D _ Consolidated Financial Statements contract revenue; a gross written premium will no longer be presented income statement, the release of the contractual service margin and in the statement of comprehensive income. Insurance contract revenue the risk adjustment for non-financial risk will become the main is defined in such a way as to achieve comparability with the revenue components for the operating profit of the L/H business. of other industries and, in particular, investment components may not Next to the qualitative impacts described above, the be recognized as part of insurance contract revenue. The (net) Allianz Group is currently assessing the quantitative impact of the combined ratio will remain the main KPI for the Property-Casualty application of IFRS 17. The final figures will also depend on the segment and will be defined as the sum of insurance service expenses application of the transition approaches. IFRS 17 has to be applied and the reinsurance result, divided by insurance revenue. retrospectively unless this is impracticable. In this case, an entity can Generally, the Allianz Group expects only limited impacts on the choose between a modified retrospective approach or a fair value underwriting result. There will be a positive impact from the approach. The objective of the modified retrospective approach is to discounting of loss reserves, but this effect is expected to be low given use reasonable and supportable information available without undue the current interest rate environment. While the operating investment cost or effort to achieve the closest possible outcome to full income (i.e., interest and dividends) will remain almost unchanged, the retrospective application. To the extent a retrospective determination interest accretion on historic loss reserves will notably decrease the is not possible, certain modifications are allowed. Under the fair value investment result. IFRS 17 contains an accounting policy option to approach, the contractual service margin of a group of contracts at recognize changes in financial parameters either in profit or loss or in transition is determined as the difference between the fair value of this other comprehensive income. This so-called “OCI option” can be group at transition determined in accordance with IFRS 13 and the exercised at the level of individual portfolios. The Allianz Group corresponding IFRS 17 fulfillment cash flow measures at transition. generally will make use of this option. Under this option, loss reserves Although the IFRS 17 implementation project has made are discounted for profit or loss with locked-in interest rates from the significant progress, as of the date of the publication of these respective accident years, and the discounting effect needs to be consolidated financial statements, it is not practicable to reliably recognized as interest accretion in the investment result until reserves quantify the effects on the Allianz Group’s consolidated financial expire. The Allianz Group further expects only limited impact on equity statements. at transition due to the offsetting impacts from discounting and risk adjustment for the measurement of loss reserves. IFRS 9, Financial Instruments IFRS 9, Financial Instruments, issued by the IASB in July 2014, fully replaces IAS 39 and provides a new approach on how to classify For long-duration life insurance contracts, IFRS 17 is expected to have financial instruments based on their cash flow characteristics and the a significant impact on actuarial modeling, as more granular cash flow business model under which they are managed. Furthermore, the projections and regular updates of all assumptions will be required, standard introduces a new forward-looking impairment model for either resulting in profit or loss, or impacting the contractual service debt instruments and provides new rules for hedge accounting. margin. It can be assumed that the main impact from IFRS 9 will arise from The Allianz Group expects that direct participating business, the new classification rules leading to more financial instruments where the rules on profit sharing are defined by legal/contractual being measured at fair value through income as well as the new rights, will qualify for the variable fee approach eligibility (approx. 2/3 impairment model. Interdependencies with IFRS 17 will need to be of present value of future cash flows in the Life/Health segment). considered to assess the ultimate combined impact of both standards. Indirect participating business, where the payments to the The amendments to IFRS 4, Applying IFRS 9 Financial Instruments policyholder depend on the investment performance but there are no with IFRS 4 Insurance Contracts, issued in September 2016, allow fixed rules on how the performance is passed on to the policyholders, entities that issue insurance contracts within the scope of IFRS 4 to as well as non-participating business, i.e., business without defer the implementation of IFRS 9 until 1 January 2021 under certain policyholder participation, including savings and risk business, will be circumstances. However, together with the Amendments to IFRS 17 accounted for under the general measurement model. The that were issued in June 2020, the IASB also published “Extension of Allianz Group will continue to have unit-linked investment contracts (to the Temporary Exemption from Applying IFRS 9 (Amendments to be accounted for under IFRS 9) and unit-linked insurance contracts, IFRS 4)” to defer the fixed expiry date in IFRS 4 for the temporary which are contracts with significant insurance risk, e.g., via death or exemption from applying IFRS 9 to annual periods beginning on or other insurance riders. The Allianz Group expects unit-linked insurance after 1 January 2023. contracts to be eligible for the variable fee approach. Given the strong interrelation between the measurement of direct In the statement of financial position, the Allianz Group expects participating insurance contracts and the underlying assets held, the an increase of the insurance liabilities as these will be discounted with Allianz Group has decided to use the option to defer the full current rates and will contain an explicit future profit margin with the implementation of IFRS 9 until IFRS 17 becomes effective. contractual service margin. Current IFRS equity contains the In order to qualify for the temporary exemption, an entity has to shareholder share (net of tax) of unrealized capital gains in other prove that its activities are predominantly connected to insurance as comprehensive income. A portion of these gains will be part of the of 31 December 2015. Under the amended IFRS 4, this condition is met insurance liabilities accounted for under the variable fee approach. if the insurer carries significant liabilities arising from contracts within These effects will result in a decrease of equity for the Life/Health the scope of IFRS 4. Significant insurance-related liabilities are given, segment in particular. Due to the shift to a valuation of insurance among others, if the percentage of the total carrying amount of liabilities at current fulfillment value, the Allianz Group expects to liabilities connected with insurance relative to the total carrying measure the underlying investments generally at fair value. In the amount of all liabilities is greater than 90 %. A reassessment at a Annual Report 2021 − Allianz Group 133