Sensitivity to risk

Annual Report 2017 > Risk > Sensitivity to risk
Highlights 2017

Risk

Oversight over the risk management system of the entire PZU Group
Oversight over the risk management system of the entire PZU Group
Risk management through active and deliberate management of the extent of risk taken
Risk management through active and deliberate management of the extent of risk taken
Efficient management of capital in order to maximize the rate of return on equity for the parent company’s shareholders.
Efficient management of capital in order to maximize the rate of return on equity for the parent company’s shareholders.
Consistency of the key elements of the integrated management system for all PZU Group’s insurance undertakings
Consistency of the key elements of the integrated management system for all PZU Group’s insurance undertakings
Supervision of subsidiaries, in particular Alior Bank and Bank Pekao, through persons designated to Supervisory Boards
Supervision of subsidiaries, in particular Alior Bank and Bank Pekao, through persons designated to Supervisory Boards
Risk management as an integral part of the management process, based on risk analysis in all processes and units
Risk management as an integral part of the management process, based on risk analysis in all processes and units
Reference Areas:
Health
Investments
Banking
Best Pratices in PZU

Risk pertaining to financial assets

The table on page 137 summarizes the results of analysis of the sensitivity of the PZU Group’s net financial result and equity to changes in interest rate risk, foreign exchange risk and equity instruments price risk. This analysis does not take into account the impact of changes in interest rates on the insurance agreements presented in the liabilities or the investment contracts and receivables of bank’s from its clients and loans to customars.

Financial assets exposed to exchange risk include deposit transactions and debt securities used to hedge payments from technical provisions denominated in foreign currencies, exposures to equity instruments quoted on stock exchanges other than WSE, investment fund units and certificates, exposures to derivatives denominated in foreign currencies and financial assets of consolidated international insurance companies.

Sensitivity of the asset portfolio (PLN million)Change of the risk factor31 December 201731 December 2016
Impact on the net financial result and equityImpact on the net financial result and equity
Interest rate riskdecrease by 100 bp1 244542
increase by 100 bp-1 169-522
Exchange riskincrease by 20%-183-381
decrease by 20%259381
Equity instruments price riskincrease by 20%350527
decrease by 20%-350-527

Risk pertaining to technical rates and mortality

In the table on page 139, a sensitivity analysis is presented of the net result and equity to changes in the assumptions used to calculate the provision for the capitalized value of annuities. This analysis does not take into account the impact of changes in the valuation of deposits taken into consideration in the calculation of the provision on the net financial result and equity.

sensitivity of reservesImpact of changes in assumptions on the net financial result and equity
31 December 201731 December 2016
Changes in the assumptions to the net capitalized annuities in non-life insurance (in PLN m)
Technical rate - increase by 0.5 p.p.407398
Technical rate - decrease by 1.0 p.p.-1 051-1 030
Mortality at 110% of the currently
assumed rate
127124
Mortality at 90% of the currently
assumed rate
-141-138
Changes in the assumptions for annuities in life insurance (in PLN m)
Technical rate - decrease by 1 p.p.-27-29
Mortality at 90% of the currently
assumed rate
-11-11
Changes in the assumptions for reserves in life insurance, excluding annuity insurance (in PLN m)
Technical rate - decrease by 1 p.p.-2092-2112
Mortality at 110% of the currently assumed rate-881-891
110% morbidity and accident rate-148-153

Banking activity

Interest rate risk

Interest rate risk is defined as the risk of the level of market interest rates exerting an adverse impact on the current result or the net present value of the Bank’s capital. When managing the interest rate risk in banking book, banks endeavor to secure the economic value of their capital while achieving their intended interest result target within the accepted limits.

The table below depicts the estimated change in the valuation of a given transaction/item as a result of a parallel shift in the yield curve from a given point by 1 basis point (BPV)

BPV (PLN thousand) (shift by 1 basis point)31.12.201731.12.2016
Pekao437n/a
Alior Bank537452

Foreign exchange risk

The fundamental measure of foreign exchange risk in both banks is the Value at Risk (VaR) model to designate the potential value of a loss on currency positions due to changes in exchange rates, while maintaining the assumed confidence level equal 99% and the period in which the position is kept.

This value is calculated daily for all areas responsible for risk taking and risk management, both on an individual and collective basis.

VaR 10 day-FX risktrading book (PLN thousand)31.12.201731.12.2016
Pekao2337n/a
Alior Bank157280

Facebook Twitter Google Plus All