14.3. Impact assessment – classification and measurement

The total effect of adjustments resulting from the implementation of IFRS 17 on the Group’s assets, liabilities and equity including the tax impact is presented in the table below:

The presented effect of the adjustments arising from the implementation of IFRS17 on the Group’s assets, liabilities and equity, to the best of our knowledge, is the best estimate at the time of publication of these consolidated financial statements.

• The increase in equity by PLN 284 million results from a retrospective change in the recognition of historically collected insurance premiums and a change in the measurement methodology for insurance liabilities. Until the implementation of IFRS 17, as described in Section 14.2.2. The current model for the measurement and recognition of insurance products, including those linked to loans and advances, the entire premium received by the Group was split in accordance with Recommendation U on the basis of the relative fair value model into an insurance product portion – measured using an actuarial model in accordance with the requirements of IFRS 4 – and a credit product portion – accounted for using the effective interest rate method. With the implementation of IFRS 17, insurance premiums were recognised in full as insurance component measured using the GMM model. As a consequence, the rate of revenue recognition and therefore the historically recognised profit included in retained earnings has changed.
• Loans and advances to customers increased by PLN 1 397 million, due to the discontinuation of the premium element accounted for using the effective interest rate method and adjusting the gross carrying amount of The value of this premium previously recognised as a component of the gross carrying amount of loans and advances to customers is now part of the insurance business measured using the new methodology under IFRS 17, thereby translating into an increase in the balance of liabilities in respect of insurance activities.
• In accordance with IFRS 17, the liability from insurance operations as at 1 January 2022 increased by PLN 1 309 million to PLN 3 317 million, of which liability for remaining coverage (LRC) is PLN 3 143 million and liability for incurred claims (LIC) is PLN 174 million.
• There was also a decrease of PLN 783 million in the line of assets in respect of insurance activities, which is primarily due to the adoption of a different method of determining insurance assets and liabilities with the reinsurer’s share. In accordance with IFRS 17, the value of assets in respect of insurance activities as at 1 January 2022 amounts to 128 million, of which liability for remaining coverage (LRC) amounts to PLN -107 million and liability for incurred claims (LIC) amounts to PLN -21 million.
• In intangible assets, the Group recognised future gains on insurance contracts (hereinafter Value in force, VIF) resulting from the settlement of the acquisition on 1 April 2014 of „Nordea Polska Towarzystwo Ubezpieczeń na Życie” SA (currently PKO Życie Towarzystwo Ubezpieczeń S.A.). Following the implementation of IFRS 17, VIF amounts to PLN 2 million as at 1 January 2022 (negative adjustment of PLN 20 million). The remeasurement is due to the fact that a significant part of the products for which VIF has been recognised are subject to the requirements of IFRS 17, so that VIF for this part of the portfolio is replaced by the contractual service margin (CSM). The amount of contractual service margin from the acquired portfolio subject to measurement in accordance with IFRS 17 is higher than the value of the recognised VIF, due to the prudential valuation that was applied for liability measurement purposes at the time of the transaction. The new VIF value has been limited to policies subject to measurement in accordance with IFRS 9 and has been calculated in line with the original recognition of the VIF (i.e. measurement of the VIF at the time of the transaction and adoption of an amortisation pattern based on the distribution of projected future profits).
• From 1 January 2023 onwards, a significant part of the products, i.e. the liabilities from the majority of unit-linked products and the „safe capital” product, will be measured in accordance with IFRS 17 as part of liabilities from insurance activities (this applies to the item “Amounts due to customers” – “Liabilities in respect of insurance products”). The remainder will be measured in accordance with IFRS 9. The value of the adjustment to the item „Amounts due to customers” amounted to a negative PLN 1,030 million. The carrying amount of the liabilities in respect of insurance products presented under „Amounts due to customers” amounts to PLN 175 million after adjustments.