3.17 Classification of insurance products

In accordance with the requirements of IFRS 4, contracts are divided into insurance contracts with significant insurance risk and investment contracts with financial risk, but with no significant insurance risk.

The assumptions made for the purpose of classification of the products offered by the PZU Group have been presented in Section 4.5.

3.17.1 Non-life insurance

All direct property and personal insurance products transfer direct insurance risk as defined in IFRS 4. Reinsurance contracts involve transfer or assumption of either insurance or insurance and financial risk.

In the case of direct property and personal insurance, insurance contracts have no deposit components which could be unbundled from the insurance contract.

Reinsurance treaties, which the PZU Group companies are party to, contain clauses providing for distribution of the reinsurer’s profit in line with a plan and at dates specified in the treaty. As a result, part of the premium paid to the reinsurers due to concluded reinsurance treaties may be considered a deposit component.

At the end of the reporting period, all rights and obligations related to the deposit component, in particular a reinsurance asset corresponding to the receivable due to the deposit component resulting from the outward reinsurance treaty, including all terms and conditions of the treaty, such as allocation of loss in particular years, are recognized. Pursuant to the provisions of paragraph 10 of IFRS 4 the deposit component is not unbundled from concluded reinsurance contracts.

Outward reinsurance contracts follow the same accounting principles as reinsurance contracts. As at the end of the reporting period, deposits with ceding undertakings are measured in amount due (specified in line with the terms and conditions of the reinsurance treaty) including impairment loss.

3.17.2 Life insurance

3.17.2.1 Insurance contracts and DPF

Both insurance contracts and investment contracts may contain discretionary participation features (DPF) which enable the insured to receive additional benefit or bonus as a supplement to the guaranteed benefit; the benefit is a significant part of the entire contractual benefit, its amount and duration are specified in the contract and depend on the decision of the insurer; the benefit occurs in the event of:

  • a specific set or type of contracts;
  • profit or no profit from specific assets;
  • profit or loss of the insurer, fund or other entity related to the contract.

All contracts with discretionary profit sharing, unilaterally specified by the insurance company, may be measured in accordance with IFRS 4. 

3.17.2.2 Unit-linked products

Contracts concluded with an insurance equity fund on the basis of the criterion of significant insurance risk referred to in clause 4.5, are recognised in accordance with IFRS 4 or IAS 39.

3.17.2.3 Investment contracts with no DPF

The principles of recognition and measurement of contracts which, in accordance with IFRS4, do not meet the classification criteria of an insurance contract, i.e. classified as investment contracts, are specified by IAS 39. Therefore, financial liability measurement principles are applied to investment contracts:

  • measurement at amortized cost – for investment contracts with guaranteed and fixed terms or
  • measurement at fair value through profit or loss – for unit-linked investment contracts.

The effects of measurement of financial liabilities under investment contracts are presented as “Claims and change in measurement of investment contracts”.