41.2 Estimates and assumptions

41.2.1 Non-life insurance

In the calculation of provisions for outstanding claims and benefits, the uncertainty related to bodily injury claims is taken into account. For such claims, changes in the legal environment and uncertain jurisprudence may affect the ultimate amount of benefits paid.

When calculating the provision for the capitalized value of annuities, the future increase in average annuity is estimated based on historical data and taking into account other information that may contribute to an increase in annuities in the future (for example, growing insurance awareness, legislative changes, etc.).

Both as at 31 December 2018 and 31 December 2017, a technical rate of 3.6% was assumed for all annuities and an annuity growth rate of 3.9%, estimated on the basis of inflation and salary growth forecasts.

For lifetime annuities, the period in which the annuity will be payable is determined using publicly available statistics, which in Poland include Polish Life Expectancy Tables published by the Central Statistical Office. Additionally, the provision for the capitalized value of annuities is calculated taking into account the cost of future handling services at 3% of the value of benefits paid.

The estimated final value of claims and benefits paid in provision development triangles and the analysis of sensitivity of the net result and equity to changes in the assumptions used to calculate the provision for the capitalized value of annuities are presented in section 7.5.2.1. 

41.2.2 Life insurance

The amount of the life insurance provision corresponds to the value of liabilities under insurance contracts concluded. It is calculated as the difference between the present value of expected benefits and the present value of expected premiums, using the net premium reserve method. The calculation of provisions takes into account all the benefits and premiums provided for in contracts as contractual liabilities and receivables, regardless of whether a contract is performed by the policyholder until the end of the agreed term or terminated by the policyholder. The assumptions made for the frequency of events covered by insurance, i.e. mortality, morbidity and accident rate, are determined based on publicly available statistics, such as the Polish Life Expectancy Tables in Poland or based on own statistics developed using historical data on particular groups of products in the portfolio.

In the case of technical rates (discount rates) used to calculate present values of benefits and premiums, the assumptions are based on the expected rates of return on existing assets and their future reinvestments, taking into account the maximum technical rate limit for new contracts, announced annually by KNF.

The assumptions used to calculate life insurance provisions are made separately for each insurance product at the time the premium tariffs are adopted and product’s sales are launched (“ lock-in-assumptions”). Every year, the assumptions are verified for adequacy. If it is found that an assumption is inadequate, it is verified and adjusted, which leads directly to a change in the value of liabilities presented in the consolidated financial statements. The above assumptions are subject to natural uncertainty resulting from the long term of the projection.

Incidence of insured events 

The following data are taken into account in the calculation of provisions: data on the level of guaranteed sums insured and benefits, data on the age and sex of respective insured persons and also, in the case of group employee insurance products in work establishments and employee and family individually continued insurance products, assumptions about the age structure of the co-insured persons (family members of the insured persons).

For insurance products with a profit participation feature, the life insurance provision also includes previously granted profit participation rights in the form of changes in sums insured and premiums and restatements of guaranteed benefits, including the revaluation of annuities performed by PZU Życie.

The analysis of sensitivity of the net result and equity to changes in the assumptions used to calculate technical provisions in life insurance is presented in section 7.5.2.2.