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5.2 Amendments to the applied IFRS

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5.2.1. Standards, interpretations and amended standards effective from 1 January 2021

The following changes in standards were applied to the consolidated financial statements.

Standard/interpretation Approving regulation Comments
Amendments to IFRS 4 – Extension of the temporary exemption from the application of IFRS 9 2020/2097 The amendment has extended the temporary exemption from the application of IFRS 9 by two years (postponing the expiration date of the exemption from the annual periods beginning on 1 January 2021 to the annual periods beginning on or after 1 January 2023 – in compliance with the effective date of IFRS 17 “Insurance contracts”), while leaving the option of an earlier implementation. The amendment is a consequence of the amendments to IFRS 17 published on 25 June 2020.

It did not apply to the PZU Group due to the implementation of IFRS 9 at the beginning of 2018.
Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4
and IFRS 16 – Interest Rate Benchmark Reform (IBOR – phase 2)

2021/25 The key amendments stipulate that:
  • settlement of modifications of financial assets, financial liabilities and lease liabilities which will be required as a direct consequence of the reform of the interest rate benchmarks and carried out on the basis of economically equivalent principles through update of the effective interest rate;
  • the reform of the interest rate benchmarks directly does not lead to discontinuation of application of hedge accounting principles. Hedging relationships (and the related documentation) must be amended to reflect the modification of the hedged position, hedging instrument and hedged risk. Amended hedging relationships should satisfy all qualifying criteria for application of hedge accounting, including effectiveness requirements;
  • to enable users to understand the nature and scope of the risks following from the reform of interest rate benchmarks to which the entity is exposed, and how the entity manages such risks, as well as the progress of the entity in transition from the interest rate benchmarks to alternative reference rates and how the entity manages the transition, it is required to disclose:
    • information about the method of managing the transition from the interest rate benchmarks to alternative reference rates, progress made as at the reporting date and the risks resulting from the transition;
    • quantitative information on financial assets not being derivatives, financial liabilities not being derivatives, and derivatives which are still subject to interest rate benchmarks subject to the reform, broken down by material interest rate benchmarks;
    • information on the extent to which the reform of the interest rate benchmarks has caused changes in the entity’s risk management strategy, description of such changes and the way in which the entity manages this risk.

The impact analysis of changes in standards on the consolidated financial statements is presented in sections and 35.1.
Amendment to IFRS 16 – payment modifications due to the COVID-19 pandemic after 30 June 2021 2021/1421 The amendment makes it possible to extend the possibility of treating changes pertaining to lease payments under granted arrangements as if they did not constitute a modification of lease on all payments due on or before 30 June 2022 (currently the arrangement pertains only to payments due by 30 June 2021). The amendment should be applied retrospectively, recognizing the cumulative effect as a correction of the opening balance of retained earnings or other capital component as at the beginning of the annual period in which the amendment was applied.

The amendment has not affected the PZU Group’s consolidated statements to any significant extent.

5.2.2. Standards, interpretations and amended standards not yet effective

Approved by the regulation of the European Commission:

Name of standard/ interpretation Effective date Approving regulation Comments
Amendment to IAS 16 – Property, plant and equipment: revenue obtained before putting into use 1 January 2022 2021/1080 The amendment forbids any deduction from the initial value of property, plant and equipment of amounts obtained from the sale of products produced in the course of bringing an asset to a condition where it is fit for use as intended (from test production). Such proceeds from sales and related costs will be recognized in the profit or loss.

The amendment will not affect the PZU Group’s consolidated financial statements to any significant extent.
Amendment to IAS 37 – Onerous contracts – costs of fulfillment of contractual obligations 1 January 2022 2021/1080 The amendments define what costs should be taken into account when deciding whether or not the contract in question is an onerous contract. The amendments specify that “contract performance costs” are costs directly related to the contract which include:
  • incremental contract performance costs, such as direct costs of material, direct labor and
  • allocation of other costs that are directly related to the performance of the contract, e.g. allocation of the depreciation charge on the items of property, plant and equipment taken advantage of to perform the contract.

The amendment will not affect the PZU Group’s consolidated financial statements to any significant extent.
Amendments to IFRS 3 1 January 2022 2021/1080 The amendments include:
  • updated references to the framework (from 2018 instead of 1989);
  • added requirement to apply IAS 37 or IFRIC 21 instead of the framework – for transactions and events falling in the scope of this standard and interpretations for the purpose of identifying liabilities taken over in a business combination;
  • unambiguous prohibition of the recognition of contingent assets acquired in a business combination.

