losses as long as there was no clear indication of a negative change in the financial situation of the company in question. In this case, the Insurer performs an individual cash-flow estimate for the intercompany receivable in at least two scenarios. It takes the present value of the estimated cash flows in both scenarios and weights them according to management's judgment. To calculate the present value, the Insurer uses the original effective interest rate of the receivable (in the case of a receivable with a floating interest rate, the current effective interest rate). The Insurer recognizes the expected credit loss as the difference between the resulting weighted cash-flow present value and the gross book value on the reporting date

3.17.7.4    Impairment of trade receivables and other receivables

The Insurer uses a simplified methodology to determine the expected credit loss for trade receivables and other receivables. Expected credit losses are quantified with the help of a matrix, using past experience of credit losses.

When using the matrix, the Insurer observes the 365 days prior to the valuation date, in which it observes the percentage of trade receivables recognized during the period that have not been paid.

 

 

 

The baskets are as follows:

•        0-30 days,

•        31-60 days,

•        61-180 days,

•        181-360 days,

•        >360 days.

The loss rates assigned to the individual baskets based on historical data are adjusted by forward-looking information.

3.17.7.5    Impaired financial assets acquired or incurred

POCI financial assets are impaired at the initial recognition.

The Insurer considers a given financial asset as a POCI asset, if at the time of initial recognition of the other party is classified Stage 3 status.

When calculating the credit-adjusted effective interest rate of POCI assets classified as impaired at initial recognition, the Insurer takes the initial estimated credit loss in the estimated cash flows into account (that is, the lifetime expected credit loss is deducted from the estimated contractual cash flows).

On the reporting date, the Insurer only recognizes the accumulated changes in the lifetime expected credit loss since the initial recognition in profit or loss as impairment gains or losses on POCI assets.

A favorable change in lifetime expected credit loss is recognized as an impairment gain even if the amount of the lifetime expected credit loss is less than the amount of the expected credit loss that was included in the estimated cash flow at initial recognition.

3.17.8         Recognition of impairment for expected credit losses in the financial statements

The Insurer recognises impairment for expected credit losses in its financial statements as follows:

•  In the case of financial assets valued at amortized cost: the asset is recongized in the statement of financial position by deduction from its gross book value and is recognized in the comprehensive income statement under impairment and reversal of financial assets

•  In the case of debt instruments valued at fair value against other comprehensive income: no impairment loss is recognised in the statement of financial position, because the book value of these financial assets is equal to their fair value. The amount of impairment recognized for these financial assets is presented by the Insurer in the supplementary notes. At the same time, in the comprehensive income statement, the amount of the impairment loss for the given year appears under Financial assets impairment and reversal.

3.17.9         Write-off of financial assets

The Insurer writes off a financial asset in whole or in part if it is no longer reasonably expected that the financial asset or part of it will be recovered.

Events and circumstances that the Insurer considers to be such that it no longer reasonably expects a return from the asset or part of it are the following:

-        a more than insignificant part of the financial asset (>10% of the face value/receivable value) is more than 5 years overdue. In this case, the entire financial asset is written off, unless a part can clearly be identified for which a return can still reasonably be expected.

-        based on the outcome or expected outcome of bankruptcy or liquidation or enforcement against the other party, there is no prospect of recovery for all or part of the financial asset.

During the write-off, the Insurer reduces the gross book value of the financial asset against the amount of expected credit loss recognized.

3.18 Determination of fair values

A number of the Company’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and / or disclosure purposes based on the following methods.

The fair values of financial assets quoted in an active market are their bid prices at the reporting date. In other cases, the fair value is determined using the discounted cash flow and other financial models.