translation from the russian original · main actuarial assumptions used for measurement of...

JSC “Russian Re” Financial Statements for the Year Ended 31 December 2019

Translation from the Russian original

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Contents Independent Auditor’s Report ........................................................................................... 3 Insurer Balance Sheet ..................................................................................................... 7 Insurer Statement of Financial Results................................................................................. 9 Insurer Statement of Changes in Equity ............................................................................. 11 Insurer Statement of Cash Flows ..................................................................................... 13 Notes to the Financial Statements 1. Principal Activities of the Company ........................................................................... 15 2. Operating Environment of the Company ..................................................................... 15 3. Basis of Presentation ............................................................................................. 16 4. Summary of Significant Accounting Policies ................................................................. 16 5. Cash and Cash Equivalents ...................................................................................... 29 6. Deposits and other placements with credit institutions and non-resident banks ..................... 30 7. Receivables under insurance, co- insurance and reinsurance transactions ............................ 31 8. Loans, other placements and other receivables ............................................................ 32 9. Provisions and Reinsurers’ Share of Non-life Insurance Provisions....................................... 32 10. Investment Property ............................................................................................. 37 11. Intangible Assets .................................................................................................. 38 12. Premises and Equipment ........................................................................................ 39 13. Deferred Acquisition Costs and Income ....................................................................... 40 14. Other Assets ....................................................................................................... 41 15. Provisions for Impairment ....................................................................................... 41 16. Payables under insurance, co- insurance and reinsurance transactions ................................ 42 17. Other Liabilities ................................................................................................... 42 18. Share Capital ...................................................................................................... 42 19. Capital Management ............................................................................................. 43 20. Reinsurance Premiums – Net of Reinsurance ................................................................ 44 21. Claims Incurred – Net of Reinsurance ......................................................................... 44 22. Expenses from non-life insurance, co-insurance and reinsurance transactions– net of

reinsurance ........................................................................................................ 45 23. Other Non-life Insurance Income and Expenses ............................................................. 46 24. Interest Income ................................................................................................... 46 25. Gains less Losses Arising from Investment Property Transactions ....................................... 46 26. General and Administrative Expenses ......................................................................... 46 27. Other Income ...................................................................................................... 47 28. Income Tax ........................................................................................................ 48 30. Risk Management ................................................................................................. 50 31. Contingent liabilities. ............................................................................................ 62 32. Fair Value of Financial Instruments ........................................................................... 62 33. Related Party Transactions ..................................................................................... 67 34. Events after the Reporting Period ............................................................................. 67

JSC”Russian Re” Notes to the Insurer Financial Statements for the Year Ended 31 December 2019 (in thousands of Russian Rubles) Translation from the Russian original

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1. Principal Activities of the Company

JSC “Russian Re” (the Company) was registered in the Russian Federation on 11 February 1994. The Company operates on the basis of License of the Bank of Russia No. PS 0235 of 3 September 2015. The license is issued for an unlimited period. The license is issued for reinsurance activity. During 2019 and 2018 the license was not renewed.

As at 31 December 2019 and 31 December 2018, the Company has a legal form of a "joint stock company". As at 31 December 2019, the shareholders holding a more than 5% interest in the share capital include: Chubb Russia Investments Limited (UK) - 23.34%, Catlin Underwriting Agencies Limited (UK) - 22.5%, Andrey A. Polyakov - 22.03%, Teymuraz O. Batiashvili - 21.64% and Maria V. Morozova - 5.09%. Chubb Limited (Switzerland) holds a 100% interest in Chubb Russia Investments Limited (UK). 100% of Chubb Limited’s shares are traded publicly. AXA SA (France) holds a 100% interest in Catlin Underwriting Agencies Limited (UK). The shares of AXA SA are traded publicly on the Paris stock exchange. As at 31 December 2019 and 31 December 2018, the Company does not have any branches opened in the territory of the Russian Federation and foreign countries. As at 31 December 2019 and 31 December 2018, the Company has one representative office located in the Russian Federation in Vladivostok. A representative office is a separate division of the Company that does not have the status of a legal entity. The representative office is involved in representation of the Company’s interests, it does not carry out reinsurance operations, business activities and is not an independent reporting entity. As at 31 December 2019, the Company does not have representative offices opened in foreign countries (as at 31 December 2018, the Company had a representative office outside the territory of the Russian Federation in the Republic of Ukraine). The Company’s registered address is: 19/1 Lyalin Pereulok, Moscow, 105062. The Company’s place of business is: 19/1 Lyalin Pereulok, Moscow, 105062. The average number of the Company’s employees as at 31 December 2019 was 27 (2018: 28). The financial statements are presented in thousands of Russian roubles, which are the Company's functional and presentation currency.

2. Operating Environment of the Company

The economy of the Russian Federation continues to display certain characteristics of an emerging market. These characteristics include, in particular, inconvertibility of the national currency in most countries outside of Russia. The current Russian tax, currency and customs legislation is subject to varying interpretations and frequent changes. Russia continues development of the legal, tax and administrative infrastructure to comply with the market economy requirements. The economic reforms conducted by the Government are aimed at modernization of the Russian economy, development of high-tech productions, enhancement of labour productivity and competitiveness of the Russian products on the world market. Starting from March 2014 the US, EU and some other countries imposed several sets of sanctions against certain Russian officials, businessmen and companies. The EU prolonged economic sanctions against Russia until 31 July 2020. These sanctions caused restricted access of certain Russian companies to the international capital markets and exports. The official US Dollar exchange rate set by the Central Bank of the Russian Federation depreciated from RUB 69.4706 to RUB 61.9057 per USD 1. The currently existing uncertainty in respect of potential deterioration of the operating environment has an influence on the future financial position and activities of the Company. Management of the Company believes it is taking all the


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necessary measures to support the sustainability and further development of business operations of the Company in these circumstances. In July 2019, the international rating agency S&P Global Ratings confirmed Russia's sovereign credit rating in foreign currency at BBB-with stable outlook.

In August 2019, the international rating agency Fitch Ratings upgraded long-term foreign- and local-currency issuer default ratings of the Russian Federation (IDRs) to BBB with positive outlook.

In February 2019, the international rating agency Moody's Investors Service revised upwards the sovereign credit rating of the Russian Federation to Baa3, with stable outlook.

As at 31 December 2019, the Central Bank’s key refinancing rate equalled 6.25% per annum (as at 31 December 2018 – 7.75% per annum).

The future economic direction of the Russian Federation is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government, together with development of tax, legal, regulatory, and political systems. The state of the Russian economy is characterized by moderate inflation rates.

3. Basis of Presentation

General principles These annual financial statements have been prepared in accordance with the accounting (financial) reporting rules for insurance companies established in the Russian Federation and International Financial Reporting Standards (IFRS), including all previously adopted standards and interpretations, for the year ended 31 December 2019 (hereinafter, “the financial statements"). Basis for presentation of financial statements These financial statements have been prepared under the historical cost convention for measurement of assets and liabilities, adjusted for fair value remeasurement of investment property carried at fair value through profit or loss and premises and equipment included in the group "buildings and structures" carried at revalued amount with changes recorded in other comprehensive income. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as at the date of the financial statements, and the amounts of revenues and expenses during the reporting period.

4. Summary of Significant Accounting Policies

Influence of estimates and assumptions The Company does not have any judgments that would have a significant influence on the amounts reflected in the financial statements that can be selected by the Company within the framework of applicable industry-specific accounting standards. The preparation of these financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as at the date of the financial statements, and the amounts of revenues and expenses during the reporting period. Judgments that have the most significant effect on the amounts recognized in the financial statements and estimates that can cause a significant adjustment to the carrying amount of assets and liabilities within the next financial year include:

- Valuation of liabilities under reinsurance contracts; - Impairment of accounts receivable;


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Fair value measurement of non-financial assets; - Tax legislation; - Recognition of deferred tax assets and liabilities.

Main actuarial assumptions used for measurement of liabilities under non-life insurance contracts The following methods and assumptions are used to calculate the provision for unearned premium or unearned premium reserve (UPR): The "1/8th" method. It is assumed that all risks accepted during one quarter are accepted in the middle of this quarter, have a duration equal to a positive integer number of quarters, the risk is distributed evenly throughout the entire period of the contract, and the effective term is determined based on the period of the insurer’s liability under insurance contracts. The ultimate liability is calculated as the amount of the liability calculation base multiplied by the ratio of the number of unexpired semi-quarters of the effective term to the number of quarters of the effective term multiplied by 2. The "pro rata temporis" method applied to the liability calculation base assumes an even distribution of risk over the term of the contract. If a reinsurance contract became effective before the reporting date and was not terminated at the reporting date, the amount of the liability is calculated as the amount of the liability calculation base multiplied by the ratio of the number of unexpired days of the contract to the effective term of the contract. Loss provisions were estimated using the following actuarial methods: expected loss method, chain ladder method, modified chain ladder method, Bornhuetter-Ferguson method, Modified Bornhuetter-Ferguson method, analysis of the number and amount of major losses. The most significant in terms of the amount of provisions are the following actuarial assumptions: on the predicted value of the loss ratio for the expected loss (EL) and Bornhuetter-Ferguson (BF) methods, on the limits of applicability of the chain-ladder method, on the number and amount of major losses already incurred but not yet reported. Key approaches to valuation of financial instruments The Company determines the classification of its financial instruments at initial recognition. Classification of financial assets at initial recognition depends on the purpose for which they were acquired and their characteristics. Depending on classification, the financial instruments are recognised at fair value or at amortised cost.

