9.4.1 Insurance activity
Equity management involves, among others, monitoring of the insurers’ key solvency parameters, such as the level of own funds and the degree to which such funds are sufficient to cover the required solvency margin and the guarantee capital. The International Financial Reporting Standards do not lay down principles applicable to calculation of the required solvency margin or own funds covering the above margin.
Until the end of 2015, in accordance with the Act on Insurance Activity, an insurance company with its registered office on the territory of the Republic of Poland was obliged to maintain its own funds at an amount of no less than the solvency margin and no less than the guarantee capital.
In order to determine the value of own funds, assets were reduced by the value of intangible assets, deferred tax assets, assets allocated to settle all expected liabilities, as well as shares and other assets (subordinated loans granted) used to finance the equity of insurance companies operating within the insurance capital group. The value determined in the above manner was adjusted in proportion to the shares held by PZU by the total surplus or shortage of own funds of the controlled insurance companies over their solvency margins.
The principles of calculating own funds to cover the solvency margin are specified in the Act on Insurance Activity and the principles for calculation of the required solvency margin and the minimum value of the guarantee capital have been laid down in the Solvency Margin Ordinance.
Calculation of own funds and solvency marginal includes financial data in accordance with PAS.
Presented below is the calculation of own funds covering the required solvency margin of PZU.
|Calculation of own funds to cover the required solvency margin||31 December 2015||31 December 2014|
|Value of assets used to finance equity of other insurance companies operating within the insurance capital group of PZU||(5,853,666)||(6,065,985)|
|Change in deferred tax assets||(459,105)||(408,388)|
|Effect of other insurance companies operating within the insurance capital group of PZU on the value of PZU’s own funds:||2,135,034||2,411,116|
|PZU Życie SA 100.00%||1,914,227||2,213,301|
|Required solvency margin||1,802,108||1,783,186|
|Surplus of own funds to cover the required solvency margin||1,914,227||2,213,301|
|Link4 SA 100.00%||85,374||55,638|
|Required solvency margin||76,989||69,300|
|Surplus of own funds to cover the required solvency margin||85,374||55,638|
|TUW PZUW 100.00%||13,903||n/a|
|Required solvency margin||11,954||n/a|
|Surplus of own funds to cover the required solvency margin||13,903||n/a|
|Lietuvos Draudimas AB 99.98%||109,198||127,853|
|Required solvency margin||118,672||86,636|
|Surplus of own funds to cover the required solvency margin||109,220||127,879|
|AAS Balta 99.99%||30,798||22,216|
|Required solvency margin||49,661||39,989|
|Surplus of own funds to cover the required solvency margin||30,801||22,218|
|UAB DK PZU Lithuania 99.88% (as at 31 December 2014)||n/a||4,692|
|Required solvency margin||n/a||71,522|
|Surplus of own funds to cover the required solvency margin||n/a||4,698|
|UAB PZU Lietuva Gyvybes Draudimas 99.34%||1,786||5,696|
|Required solvency margin||15,939||15,770|
|Surplus of own funds to cover the required solvency margin||1,798||5,734|
|PrJSC PZU Ukraine 100.00%||(12,589)||(12,314)|
|Required solvency margin||18,055||17,513|
|Surplus/shortage of own funds to cover the required solvency margin||(12,589)||(12,314)|
|PrJSC IC PZU Ukraine Life Insurance 100.00%||(7,663)||(5,966)|
|Required solvency margin||15,939||15,403|
|Surplus/shortage of own funds to cover the required solvency margin||(7,663)||(5,966)|
|Own funds of PZU||7,838,829||7,981,468|
|Required solvency margin of PZU||1,424,278||1,362,353|
|Guarantee capital of PZU||474,759||454,118|
|Surplus of own funds to cover the required solvency margin||6,414,551||6,619,115|
|Surplus of own funds to cover the guarantee capital||7,364,070||7,527,350|
10 November 2015, a new Act on Insurance and Reinsurance was published (Journal of Laws of 2015, item 1844), aimed at implementing the Directive 2009/138/EC of the European Parliament and of the Council on the taking-up and pursuit of the business of Insurance and Reinsurance ("Solvency II"). The Act comes into force on 1 January 2016. Under the new Act, the calculation of capital requirements is based on market risk, actuarial (insurance) risk, counterparty risk, catastrophic risk and operational risk. Assets, liabilities and, consequently, own funds covering the capital requirement will be measured at fair value. PZU Group has estimated its capital requirements and own funds according to the principles of Solvency II, based on data as at 30 September 2015, and determined a significant surplus of own funds that exceed the capital requirement (information not audited).
9.4.2 Bank activity
The purpose of capital management in bank activity is to maintain proper value of own funds and Tier1 capital for risk coverage, in accordance with the assumed risk appetite. As part of risk appetite, expected risk coverage levels of a potential unexpected loss caused by individual risk types specified in CRR provisions by own funds and Tier1 capital are determined, as well as by individual risk type identified in the course of assessing adequacy of internal capital. Potential unexpected loss is determined using regulatory capital which is defined using methodology specified in CRR as well as using internal capital.
Solvency ratio and Tier1 ratio as at 31 December 2015 was calculated in accordance with CRR. Until the date of preparation of the consolidated financial statements, part of regulations concerning on determining own funds and capital requirements (the so-called national options) was not adopted and published by PFSA. To calculate the solvency ratio within the non-regulated scope, a prudent approach was adopted with respect to, among others, percentage values in the transition period and risk weights towards currency exposures secured by mortgages for which this assumption was indicated by PFSA as potential “national options”. When “national options” are determined and published, the capital ratio for bank activity could be different than the one presented in the consolidated financial statements.
|Own funds and solvency ratio||31 December 2015|
|Total own funds for solvency ratio calculation||3,853,305|
|Core capital Tier I (CET1)||2,975,899|
|Supplementary capital Tier II||877,406|
|Tier 1 ratio||9.69%|
As at 31 December 2015, Alior Bank Group fully followed the regulations of the Capital Requirements Regulation (CRR), including own funds account and calculating capital requirements due to selected risk types.