14.2.5. Identification and aggregation of insurance contracts

In order to identify insurance contracts and inward reinsurance contracts that are within the scope of IFRS 17, the Group verifies whether, under a given contract, the entity accepts a significant insurance risk from the policyholder and undertakes to compensate the policyholder for an adverse effect defined as an uncertain future insurable event.

For measurement purposes, insurance contracts should be aggregated into the so-called groups of insurance contracts described in Section 14.2.1. IFRS 17 key assumptions

Grouping of contracts should be done taking into account the following three dimensions:

• portfolio dimension – contracts with similar risk characteristics and managed jointly;
• profitability dimension – contracts belonging to the same profitability group (one of the three defined by the standard);
• cohort dimension – contracts issued no more than one year apart.

The purpose of this aggregation is to ensure that profits are recognized over time in proportion to the insurance services provided, and losses are recognized immediately when the entity assesses that the concluded contract gives rise to a burden.

At the same time, the above aggregation makes it impossible to offset gains and losses between identified groups of insurance contracts, even within a single portfolio.

Grouping of insurance contracts will occur upon initial recognition, and the Group will not reassess the groups in subsequent periods unless there is a rationale for discontinuing recognition as specified in IFRS 17.

In the Group, the division of the portfolio into groups of insurance contracts will be determined taking into account the above dimensions:

• portfolio dimension – based on the risk characteristics of individual insurance contracts and based on existing insurance portfolio management processes;
• profitability dimension:
  • for life insurance – at the level of a single contract by measuring the given insurance contract;
  • for non-life insurance – all contracts will be treated as profitable, unless there are facts or circumstances that indicate that they are not Profitability will be assessed at the level of the IFRS 17 portfolio, while it is permissible to move the assessment to the level of the quarter or year cohorts;
• cohort dimension – the Group decided to use quarterly cohorts for both life and non-life insurance and reinsurance. The Group does not expect to apply the exemption from reporting under the requirement for annual cohorts.