Fair value measurement is performed in accordance with International Financial Reporting Standard (IFRS) 13 Fair Value Measurement.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantageous) market at the measurement date under current market conditions (i.e. an exit price) regardless of whether that price is directly observable or estimated using another valuation technique.

An entity shall measure the fair value of an asset or a liability using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. If a quoted market price is not available, the fair value of financial assets and financial liabilities recorded in the insurer balance sheet is estimated on the basis of market prices for similar financial instruments or using various valuation techniques, including mathematical models. Inputs for such models are based on observable market data or judgement.


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Judgement is based on the time value of money, credit risk level, volatility of the instrument, market risk level and other applicable factors. All assets and liabilities for which fair value is recognised or disclosed in financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

- Level 1 — quoted (unadjusted) market prices in an active market for identical assets or liabilities;

- Level 2 — valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable;

- Level 3 — valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy. The amortised cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction (directly or through the use of an allowance account) for impairment or uncollectibility. The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability (or group of financial assets or financial liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Company shall estimate cash flows considering all contractual terms of the financial instrument (for example, prepayment, call and similar options) but shall not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. There is a presumption that the cash flows and the expected life of similar financial instruments can be estimated reliably. However, in those rare cases when it is not possible to estimate reliably the cash flows or the expected life of a financial instrument (or group of financial instruments), the Company shall use the contractual cash flows over the full contractual term of the financial instrument (or group of financial instruments). Revaluation of assets and liabilities denominated in foreign currencies The financial statements are presented in Russian roubles, which are the Company's functional and presentation currency. Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the CBR exchange rate ruling at the end of the reporting period. Non-monetary items denominated in foreign currency and carried at cost are restated at the CBR exchange rate in effect at the transaction date. Non-monetary items denominated in foreign currency and carried at fair value are restated at the CBR official exchange rate in effect at the date the fair value is determined. Gains and losses on purchase and sale of foreign currency are determined as the difference between the selling price and the carrying amount at the date of the transaction.


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Foreign currency transactions are translated into the functional currency at the CBR exchange rate in effect at the transaction date. Foreign exchange gains and losses resulting from revaluation of transactions in foreign currency and precious metals are recorded in the insurer statement of financial results within foreign exchange translation gains less losses. Going concern The Company's management prepared these financial statements on a going concern basis. In making this judgment management considered the Company’s financial position, current intentions, profitability of operations and access to financial resources, as well as analysed the impact of the recent financial crisis on the Company's future operations. The future economic direction of the Russian Federation is largely dependent upon the effectiveness of economic, financial and monetary measures undertaken by the Government of the Russian Federation, together with tax, legal, regulatory and political developments. The Company’s management cannot predict the influence that these factors may have on the Company’s financial position in future. The accompanying financial statements do not include the adjustments associated with this risk. Changes in Accounting Policies The accounting policies adopted are generally consistent with those of the previous financial year. Listed below are those amended standards and interpretations which became effective and which are or in the future could be relevant to the Company’s operations: a) New standards, interpretations and amendments effective from 1 January 2019 A number of amendments to IFRSs are effective for the first time for periods beginning on or after 1 January 2019. The nature and effect of each amendment adopted by the Company is detailed below. IFRS 16 Leases (Mandatorily effective for annual periods beginning on or after 1 January 2019)

IFRS 16 was issued in January 2016. It contains a single lessee accounting model, which eliminates the distinction between operating and finance leases from the perspective of the lessee. All contracts that meet the definition of a lease, other than short term leases and leases of low value items for which a lessee has the option not to apply the measurement and presentation requirements of IFRS 16, will be recorded in the statement of financial position with a “right of use” asset and a corresponding liability. The asset is subsequently accounted for as property, plant and equipment or investment property and the liability is unwound using the interest rate inherent in the lease. The accounting requirements from the perspective of the lessor remain largely in line with previous IAS 17 requirements. The adoption of this standard did not have a significant impact on the Company’s financial statements.

IFRIC 23 Uncertainty over Income Tax Treatments (Effective for annual periods beginning on or after 1 January 2019).

IAS 12 specifies how to account for current and deferred taxes, but not how to reflect the effects of uncertainty. The interpretation clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. An entity should determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments based on which approach better predicts the resolution of the uncertainty. An entity should assume that a taxation authority will examine amounts it has a right to examine and have full knowledge of all related information when making those examinations. If an entity concludes it is not probable that the taxation authority will accept an uncertain tax treatment, the effect of uncertainty will be reflected in determining the related taxable profit or loss, tax bases, unused tax


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losses or tax rates, by using either the most likely amount or the expected value, depending on which method the entity expects to better predict the resolution of the uncertainty. An entity will reflect the effect of a change in facts and circumstances or of new information that affects the judgments or estimates required by the interpretation as a change in accounting estimate. Examples of changes in facts and circumstances or new information that can result in the reassessment of a judgment or estimate include, but are not limited to, examinations or actions by a taxation authority, changes in rules established by a taxation authority or the expiry of a taxation authority's right to examine or re-examine a tax treatment. The absence of agreement or disagreement by a taxation authority with a tax treatment, in isolation, is unlikely to constitute a change in facts and circumstances or new information that affects the judgments and estimates required by the Interpretation. The adoption of this standard did not have a significant impact on the Company’s financial statements.

Annual improvements to IFRSs 2015-2018 Cycle (Effective for annual periods beginning on or after 1 January 2019)

Paragraphs of the following standards are added or clarified: 1) IFRS 3 Business Combinations (when an entity obtains control

of a business that is a joint operation, it remeasures previously held interests in that business),

2) IFRS 11 Joint Arrangements (when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business),

3) IAS 12 Income Taxes (an entity should recognise the income tax consequences of dividends when a liability to pay the dividend is recognised),

4) IAS 23 Borrowing Costs (if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows to acquire that asset).

The Company does not expect the adoption of these amendments to have a significant impact on the Company’s financial statements.

Amendment to IFRS 9 Financial Instruments

Prepayment features with negative compensation and modifications of financial liabilities; The Company used an optional temporary exemption from applying IFRS 9 until 2021 in accordance with paragraph 46 of IFRS 4 Insurance Contracts

Amendment to IAS 28 Investments in Associates and Joint Ventures

Long-term interests in an associate or joint venture. The adoption of this standard had no impact on the Company's financial statements.

Amendments to IAS 19 Employee Benefits

Plan amendment, curtailment or settlement. The adoption of this standard had no impact on the Company's financial statements.


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b) New standards, interpretations and amendments issued, but not yet effective The standards, interpretations and amendments set out below that have not yet become effective and have not been early adopted in these financial statements will or may have an impact on the Company's subsequent financial statements: IFRS 17 Insurance Contracts (Effective for annual periods beginning on or after 1 January 2021).

IFRS 17 replaces IFRS 4 that allowed companies to continue to account for insurance contracts using the existing practices. As a result, it has become difficult for investors to compare and distinguish between financial results of otherwise similar insurance companies. IFRS 17 is a single principles-based standard of accounting for all types of insurance contracts, including reinsurance contracts owned by insurer. This standard requires recognition and measurement of a group of insurance contracts at: 1) a risk-adjusted present value of the future cash flows (the fulfilment cash flows) that incorporates all of the available information about the fulfilment cash flows in a way that is consistent with observable market information; plus (if this value is a liability) or minus (if this value is an asset); 2) an amount representing the unearned profit in the group of contracts (the contractual service margin). Insurers will be recognising profit from a group of insurance contracts over the period they provide insurance coverage, and as they are released from risk. If a group of contracts is or becomes loss-making, an entity will be recognising the loss immediately. The Company is currently assessing the impact of the new standard on its financial statements.

Annual improvements to IFRSs 2016-2018 Cycle (Effective for annual periods beginning on or after 1 January 2020)

1) IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (amendment – Definition of material);

2) Amendment to IFRS 3 Business Combinations (amendment – definition of a business);

3) Revised Conceptual Framework for Financial Reporting; The Company believes that the adoption of these amendments will not have a significant impact on the Company's financial statements

Recognition of financial instruments The note discloses information about significant accounting policies applied in preparation of these financial statements. Cash and cash equivalents Cash and cash equivalents are assets, which can be converted into cash within a day and consist of cash on hand and balances on settlement, current and special accounts of banks. Amounts, which relate to funds that are of restricted nature, are excluded from cash and cash equivalents. Cash and cash equivalents are carried at amortised cost and are tested for impairment. Deposits with banks Bank deposits are funds provided by the Company to credit institutions on the basis of deposit agreements concluded for a period of more than one banking day. After initial recognition, deposits are measured at amortized cost and are accounted for until their maturity.