The amendment will not affect the PZU Group’s consolidated financial statements.
Amendments to IFRS 2018-2020 1 January 2022 2021/1080 The amendments pertain to:
  1. IFRS 1 – the amendment permits a subsidiary that adopts IFRS for application later than its parent and applies paragraph D16(a) of IFRS 1 to measure cumulative foreign exchange differences using the amounts reported in the parent’s consolidated financial statements based on the date of the parent’s transition to IFRS;
  2. IFRS 9 – the amendment clarifies that for the purposes of the “10 percent” test, only fees paid or received between the borrower and the lender, including fees paid or received by the borrower or lender on behalf of the other party, should be considered in making a decision on the possible derecognition of a financial liability;
  3. IFRS 16 – the amendment has removed the example concerning the reimbursement of lease improvements by the lessor (due to related uncertainties);
  4. IAS 41 – to ensure consistency with IFRS 13, the amendment has removed the requirement from paragraph 22 of IAS 41 according to which reporting entities should exclude cash flows from taxation when measuring the fair value of a biological asset using the present value method.

The amendments will not exert a material influence on the PZU Group’s consolidated financial statements.
IFRS 17 – Insurance contracts 1 January 2023 2021/2036 The purpose of the standard is to establish the uniform accounting policy for all types of insurance contracts, including the reinsurance contracts held by the insurer. The introduction of unified valuation rules should ensure comparability of financial reports between different entities, states and capital markets.
The new standard defines insurance contract as a contract under which one entity accepts significant insurance risk from the policyholder by agreeing to compensate the policyholder if a specified uncertain future event adversely affects the policyholder. The scope of the standard does not cover, among others, investment contracts, product warranties, loan guarantees, catastrophe bonds and weather derivatives (contracts requiring payment based on the climatic, geological factor or another physical variable that is not specific to the party to the contract).
The standard introduces a definition of contract boundary, defining its beginning as the beginning of coverage, the date when first premium becomes due, the moment when facts and circumstances indicate that the contract belongs to the group of onerous contracts – whichever is earliest. The end of the contract boundary occurs when the insurer has the right or practical ability to reassess the risk for a particular policyholder or a policy group, and the premium measurement does not cover the risk related to future periods.
Among the fundamental rules of the standard is the recognition of the full expected loss on insurance contracts at the time when the entity considers the contract as having become onerous, which may be the date of its initial recognition or the date of any subsequent measurement.
In accordance with IFRS 17, contracts will be measured by one of the following methods:
  • General Measurement Model, GMM – the basic measurement model, wherein the total value of the insurance liability is calculated as the sum of:
    • discounted value of the best estimate of future cash flows – expected (probability-weighted) cash flows from premiums, claims, benefits, acquisition expenses and costs,
    • risk adjustment for non-financial risk (RA) – individual estimate of the uncertainty related to the quantity and time of the future cash flows, and
    • contractual service margin, CSM – representing an estimate of future profits recognized during the policy term. The CSM value is sensitive to changes in estimates of cash flows, resulting e.g. from changed non-economic assumptions. CSM cannot be a negative value – any losses on the contract shall be recognized immediately in the profit and loss account.
  • premium allocation approach, PAA – a simplified model which can be applied to measurement of insurance contracts with the coverage period below 1 year or where its application does not lead to significant changes in relation to GMM. In this model, liability for remaining coverage is analogous to the provision for unearned premiums mechanism, without separate presentation of RA and CSM, while the liability for incurred claims is measured using the GMM (without calculating CSM).
  • variable fee approach, VFA – model used for insurance contracts with direct profit sharing. The liability value is calculated in the same manner as in the GMM, the CSM value is additionally sensitive to changes in economic assumptions.

IFRS 17 provides for separate recognition of reinsurance contracts from reinsured insurance contracts. The cedent shall measure reinsurance contracts by the modified GMM method or (if possible) by the PAA method. Modifications of the GMM method arise above all from the fact that reinsurance contracts are usually assets, not liabilities, and the cedent pays a remuneration to the reinsurer rather than deriving profits from the contract. Modifications are also supposed to reduce discrepancies arising from separate recognition of the reinsurance contract from reinsured insurance contracts.
In the case of reinsurance contracts, both net profit and net loss calculated as at the contract recognition are recognized in the statement of financial position and settled through the reinsurance coverage period. The assumptions for reinsurance contract measurement shall be consistent with those used for reinsured insurance contract measurement. In addition, measurement shall take into account the risk that the reinsurer fails to fulfill its obligations.