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The amortised cost is determined using the nominal interest rate under the contract if the term of funds placed does not exceed 366 days, or if this rate does not differ from the market rate. The Company amortises interest income over the expected term of a bank deposit agreement. On the last day of the month and on the interest payment dates specified by the bank deposit agreement, the Company shall reflect in its accounting records all interest income accrued for the past month or for the period from the date of initial placement of funds under the bank deposit agreement. Other receivables Other accounts receivable include settlements with buyers and lessees and are carried at amortised cost. Other assets Other assets include prepayments and inventory. Prepayments are recognized in the amount of funds actually transferred. After initial recognition, prepayments are carried at cost less any provision for impairment. Prepayments to service providers are charged to expenses when the services are rendered. Inventory is initially recognized as the actual cost incurred in purchase and bringing the inventories to their present location and condition. After initial recognition, inventories are measured at the lower of cost or net realisable value, and the net realisable value is estimated at the end of each reporting year. Other financial liabilities Other liabilities include settlements with service providers, personnel and tax authorities and are carried at amortised cost. Short-term accounts payable are recorded at the nominal amount to be paid. Long- term accounts payable are carried at amortised cost using a discount rate equal to the market interest rate on loans used for financing purposes. Offsetting of financial assets and financial liabilities

Financial assets and liabilities are offset and the net amount is reported in the insurer balance sheet only when there is a legally enforceable right to offset the recognised amounts, and there is an intention to either settle on a net basis, or to realise the asset and settle the liability simultaneously.

Accounting for assets and liabilities, income and expenses related to insurance activities Classification of insurance contracts By type of contract: The Company recognises an insurance contract when and only when the contract transfers a significant insurance risk. The Company recognises the insurance risk as significant only if, as a result of an insured event or the occurrence of another event provided for in the reinsurance contract, the Company incurs a significant loss. The Company evaluates the significance of the insurance risk under contracts on an individual basis, separately for each contract or for similar groups of reinsurance contracts which contain the same set of insurance risks under the same types of insurance (business lines). All contracts signed by the Company in the reporting period are classified as insurance contracts. By effective period: The Company classifies contracts into short-term and long-term contracts. Short-term reinsurance contracts include contracts whose term is less than 18 months or which contain only the minimum effective periods of liability for risk assumed, and further separation of additional effective periods of liability in these contracts for the purposes of recognising them as long-term contracts is impossible. If the term (period) of reinsurance under the contract is more than 18 months and it is possible to separate the effective period of liability, the Company classifies this contract as a long-term contract.


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By line of business: Accidents and health insurance Motor TPL insurance (MTPL) Land transport insurance Air and water transport insurance, including TPL insurance for their owners, and cargo insurance Property insurance Liability insurance Insurance of persons leaving their permanent place of residence Non- proportional reinsurance contracts Deferred acquisition costs and deferred acquisition income The capitalised portion of acquisition costs incurred by the Company in concluding or renewing inward reinsurance contracts is recognised as deferred acquisition costs under inward reinsurance contracts. The method of estimating the amount of deferred acquisition costs provides equivalent accounting for income and expenses recognised in the Company's accounting records under reinsurance contracts. Equivalent accounting implies the release of the insurance liability (reserves) as income, which must be accompanied by a proportional recognition of income-related expenses. Recognition of deferred acquisition costs under inward reinsurance contracts is terminated when the respective reinsurance contract has been terminated or executed. If the terms of contracts under which the acquisition costs were previously capitalised are changed, the said deferred acquisition costs are restated. All other acquisition costs are recognized as expenses in the period of their occurrence. Deferred income in the form of reinsurance commissions stipulated by outward reinsurance contracts and accounted for by the Company as income during the contract effective term is recognised as deferred acquisition income under outward reinsurance contracts. The procedure for calculating the deferred acquisition income is similar to that for the deferred acquisition costs described above. Deferred acquisition income is written off to the Company's income during the effective term of the reinsurance contract. The procedure for considering deferred acquisition costs in conducting LAT is as follows. When testing the adequacy of its liabilities, the Company uses current estimates of the present value of all future cash flows associated with the concluded reinsurance contracts. If such an assessment shows that the carrying amount of the liabilities (net of associated deferred acquisition costs) is insufficient to cover future payments and expenses under the reinsurance contracts concluded, the deferred acquisition costs are written off in the amount of the deficit, and the unexpired risk provision (URP) is created for the remaining amount of the deficit. Reinsurance receivables and payables Reinsurance receivables and payables include settlements with reinsurers, the reinsureds and insurance brokers under inward and outward reinsurance contracts. Reinsurance receivables and payables are determined on the basis of the concluded contract. After initial recognition, the Company measures reinsurance receivables and payables at amortised cost.

At the end of each reporting period, the Company assesses whether there is objective evidence of impairment of receivables. The main criteria used to determine whether there is objective evidence of an impairment loss are as follows:

- delay in any payment due;

- the counterparty is experiencing significant financial difficulties, as evidenced by the financial information available to the Company;

- the counterparty faces bankruptcy or financial reorganization;


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- there is an adverse change in the payment status of the counterparty as a result of changes in national or local economic conditions.

If such evidence exists, the carrying amount of the asset is reduced through the use of an allowance account for impairment, and the amount of the loss is recognized in the insurer statement of financial results. The amount of the loss is the difference between the asset's carrying amount and the present value of expected future cash flows. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be objectively attributed to an event occurring after the impairment was recognized, such as an increase in the debtor's credit rating, the previously recognized impairment loss is reversed in the insurer statement of financial results through provision adjustment. Debt under reinsurance contracts for which all necessary indemnity procedures have been completed and the final amount of the loss has been determined are written off against the accumulated allowance for impairment. Subsequent recovery of amounts previously written off is recorded as other insurance income. Accounts receivable and payable under reinsurance operations are offset under the same reinsurance contract or when there is a legally enforceable right to offset them. Insurance provisions To ensure the performance of obligations under concluded reinsurance contracts, the Company determines the amount of insurance reserves (creates insurance reserves) expressed in monetary form on the basis of actuarial calculations. Insurance provisions, as well as the reinsurers’ share of insurance provisions, are assessed by the Company's actuary in accordance with the current Federal actuarial standards "General requirements for actuarial activities" and "Actuarial valuation of the insurer's activities". The Company forms the following types of insurance provisions:

Provision for unearned premiums;

Provisions for claims incurred:

- Provision for claims reported but not paid or outstanding claims provision (OCP);

- Provision for claims incurred but not reported (IBNR);

- Provision for claims handling expenses;

Estimate of future proceeds from subrogation and recourses, receipts of property and (or) salvage materials;

Unexpired risk provision (URP). Liability adequacy test

Insurance provisions must be sufficient to meet the Company's liabilities to make future insurance payments under reinsurance contracts and perform other actions to service these obligations. Insurance provisions covering insured events that occurred before the reporting date are formed in accordance with the best estimate principles. The best estimate of insurance provisions is the weighted average future expenses incurred by the Company less the weighted average future income generated by concluded reinsurance contracts, adjusted for probability of their occurrence.


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When testing the adequacy of insurance provisions, the following calculations are made and the following assumptions are used:

- insurance liabilities for the unearned premium reserve are calculated net of deferred acquisition costs;

- the loss rate in respect of future losses under already concluded contracts will be the same as for the portfolio of contracts originated in previous years;

- the level of proceeds from recourses that is used in determining the respective asset as at the reporting date can be applied to forecasting future income on recourses from future estimated losses under contracts already concluded at the reporting date;

- the level of claims handling expenses used in determining the liabilities as at the reporting date can be applied to forecasting future claims handling expenses from the expected future losses under contracts already concluded at the reporting date;

- the level of other administrative expenses under concluded contracts other than acquisition costs will be similar to the level of the previous period;

- inflation or deflation of losses associated with changes in the exchange rate of the rouble against other currencies is not taken into account when determining the loss rate.

At each reporting date the Company tests the adequacy of its provisions. Reinsurers’ share of insurance provisions Reinsurers' share of insurance provisions is formed in accordance with the principles and methods used for determining insurance provisions. The Company estimates reinsurers’ share of the following types of insurance provisions other than life insurance:

Share of provision for unearned premiums or unearned premium reserve (UPR share);

Share of loss provisions:

- Share of provision for claims reported but not paid or outstanding claims provision (OCP share);

- Share of provision for claims incurred but not reported (IBNR share);

- Share of provision for claims handling expenses.

Share of estimate of the future proceeds from subrogation and recourses, receipts of property and (or) salvage material.

Impairment of reinsurance assets in the form of reinsurer's share in insurance provisions is recognised directly in calculating the reinsurer's share in insurance reserves. At the same time, credit risks (risks associated with non-performance of the reinsurer's obligations and default on payments) are taken into account and issues related to the change of the respective obligation (respective insurance provisions) under the inward reinsurance contract are not considered. Income and expenses on reinsurance transactions Premiums A reinsurance premium, including the minimum and deposit premium under non-proportional treaty contracts, due under the terms of the reinsurance contract, is recognized as income on the date of acceptance of the reinsurer's (or insurance broker's) offer, but not earlier than the date when the Company's liability begins. An increase in the amount of the reinsurance premium receivable, in case the contractual terms are changed, is recognized as income on the date of acceptance of a supplementary agreement by the Company.


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An additional reinsurance premium for restoration of liability in accordance with provisions of non-proportional treaty contracts shall be recognised as income at the date of recognition in the Company’s accounting records of the insurance indemnity payment for the insured event whose occurrence entailed the need to restore the volume of liability and pay additional premium. An additional reinsurance premium to be additionally paid by the reinsured in connection with the adjustment of the final amount of the reinsurance premium based on the results of non-proportional treaty reinsurance contracts shall be recognised as income at the date the Company accepts recalculation of the premium. A reinsurance premium under a proportional treaty reinsurance contract due in the reporting period is recognized as income on the date of acceptance by the Company of the documents serving as the basis for settlements (premium and loss accounts, premium and loss bordereau, etc.), regardless of the date of the liability commencement and the moment when the invoice is paid. If the documents serving as the basis for calculations reflect only the balance to be transferred, the amount of the reinsurance premium is determined by calculation in accordance with the contractual terms. A premium, including the minimum and deposit premium under non-proportional treaty contracts, due to the reinsurer under the terms of the outward reinsurance contract, is recognized as an expense on the date of acceptance of the offer by the reinsurer, but not earlier than the date of commencement of the reinsurer's liability, regardless of actual payment. An increase in the amount of the premium due to the reinsurer in case of changes in contractual terms is recognized as an expense on the date of signing the relevant agreement between the parties. An additional premium for restoration of reinsurer's liability in accordance with provisions of the outward non-proportional treaty contracts shall be deemed to be an expense as at the date of recognition in the Company’s accounting records of the insurance indemnity payment for the insured event, whose occurrence entailed the need to restore the volume of liability and pay additional premium. An additional premium to be additionally paid to the reinsurer in connection with the adjustment of the final amount of premium on the results of execution of the non-proportional treaty contract is recognised as an expense on the date of expiration of the reinsurance contract or of the period during which the premium is recalculated.

A premium related to reinsurer's share under a proportional treaty reinsurance contract is recognised as an expense simultaneously with recognition of income under the respective inward reinsurance contracts. Payments Amounts to be compensated to the reinsured in the share attributable to the Company in accordance with provisions of the reinsurance contract are recognised as expenses at the date of approval by the Company of the insurance payment or at the date of acceptance of documents serving as the basis for settlements (for proportional treaty reinsurance contracts). Amounts to be compensated by the reinsurer in accordance with the outward reinsurance contract are recognised as income at the date of approval by the entity of the insurance payment under the inward reinsurance contract falling within the scope of the said outward contract. Acquisition costs The Company includes expenses related to signing or renewal of reinsurance contracts in the acquisition costs. The acquisition costs under reinsurance contracts are divided into direct and indirect costs. The Company’s direct costs include those variable costs that the Company incurs when signing or renegotiating specific contracts, namely, commissions to reinsureds under inward reinsurance contracts and remuneration to insurance brokers, other intermediaries for the conclusion of reinsurance contracts and pre-insurance risk assessment.


27

The Company’s indirect costs include variable costs aimed to sign reinsurance contracts, while it is difficult to refer them to specific contracts. Indirect acquisition costs include remuneration of the Underwriting Department staff. Direct acquisition costs under reinsurance contracts are recognised by the Company if there are contractual relations with intermediaries or other circumstances giving rise to obligations for payment of remuneration, as well as if the amount of remuneration can be reliably measured. The moment of recognition of direct acquisition costs under the contracts corresponds to the moment of recognition of the premium under the respective reinsurance contracts. Indirect acquisition costs under reinsurance contracts are recognized as the respective expenses are incurred. Indirect acquisition expenses are distributed by the Company in proportion to the accrued premium. Expenses are recognized by the Company in the full amount, while under long-term reinsurance contracts direct expenses in the form of remuneration to reinsurers and insurance brokers are recognized in proportion to the premium recognized in accounting records under the respective long-term reinsurance contract for the respective period; other direct acquisition costs under reinsurance contracts may be recognized immediately in the full amount. Recourses The subrogation and recourse income is the amount of compensation to be received by the Company from the reinsured commensurate with the share of participation in the insurance payment under which the reinsured has received a compensation from persons that caused the occurrence of insured events. The date of recognition of income on subrogation and recourse claims is the date of acceptance of the Reinsured's invoice. Accounting for investment property The initial cost of investment property purchased for a fee is the amount of the Company's actual expenses for construction, manufacturing and acquisition of an investment property item, including value-added tax and other non-reimbursable taxes. After initial recognition of investment property, the Company accounts for investment property at fair value. Investment property is property (part of property)(land or a building—or part of a building—or both) held by the Company to earn rentals (other than under a finance lease) or for capital appreciation or both, rather than for use as a tool in the provision of services, for administrative or managerial purposes, in order to ensure safety, environmental protection, as well as in cases provided for sanitary and hygienic purposes, technical, operational and other special technical regulations and requirements, the sale of which within 12 months from the date of classification as investment property is not planned by the Company. The fair value of investment property is determined as a result of annual valuation performed by independent valuers, who hold a recognised and relevant professional qualification and who have professional experience in valuation of property of a similar location and category. Changes in the fair value of investment property are recognised through profit or loss. Accounting for premises and equipment Premises and equipment of the “Buildings and structures” group are carried at the revalued amount, while the other groups are accounted for using the historical cost model, less accumulated depreciation and accumulated impairment losses. At the end of the reporting period, the Company determines whether there is any indication of impairment of premises and equipment. If any such indications exist, the Company estimates the recoverable amount, which is determined as the higher of the fair value less costs to sell and its value in use. If the carrying amount of premises and equipment exceeds their estimated recoverable amount, their value is reduced to the recoverable amount and the difference is recognised in the insurer statement of financial results as an impairment loss of premises and equipment.


28

Revaluation surplus is recorded within other comprehensive income, unless it represents the reversal of a revaluation decrease of the same asset previously recognised through profit or loss. A decrease arising as a result of a revaluation is recognised as profit or loss in the insurer statement of financial results, except that revaluation deficit is directly offset against the surplus from revaluation of the asset recorded within other comprehensive income as effect of revaluation of premises and equipment. The revaluation reserve for premises and equipment is transferred directly to retained earnings when the surplus is realised, i.e. either on the retirement or disposal of the asset.

Gains and losses on disposal of premises and equipment are determined by reference to their carrying amount. Repairs and maintenance are charged to the insurer statement of financial results when the expense is incurred. Construction in progress is carried at cost less impairment provision. As soon as construction is completed, assets are reclassified as premises and equipment at their carrying value at the date of reclassification. Construction in progress is not depreciated until the asset is available for use. Depreciation of premises and equipment commences from the date the assets are ready for use. For all groups of premises and equipment, depreciation is accrued on a straight-line basis over the useful life of an item of premises and equipment. Depreciation does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. The Company determines the useful life of premises and equipment upon their recognition based on: - expected life of this item in accordance with the expected output or capacity; - expected physical wear and tear of this item, depending on the operational factors, natural conditions and exposure to the aggressive environment, the repair and maintenance program; - legal and other restrictions on the use of this item; - obsolescence of this item resulting from changes or improvements in the production process or from changes in market demand for services provided through operation of the item of premises and equipment. Accounting for intangible assets An intangible asset is an item that simultaneously meets the following conditions: it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity, in particular, the item is intended for use in performing works, providing services, for administrative purposes or for managerial needs, the Company is entitled to economic benefits from the use of the item in the future, there are restrictions to access of others to the economic benefits from the use of the item; the item can be identified (capable of being separated or divided from other assets); the item is intended for use for more than 12 months; the item has no physical substance; the initial cost of the item can be reliably estimated. The Company’s intangible assets primarily include computer software, licenses, copyrights, etc. An intangible asset is accounted for at its original cost as at the date of recognition. Subsequently, intangible assets are carried at cost less accumulated amortisation and accumulated impairment losses (cost model accounting). All of the Company's intangible assets have a determinable useful life, and their value is written off through amortisation over their useful life. The useful life of intangible assets is determined by the Company on the date of recognition of an intangible asset (transfer of the intangible asset into operation intended by the Company's management) based on: the term of the Company's rights to the result of intellectual activity or means of individualization and the period of control over the intangible asset; the expected useful life of an intangible asset, during which the Company expects to receive economic benefits; for such intangible assets, as perpetual licenses for computer software, the useful life is 5 years. Amortisation of intangible assets is charged on a straight-line basis.