The PZU Group is conducting project work to implement a standard in all PZU Group insurance companies. As part of the project, PZU Group is working on the following, among other things:
  • developing details of the valuation methodology for distinct types of contracts and the method of presenting financial information required by IFRS 17 in the consolidated financial statements;
  • building the target reporting process;
  • introducing changes necessary to be implemented in IT systems, processes and areas which will be significantly affected by the implementation of IFRS 17;
  • rolling out an IT system to support the financial reporting process in accordance with the requirements of IFRS 17;
  • gathering historical data on policies necessary for the calculation of the transition date;
  • building repositories of input and output data to facilitate the automation of calculations.

At the current stage of the IFRS 17 implementation project, test calculations are continued in all insurance units of the PZU Group, and the impact of changes on total income, equity and information presented in the consolidated financial statements is evaluated. Due to the ongoing work within the PZU Group on the final methodology for the practical application of IFRS 17, final decisions on the adopted accounting principles and significant judgments will be made by the PZU Group at a later date. For this reason, it is not yet feasible to reliably estimate the actual impact of the application of IFRS 17 on the consolidated financial statements.
Amendments to IAS 1 – Presentation of Financial Statements 1 January 2023 2022/357 In accordance with the amendments, the entity will be obligated to disclose material accounting policy information rather than significant accounting principles (as previously). The amendment contains examples of identification of material accounting policies and stipulates that an accounting policy may be material due to its nature, even if the figures are immaterial. An accounting policy is material if the users of the financial statements need it to understand other material information in such statements. Disclosure of immaterial accounting policies may not obscure material accounting policies.

The amendment will not affect the PZU Group’s consolidated statements to any significant extent.
Amendments to IAS 8 – Accounting Policies, Changes in Accounting Estimates and Errors 1 January 2023 2022/357 The amendments to IAS 8 comprise:
  • replacement of the definition of a change in estimates with a definition of estimates. In accordance with the new definition, estimates are “monetary amounts in financial statements that are subject to measurement uncertainty”;
  • explanation that a change in the estimate resulting from new information or new events is not a correction of error. In addition, the effects of a change in input data or measurement technique applied to determine the estimate are changes in estimates, unless they follow from a correction of errors of previous periods;
  • clarification that a change in an accounting estimate may affect only the current period’s profit or loss, or the profit or loss of both the current period and future periods. The effect of the change relating to the current period is recognized as income or expense in the current period. The effect, if any, on future periods is recognized as income or expense in those future periods.

The amendment will not affect the PZU Group’s consolidated statements to any significant extent.

Not approved by the European Commission:

Name of standard/ interpretation Date of issue by IASB Effective date (according to IASB) Comments
Amendment to IAS 1 – classifying liabilities as current and non-current 23 January 2020 1 January 2023 The amendments specify that the conditions which exist at the end of the reporting period are those which will be used to determine if a right to defer settlement of a liability exists and also that the intentions or expectations of an entity regarding the willingness to use the possibility of deferring a liability are not relevant for the classification.

The amendments did not affect the PZU Group’s consolidated financial statements.
Amendment to IAS 12 – Income Taxes 7 May 2021 1 January 2023 According to the amendment, the exemption specified in IAS 12.15(b) for the initial recognition of a deferred tax asset or liability will not apply to transactions in which both taxable and deductible temporary differences arise, resulting in the need to recognize a deferred tax asset and liability at the same time (e.g. in the case of lease transactions).
The amendment applies to the transactions occurring on or after the commencement date of the earliest comparative period presented in the financial statements.

The amendment will not affect the PZU Group’s consolidated statements to any significant extent.
Amendment to IFRS 17 – Insurance contracts 9 December 2021 1 January 2023 On 9 December 2021, the IASB issued an amendment to IFRS 17 regarding comparative information about financial assets presented at the time of the first application of IFRS 17. The purpose of the amendment is to help avoid temporary accounting mismatches between financial assets and liabilities under insurance contracts resulting from different requirements for the presentation of comparable data between IFRS 9 and IFRS 17.

The amendment will not exert a significant impact on the PZU Group’s reporting due to the implementation of IFRS 9 already in 2018.

In summary, in the opinion of the PZU Group, the introduction of the above standards and interpretations (except for IFRS 17) will have no material effect on the accounting policies applied by the PZU Group.