30

As at 31 December 2019 and 31 December 2018, 99% of cash and cash equivalents were placed with two Russian banks. The Company places cash and cash equivalents, considering credit ratings assigned to banks by rating agencies. Information on the credit quality of cash equivalents is presented in Note 30. As at 31 December 2019 and 31 December 2018, cash and cash equivalents are not impaired. Reconciliation of the amounts contained in the insurer statement of cash flows with similar items is presented in the insurer balance sheet:

Line item 31 December 2019

31 December 2018

1 Cash and cash equivalents presented in the insurer

balance sheet 219 704 267 692

2 Cash and cash equivalents presented in the insurer statement of cash flows 219 704 267 692

In 2019 and 2018, there were no investments or financial transactions that did not require the use of cash and cash equivalents.

6. Deposits and other placements with credit institutions and non-resident banks

Information on deposits with banks as at 31 December 2019 is as follows:

Line item number

Line item Unimpaired Impaired Total

Provision for impairment

Carrying amount

2 Deposits with

banks 1 559 898 - 1 559 898 - 1 559 898 3 Total 1 559 898 - 1 559 898 - 1 559 898

Information on deposits with banks as at 31 December 2018 is as follows:

Line item number



Carrying amount

1 Deposits with

banks 1 073 949 - 1 073 949 - 1 073 949 3 Total 1 073 949 - 1 073 949 - 1 073 949

As at 31 December 2019, the insurer had balances of deposits and other placements with four credit institutions and non-resident banks (as at 31 December 2018: with four credit institutions and non- resident banks). The total amount of these deposits and other funds placed was RUB 1 520 245 thousand (as at 31 December 2018: RUB 1 047 883 thousand). The Company places deposits with credit institutions, considering credit ratings assigned to banks by rating agencies. Information on the credit quality of deposits with banks is disclosed in Note 30. As at 31 December 2019 and 31 December 2018, deposits with credit institutions are neither past due nor impaired, nor pledged.


31

Below is information on nominal interest rates and expected maturities of deposits and other placements:

Line item number

Line item 31 December 2019 31 December 2018

Range of contractual

interest rates

Maturity range

Range of contractual

interest rates

Maturity range

1 Deposits from 1,45 to 7,63 % per

annum

182-732 days

from 1,8 to 7,50% per

annum

270- 366 days

7. Receivables under insurance, co- insurance and reinsurance transactions

Information on types of receivables is provided below:

Line item number

Line item 31 December

2019

31 December

2018

1 Non-life insurance receivables 349 255 361 147

2 Total 349 255 361 147 Information on sources of origination of receivables is provided below:

Line item number


2019

31 December

2018

1 Receivables under assumed reinsurance contracts 181 283 119 919

2 Receivables under contracts ceded to reinsurers 1 505 641

3 Premium and claim deposits receivable 5 910 7 045

4 Receivables to insurance agents and brokers 173 321 237 203

5 Uncompleted settlements under insurance and reinsurance transactions 621 631

6 Provision for impairment (13 385) (4 292) 7 Total 349 255 361 147

Analysis of the provision for impairment of non-life insurance receivables is disclosed in Note 15 of this Annex. Maturity analysis of receivables under insurance, co-insurance and reinsurance transactions (based on expected maturities) is provided in Note 30 in accordance with IFRS 7. The credit quality analysis of reinsurance receivables is given in Note 30 in accordance with IFRS 7. As at 31 December 2019 and 31 December 2018, there was no significant concentration of reinsurance receivables. The information on the estimated fair value of reinsurance receivables and its reconciliation with the carrying amount is disclosed in Note 32 in accordance with IFRS 7.


29

Accounting for employee benefits and related charges Wages, salaries, contributions to the Russian Federation state pension and mandatory medical and social insurance funds, paid annual leaves and paid sick leaves, bonuses and non-monetary benefits are accrued as the Company’s employees render the related service. The Company does not have pension arrangements separate from the state pension system of the Russian Federation. Accounting for provisions - estimated liabilities A provision is a liability of uncertain timing or amount. The main factors for making a provision are as follows:

- an entity has a present obligation (legal or constructive) as a result of a past event (or several events)

- it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

- a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision shall be the best estimate of the expenditure required to settle the present obligation. Provisions (estimated liabilities) shall be reviewed at least quarterly at the end of each quarter and adjusted to reflect the current best estimate. Share capital and reserve fund The registered, issued and fully paid-up share capital of the Company includes 600,000 ordinary shares. Share capital contributed after the 1 January 2003 is recorded at cost. Contributions to the share capital made before that date are recognized at their cost restated for the effects of inflation. A reserve fund is formed in accordance with the legislation of the Russian Federation and the Company's founding documents and represents funds reserved to cover the Company's general risks, including future losses and other unforeseen risks or potential liabilities. Annual contributions to the Company's reserve fund represent at least 5 percent of net profit until the reserve fund reaches 15 percent of the share capital. Accounting for deferred tax assets and deferred tax liabilities Deferred tax assets and liabilities include amounts that may have an impact on reduction (increase) of income tax payable to the tax authorities in future reporting periods. The amount of a deferred tax liability is determined by multiplying taxable temporary differences by the income tax rate established by the tax legislation of the Russian Federation and effective at the end of the reporting period. The amount of a deferred tax asset is determined by multiplying deductible temporary differences or tax loss carryforwards not used to reduce income tax by the income tax rate established by the tax legislation of the Russian Federation and effective at the end of the reporting period. When preparing the Company's financial statements, deferred tax assets and deferred tax liabilities are offset (presented on a net basis).

5. Cash and Cash Equivalents


31 December 2018

1 Cash on hand 49 51

2 Cash on settlement accounts 219 655 267 641 3 Total 219 704 267 692


32

8. Loans, other placements and other receivables

Information on other receivables as at 31 December 2019 is as follows:

Line item number



Carrying amount

1 Other receivables - - - - -

2 Total - - - - - Information on other receivables as at 31 December 2018 is as follows:

Line item number



Carrying amount

1 Other receivables - 1 741 1 741 (1 741) -

2 Total - 1 741 1 741 (1 741) - Information on the estimated fair value of other receivables is disclosed in Note 31.

9. Provisions and Reinsurers’ Share of Non-life Insurance Provisions

Below is the information on provisions and reinsurers’ share of non-life insurance provisions: Line item

number

Line item At 31 December 2019 At 31 December 2018

Provisions

Reinsurers’ share of

provisions Provisions,

net

Provisions Reinsurers’ share of

provisions

Provisions, net

1 Provision for

unearned premiums 398 093 (24 511) 373 582 392 968 (29 141) 363 827

2 Claims provisions

2 125 689 (1 170 520) 955 169 1 070 681 (336 063) 734 618

3

Provision for claims handling expenses

39 851 (9 098) 30 753 25 873 - 25 873

4

Actuarial estimate of future proceeds from subrogation and recourses

(6 004) - (6 004) (13 408) - (13 408) 5 Total 2 557 629 (1 204 129) 1 353 500 1 476 114 (365 204) 1 110 910

As at 31 December 2019, the adequacy test of non-life insurance provisions was performed. Based on the results of the assessment, URP was not accrued. The maturity analysis of loss provisions under non-life insurance contracts is disclosed in Note 30 in accordance with IFRS 4. The credit quality analysis of reinsurers’ share of non-life insurance provisions is given in Note 30 in accordance with IFRS 4. The maturity analysis of reinsurers’ share of non-life insurance provisions (based on contractual undiscounted cash flows) is disclosed in Note 30 in accordance with IFRS 4.


33

Movements in the provision for unearned premiums and in reinsurers’ share of provision for unearned premiums are as follows:

Line item

number

Line item At 31 December 2019 At 31 December 2018 Provisions Reinsurers’

share of provisions

Provisions, net


provisions

Provisions, net

1 At the beginning of the reporting period 392 968 (29 141) 363 827 375 486 (20 052) 355 433

2

Insurance premiums accrued during the reporting period 1 521 196 (303 887) 1 217 309 1 156 696 (231 059) 925 637

3

Insurance premiums earned during the reporting period (1 516 071) 308 517 (1 207 554) (1 139 214) 221 972 (917 243)

4 At the end of the

reporting period 398 093 (24 511) 373 582 392 968 (29 141) 363 827

The following methods and assumptions are used to calculate the provision for unearned premiums: The “1/8th” method. It is assumed that all risks accepted during one quarter are assumed in the middle of this quarter, have a duration equal to a positive integer number of quarters, the risk is distributed evenly throughout the entire term of the contract, and the effective term is determined based on the period of the insurer’s liability under insurance contracts. The ultimate liability is calculated as the amount of the liability calculation base multiplied by the ratio of the number of unexpired semi-quarters of the effective period to the number of quarters of the effective period multiplied by 2. The "pro rata temporis" method applied to the liability calculation base assumes an even distribution of risk over the term of the contract. If a reinsurance contract became effective before the reporting date and was not terminated as at the reporting date, the amount of the liability is calculated as the amount of the liability calculation base multiplied by the ratio of the number of unexpired effective days of the contract to the effective term of the contract. The 1/8th method was used for proportional and part of non - proportional treaty contracts under which premiums are calculated on the basis of quarterly invoices, and the "pro rata temporis" method was used for all other contracts. For the purposes of this assessment, the accrued premium under reinsurance contracts (the base for calculating UPR) was used as the basis for UPR calculation.


34

Movements in the claims provisions and reinsurers’ share of claims provisions are as follows:

Line item

number


share of provisions

Provisions, net


provisions

Provisions, net

1

At the beginning of the reporting period 1 070 681 (336 063) 734 618 903 703 (311 702) 592 001

2

Losses incurred in the reporting period 1 690 397 (1 014 080) 676 317 803 871 (295 412) 508 459

3

Change in prior period loss provisions occurred in the reporting period (136 837) 14 866 (121 971) (100 613) 50 602 (50 011)

4

Claims paid during the reporting period (498 552) 164 757 (333 795) (536 280) 220 449 (315 831)

5 At the end of

the reporting period 2 125 689 (1 170 520) 955 169 1 070 681 (336 063) 734 618

Claims provisions and reinsurers’ share of claims provisions were estimated using the following actuarial methods: expected loss method, chain ladder method, modified chain ladder method, Bornhuetter-Ferguson method, Modified Bornhuetter-Ferguson method, analysis of the number and amount of major losses. The most significant in terms of the amount of provisions are the following actuarial assumptions on: the predicted value of the loss ratio for the expected loss (EL) and Bornhuetter-Ferguson (BF) methods, the limits of applicability of the chain-ladder method, the number and amount of major losses already incurred but not yet reported. Movements in the provision for claims handling expenses and reinsurers’ share of the provision for claims handling expenses are as follows:

Line item

number


share of provisions

Provisions, net


provisions

Provisions, net

1

At the beginning of the reporting period 25 873 - 25 873 25 935 - 25 935

2

Claims handling expenses incurred in the reporting period 34 263 (7 344) 26 919 21 960 - 21 960


35

Line item

number


share of provisions

Provisions, net


provisions

Provisions, net

3

Changes in the amount of claims handling expenses incurred in prior periods (3 831) (9 148) (12 979) (14 455) - (14 455)

4

Claims handling expenses paid during the reporting period (16 454) 7 394 (9 060) (7 567) - (7 567)

5

At the end of the reporting period 39 851 (9 098) 30 753 25 873 - 25 873

To calculate the provision for claims handling expenses, the average ratio of actual claims handling expenses to payments made over the past few years is taken as a predictive ratio; this factor is used as a multiplier to the calculated loss provisions of the Company. Below is a change in the estimate of future proceeds from subrogation and recourses and reinsurers’ share of the estimate of future proceeds from subrogation and recourses:

Line item

number


share of provisions

Provisions, net Provisions Reinsurers’ share of

provisions

Provisions, net

1

At the beginning of the reporting period (13 408) - (13 408) (16 985) - (16 985)

2

Actuarial estimate of income from subrogation and recourses related to losses incurred in the reporting period (4 020) - (4 020) (11 060) - (11 060)

3

Income from subrogation and recourses received during the reporting period (1 346) - (1 346) (17 708) 14 653 (3 055)


36

Line item

number


share of provisions

Provisions, net Provisions Reinsurers’ share of

provisions

Provisions, net

4

Change in actuarial estimate of income from subrogation and recourses related to losses incurred in prior reporting periods 12 769 - 12 769 32 345 (14 653) 17 692

5

At the end of the reporting period (6 004) - (6 004) (13 408) - (13 408)

To estimate future receipts from subrogations and recourses, the ratio of actually accrued recourse claims for the past few years to the amount of paid claims for the same period is taken as a predictive ratio. This ratio is used as a multiplier to the calculated loss provisions of the Company. Below is loss development analysis - gross reinsurance:

Line item

number


2014

31 December

2015

31 December

2016

31 December

2017

31 December

2018

1 Liabilities for unpaid claims and claims handling expenses 844 643 867 076 690 083 929 638 1 096 554

2 Claim payments and claims handling expenses ( cumulative) by the year-end: - - - - -

3 2015 599 065 - - - - 4 2016 759 268 266 535 - - - 5 2017 819 447 362 232 213 110 - - 6 2018 839 215 395 657 404 801 470 643 - 7 2019 857 688 419 213 471 312 622 613 396 904

8 Liabilities revalued at the reporting date (including cumulative paid claims): - - - - -

9 2015 900 893 - - - - 10 2016 839 714 506 349 - - - 11 2017 846 841 431 871 553 965 - - 12 2018 865 021 442 915 541 790 814 569 - 13 2019 877 199 460 109 553 663 794 992 955 886

14 Cumulative surplus (deficit) (32 556) 406 967 136 420 134 646 140 668

15 Cumulative surplus (deficit),% (3,85) 46,94 19,77 14,48 12,83


38

In 2018 the input data used for estimating the fair value of investment property at RUB 446 901 thousand were similarly categorised as Level 3 of the fair value hierarchy. As at 31 December 2019, the Company has no restrictions on marketability of the investment property or distribution of income or proceeds from disposal; in addition, there are no contractual obligations for repair, maintenance or improvement of the investment property. The amounts recognized in the insurer statement of financial results are presented below:

Line item

number

Line item For 2019 For 2018

1 Income from lease of property 26 980 23 233

2 Direct operating expenses from investment property generating rental income (15 570) (13 900)

3 Total 11 410 9 333 Investment property items were not provided to third parties as collateral for other borrowed funds. Reconciliation between the investment property valuation data obtained and the carrying amount of the investment property is provided below:

Line item

number


31 December

2018 1 Valuation data obtained 458 606 446 901 2 Fair value reported in the insurer balance sheet 458 606 446 901

11. Intangible Assets

Line item

number

Line item Software Total

1 Cost (or estimate) at 1 January 2018 567 567 2 Accumulated amortisation at 1 January 2018 (505) (505) 3 Carrying amount at 1 January 2018 62 62 4 Additions 1 489 1 489 5 Amortisation charge (124) (124) 6 Carrying amount at 31 December 2018 1 427 1 427 7 Cost (or estimate) at 31 December 2018 1 630 1 630 8 Accumulated amortisation at 31 December 2018 (203) (203) 9 Cost (or estimate) at 1 January 2019 1 630 1 630 10 Accumulated amortisation at 1 January 2019 (203) (203) 11 Carrying amount at 1 January 2019 1 427 1 427 12 Additions 341 341 13 Amortisation charge (347) (347) 14 Carrying amount at 31 December 2019 1 421 1 421 15 Cost (or estimate) at 31 December 2019 1 971 1 971 16 Accumulated amortisation (550) (550) 17 Carrying amount at 31 December 2019 1 421 1 421


37

Below is loss development analysis - net of reinsurance:

Line item

number


2014

31 December

2015

31 December

2016

31 December

2017

31 December

2018

1 Liabilities for unpaid claims and claims handling expenses 400 950 568 941 554 324 617 936 760 491

2 Claim payments and claims handling expenses ( cumulative) by the year-end: - - - - -

3 2015 338 912 - - - - 4 2016 396 138 160 002 - - - 5 2017 456 171 255 554 212 909 - - 6 2018 475 889 288 929 322 523 252 750 - 7 2019 494 289 312 412 388 265 381 429 234 641

8 Liabilities revalued at the reporting date (including cumulative paid claims): - - - - -

9 2015 523 853 - - - - 10 2016 474 320 374 105 - - - 11 2017 483 204 324 651 478 661 - - 12 2018 501 374 335 757 457 091 553 469 - 13 2019 513 659 352 973 469 354 539 454 625 541

14 Cumulative surplus (deficit) (112 709) 215 968 84 970 78 482 134 950

15 Cumulative surplus (deficit),% (28,11) 37,96 15,33 12,70 17,75

10. Investment Property

Line item

number

Line item Owned investment property

Right-of-use assets

Total

1 Carrying amount at 1 January 2018 440 181 - 440 181 2 Net gain or loss on fair value adjustment 6 720 - 6 720 3 Carrying amount at 31 December 2018 446 901 - 446 901 4 Carrying amount at 1 January 2019 446 901 - 446 901 5 Net gain or loss on fair value adjustment 11 705 - 11 705 6 Carrying amount at 31 December 2019 458 606 - 458 606

Investment property is fair valued at the end of each calendar year by a qualified independent appraiser who has experience in evaluating similar investment property items in the Russian Federation. Fair value was calculated using appropriate valuation methods which are disclosed in Note 31. Due to the availability of information on buildings and land, Level 3 of the fair value hierarchy was assigned to the input data used for estimating the fair value of investment property at RUB 458 606 thousand.


39

12. Premises and Equipment

Information on movements in premises and equipment by accounting groups for the years 2018 and 2019 is provided below:

Line item

number

Line item Land, buildings

and structures

Office equipment

and computers

Construction in

progress Motor

vehicles Total

1 Cost (or estimate) at 1

January 2018 101 704 18 987 2 621 10 981 134 292

2 Accumulated depreciation at 1 January 2018 - (14 533) - (6 580) (21 113)

3 Carrying amount at 1 January 2018 101 704 4 456 2 621 4 399 113 179

4 Additions - 6 080 7 525 1 575 15 180 5 Construction costs 2 366 - - - 2 366 6 Transfers - - (10 021) - (10 021) 7 Depreciation charge (1 374) (1 861) - (527) (3 762) 8 Revaluation 644 - - - 644

9 Carrying amount at 31 December 2018 103 340 8 675 125 5 447 117 586

10 Cost (or estimate) at 31 December 2018 103 524 24 482 125 11 547 139 678

11 Accumulated depreciation (184) (15 808) - (6 100) (22 092)

12 Cost (or estimate) at 1 January 2019 103 524 24 482 125 11 547 139 678

13 Accumulated depreciation at 1 January 2019 (184) (15 808) - (6 100) (22 092)

14 Carrying amount at 1 January 2019 103 340 8 674 125 5 448 117 586

15 Additions - 253 - - 253 16 Accumulated depreciation (1 536) (2 848) - (667) (5 051) 17 Revaluation 1 878 - - - 1 878


19 Cost (or estimate) at 31 December 2019 104 204 24 471 125 10 366 139 166

20 Accumulated depreciation (522) (18 392) - (5 586) (24 500)


The Company’s land, buildings and structures are recognised at revalued amounts, and other assets are stated at cost less accumulated depreciation and accumulated impairment losses. At the end of the reporting period the Company assesses whether there is any indication of impairment of premises and equipment. Land, buildings and structures are revalued at the end of the reporting period; these assets are not tested for impairment. In determining the revalued amounts of premises and equipment, expert opinions on the fair value of these assets were used. The valuation was performed by an independent firm of professional appraisers LLC Prof-Expert. The fair value of the buildings was calculated as at 31 December 2019 and 31 December 2018 using the appropriate valuation methods which are disclosed in Note 31. The results of the revaluation of premises and equipment are reflected by reducing the initial cost of the revalued item by the amount of accumulated depreciation and its subsequent recalculation to fair value.


40

The cost of the revalued item, reflected in the premises and equipment account after the revaluation, is equal to its fair value while the accumulated depreciation is zero. The net book value of buildings as at 31 December 2019 includes the amount of RUB 55 441 thousand, which represents positive revaluation of buildings (as at 31 December 2018: RUB 54 754 thousand representing positive revaluation of buildings). At the end of the reporting period, the total deferred tax liability of RUB 14 437 thousand was computed in respect of this fair value remeasurement of the buildings and recorded within other comprehensive income of the insurer statement of financial results (2018: RUB 14 062 thousand). If the buildings were measured at cost less depreciation, the carrying amount of buildings at 31 December 2019 would be RUB 31 959 thousand (as at 31 December 2018: RUB 32 342 thousand). Items of premises and equipment were not provided to third parties as collateral for other borrowed funds.

The table below reconciles the carrying value of premises and equipment recognised at revalued amounts in the insurer balance sheet to the value of these assets had they been recognised at cost less accumulated depreciation:

Line item number


31 December 2018

1 Carrying amount of premises and equipment 101 838 101 158

2 Revaluation reserve for premises and equipment less deferred income tax on revaluation 55 441 54 754

3 Deferred income tax on revaluation (14 438) (14 062)

4 Premises and equipment at cost less accumulated depreciation 31 959 32 342

13. Deferred Acquisition Costs and Income

Line item number


31 December 2018

1 Deferred acquisition costs under non-life insurance, co-

insurance and reinsurance transactions 57 976 38 162 2 Total 57 976 38 162

Information on acquisition costs related to non-life reinsurance transactions is provided below:

Line item number


31 December 2018

1 DAC arising out of non-life insurance, co-insurance and

reinsurance transactions at the beginning of the reporting period 38 162 31 339

2 Change in deferred acquisition costs, including: 19 814 6 823 3 deferred acquisition costs for the period 57 503 37 263 4 amortisation of deferred acquisition costs (37 689) (30 440)

5 DAC arising out of non-life insurance, co-insurance and reinsurance transactions at the end of the reporting period 57 976 38 162

Information on deferred acquisition income is as follows:

Line item number


31 December 2018

1 DAC arising out of non-life insurance, co-insurance and reinsurance transactions 307 655

2 Total 307 655


41

Change in deferred acquisition income related to non-life insurance for the reporting period is disclosed in Note 22.

Line item number


31 December 2018


reinsurance transactions at the beginning of the reporting period 655 405

2 Change in deferred acquisition income, including: (348) 250 3 deferred acquisition income for the period 307 655 4 amortisation of deferred acquisition income (655) (405)


reinsurance transactions at the end of the reporting period 307 655

14. Other Assets

Line item number


31 December 2018

1 Taxes paid, other than income tax - 13 2 Settlements with employees 68 2 3 Social funds prepayments - 12 4 Value added tax paid 38 40 5 Settlements with suppliers and contractors 5 002 4 541 6 Inventories 644 609 7 Other - 3 8 Total 5 752 5 220

15. Provisions for Impairment

Analysis of changes in the provision for impairment of other receivables is as follows:

Analysis of changes in provision for impairment of receivables under assumed reinsurance contracts is as follows:

Line item number

Line item Other receivables Total

1 Provision for impairment at 1 January 2018 (2 600) (2 600) 2 (Provision)/recovery of provision for impairment 859 859 3 Provision for impairment at 31 December 2018 (1 741) (1 741) 4 Provision for impairment at 1 January 2019 (1 741) (1 741) 5 ( Provision ) /recovery of provision for impairment 1 741 1 741 6 Provision for impairment at 31 December 2019 - -

Line item number

Line item Receivables under

assumed reinsurance contracts

Total

1 Provision for impairment at 1 January 2018 (2 263) (2 263) 2 Provision (recovery of provision) for impairment (2 029) (2 029) 3 Provision for impairment at 31 December 2018 (4 292) (4 292) 4 Provision for impairment at 1 January 2019 (4 292) (4 292) 5 Provision (recovery of provision) for impairment (9 093) (9 093) 6 Provision for impairment at 31 December 2019 (13 385) (13 385)


42

16. Payables under insurance, co- insurance and reinsurance transactions

Line item number


31 December 2018

1 Payables under non-life insurance, co- insurance and reinsurance transactions 192 672 149 167

2 Total 192 672 149 167 The maturity analysis of reinsurance payables (based on contractual undiscounted cash flows) is presented in Note 30. Payables under non-life insurance, co-insurance and reinsurance transactions are shown below:

Line item number


31 December 2018

1 Payables under assumed reinsurance contracts 2 617 1 893 2 Payables under contracts ceded to reinsurers 159 559 125 031 3 Premium and claim deposits payable 5 24 4 Payables to insurance agents and brokers 29 920 21 779

5 Uncompleted settlements arising from insurance, co-insurance and reinsurance transactions 571 440

6 Total 192 672 149 167 Analysis of the estimated fair value of payables under non-life insurance, co-insurance and reinsurance transactions versus their carrying amount is presented in Note 31. There were no balances of payables to reinsurers and reinsureds with expired contractual maturity.

17. Other Liabilities

Line item number


31 December 2018

1 Settlements with buyers and customers 2 675 2 476 2 Payables to employees 36 435 29 366 3 Settlements with suppliers and contractors 190 410 4 Taxes payable, other than income tax 9 275 8 123 5 Payables to social funds 7 412 6 033 6 Other liabilities - 2 7 Total 55 987 46 410

18. Share Capital

Line item number

Line item Number of ordinary shares

in issue, pcs

Nominal value of ordinary shares

Total, in thousands of RUB

1 At 1 January 2018 600 000 600 000 600 000 2 At 31 December 2018 600 000 600 000 600 000 3 At 1 January 2018 600 000 600 000 600 000 4 At 31 December 2019 600 000 600 000 600 000


43

The Company's authorised share capital as at 31 December 2019 amounts to RUB 600 000 thousand (2018: RUB 600 000 thousand). As at 31 December 2019, all issued shares of the Company are fully paid. All ordinary shares have a nominal value of RUB 1 000 per share. Each share carries one vote. There are no preference shares. The share capital comprises contributions of shareholders in Russian Roubles, prior period retained earnings and additional capital which represents revaluation reserve for premises and equipment.

19. Capital Management

Line item number


1 Normative solvency margin 520 000 480 000

2 Actual solvency margin 1 128 742 953 221

3 Deviation of actual margin from normative margin (as a difference between the standard and actual amount) 608 742 473 221

4 Deviation of actual margin from normative margin, % 117,06 98,59 During 2019 and 2018 the Company complied with all the requirements set by the Bank of Russia to the level of capital. The Company’s capital management has the following objectives: compliance with capital requirements established by the legislation of the Russian Federation, and ensuring the ability to operate as a going concern. Insurers who are residents of the Russian Federation must comply with the requirements in respect of the solvency margin established by Bank of Russia Ordinance dated 28 July 2015 No. 3743-U "On the procedure for calculating the standard ratio of the insurance company's own funds (capital) and assumed obligations". Insurers who are residents of the Russian Federation must comply with the requirement that the amount of net assets should exceed the amount of share capital, as set forth by Federal Law No. 208-FZ of 26 December 1995 "On joint- stock companies". Insurers who are residents of the Russian Federation must comply with the requirements for the procedure for placing insurance reserves, as set forth in Bank of Russia Ordinance No. 4297-U, dated 22 February 2017 “On the Procedure for Investing Insurance Reserve Funds and the List of Assets Eligible for Investment". Insurers who are residents of the Russian Federation must meet the requirements for the composition and structure of assets accepted to cover the insurer's own funds, as set forth in Bank of Russia Ordinance No. 4298-U, dated 22 February 2017 “On the Procedure for Investing Insurer’s Capital and the List of Assets Eligible for Investment”. Insurers who are residents of the Russian Federation are required to comply with the minimum amount of authorized capital as established by Law of the Russian Federation No. 4015-1 of 27 November 1992 "On the Organization of Insurance Business in the Russian Federation. " Compliance with the above regulatory requirements is controlled monthly by issuing reports containing the relevant calculations and submitted to the Bank of Russia. The minimum amount of the fully paid share capital of the insurer is required be equal to RUB 520 000 thousand. The fully paid share capital of the Company as at 31 December 2019 amounted to RUB 600 000 thousand (as at 31 December 2018: RUB 600 000 thousand).


44

20. Reinsurance Premiums – Net of Reinsurance

Information on reinsurance premiums is as follows:

Line item number


1 Premiums under assumed reinsurance contracts 1 535 666 1 172 340

2 Return of premiums (14 469) (15 644) 3 Total 1 521 197 1 156 696

Information on insurance premiums ceded to reinsurers is as follows:

Line item number


1 Premiums ceded to reinsurers (303 893) (231 150)

2 Return of premiums ceded to reinsurers 6 91 3 Total (303 887) (231 059)

21. Claims Incurred – Net of Reinsurance

Information on claims paid on reinsurance is as follows:

Line item number


1 Claims paid under assumed reinsurance contracts (498 552) (536 280)

2 Total (498 552) (536 280) Information on claims handling expenses is as follows:

Line item number


1 Direct costs, including: (11 778) (3 312)

2 expert examination and negotiation expenses (11 778) (3 312) 3 Indirect costs, including: (4 676) (4 254) 4 salary costs of claims handling personnel (4 676) (4 256) 5 Total claims handling expenses – gross reinsurance (16 454) (7 566) 6 Reinsurers' share of claims handling expenses 7 394 - 7 Total claims handling expenses - net of reinsurance (9 060) (7 566)

Information on changes in claims provisions is as follows:

Line item number


1 Change in claims provisions (1 055 008) (166 978)

2 Change in provision for claims handling expenses (13 978) 62

3 Total (1 068 986) (166 916) Movements in loss provisions are disclosed in Note 9.


45

Change in reinsurers’ share of claims provisions is as follows:

Line item number


1 Change in reinsurers’ share of claims provisions 834 457 24 361

2 Change in reinsurers’ share of provision for claims handling expenses 9 098 -

3 Total 843 555 24 361 Movements in reinsurers’ share of claims provisions are disclosed in Note 9. Provided below is the information on income from subrogation, recourses and other reimbursements– net of reinsurance:

Line item number


1 Subrogation and recourse income 1 346 17 708

2 Reinsurers’ share of subrogation and recourse income - (14 653) 3 Total 1 346 3 055

Provided below is the information on changes in estimate of future proceeds from subrogation, recourses and other reimbursements– net of reinsurance:

Line item number


1 Changes in estimate of future proceeds from subrogation and recourses (7 403) (3 576)

2 Total (7 403) (3 576)

22. Expenses from Non-life Insurance, Co-insurance and Reinsurance Transactions – Net of Reinsurance

Acquisition costs are as follows:

Line item number


1 Brokerage commissions (67 596) (38 798) 2 Surveyor expenses - (334) 3 Employee benefits and social charges (16 023) (13 361) 4 Reinsurance commission (164 917) (113 708) 5 Total (248 536) (166 201)

The amount of acquisition costs capitalised in the reporting period is disclosed in Note 13. Changes in deferred acquisition costs and income are as follows:

Line item number


1 Change in deferred acquisition costs 19 814 6 824

2 Change in deferred acquisition income 348 (250) 3 Total 20 162 6 574

The structure of changes in deferred acquisition costs and income is disclosed in Note 13.


46

23. Other Non-life Insurance Income and Expenses Other income and expenses on non-life insurance are as follows:

Line item number


1 Recovery of provision for impairment of receivables under

insurance, co- insurance and assumed reinsurance transactions 1 655 -

2 Income on write-off of payables under insurance and co-insurance transactions and assumed reinsurance contracts - 89

3 Total 1 655 89 Other non-life insurance expenses are as follows:

Line item number


1

Provision for impairment of accounts receivable under insurance, co- insurance and assumed reinsurance transactions

(12 427) (2 627)

2 Profit commissions arising from assumed reinsurance contracts (241) (476)

3 Total (12 668) (3 103)

24. Interest Income

Line item number


1 On unimpaired financial assets, including: 74 185 53 140

2 deposits and other placements with credit institutions and non- resident banks 74 106 53 070

3 interest income on premium deposit funds under reinsurance contracts 79 70

4 Total 74 185 53 140

25. Gains less Losses Arising from Investment Property Transactions

Line item number


1 Rental income from lease of property 26 980 23 233

2 Gains less losses from changes in the fair value of property 11 705 6 720 3 Property maintenance expenses (15 570) (13 900) 4 Total 23 115 16 053

26. General and Administrative Expenses

Line item number


1 Staff costs (137 263) (114 359) 2 Depreciation of premises and equipment (5 051) (3 763) 3 Amortisation of software and other intangible assets (347) (124) 4 Lease expenses (510) (787)


47

Line item number


5 Expenses related to premises and equipment and intangible assets (6 696) (5 807)

6 Professional services (security, communications, etc.) (5 102) (5 169) 7 Insurance expenses (3 415) (3 222) 8 Advertising and marketing expenses (218) (49) 9 Legal and consulting services (2 930) (2 848) 10 Entertainment expenses (7 939) (8 154) 11 Transport costs (977) (550) 12 Travel expenses (9 151) (8 787) 13 Fines and penalties (53) (93) 14 Banking fees (3 263) (2 999) 15 Taxes other than income tax (9 975) (10 237) 16 Other administrative expenses (10 530) (12 508) 17 Total (203 420) (179 456)

Staff costs for the year 2019 comprise, inter alia, annual bonuses of RUB 41 807 thousand (2018: RUB 33 599 thousand), severance payments of RUB 349 thousand (2018: no payments), as well as contributions to the state social funds of the Russian Federation in the amount of RUB 19 928 thousand (2018: RUB 16 739 thousand), there are no pension plan expenses.

27. Other Income

Line item number


31 December 2018

1 Income on write-off of non-insurance payables - 15

2 Income on write-off of other liabilities and recovery of provisions (estimated) - 858

3 Income related to premises and equipment and intangible assets 360 297

4 Forfeits (fines, penalties) and damages receipts - 20 5 Other income - 5 6 Total 360 1 195

27.1. Lease

Information on leases where the Company is the lessor is provided below:

Requirements for disclosure of information Description

Nature of the lessor 's rental activity

The Company leases a temporarily vacant building and office space.


48

Requirements for disclosure of information Description

Description of how the risk associated with the rights that the lessor retains in the underlying assets is managed, including risk-mitigating measures

The risks of loss of property, loss of lease payments, and liability to third parties in the event of an emergency are insured under a voluntary property and liability insurance contract. Along with this lease agreement, the lessee is obliged to observe all types of safety requirements (electrical, fire, sanitary, technical), as well as compensate for possible damage caused by the Lessee.

Qualitative and quantitative information explaining significant changes in the carrying amount of the net investment in finance leases

Net investment in the lease is represented by lease agreements with five legal entities for office buildings and premises owned by the Company.

Below are the amounts of future lease payments due under operating non-cancellable leases where the insurer is the lessor:

Line item

number

Line item At 31 December 2019

At 31 December 2018

1 Less than 1 year 9 588 2 Total 9 588

28. Income Tax

Income tax expense comprises the following:

Line item

number


1 Current income tax (44 484) (51 614)

2 Deferred taxation movement (1 744) (1 741) 3 Total, including: (46 228) (53 355)

4 deferred tax expense (income) recognised in other comprehensive income (376) (128)

5 income tax expense (45 852) (53 227) The current income tax rate applicable to the majority of the Company’s profit in 2019 is 20% (2018: 20%).


49

Reconciliation between the theoretical and the actual taxation charge is provided below.

Line item number


1 Profit before taxation 219 864 253 707

2 Theoretical tax charge at the applicable statutory rate (2019: 20%; 2018: 20%) (43 973) (50 741)

3 Adjustments for non-taxable income and non-deductible

expenses under the national tax accounting system, including: (1 517) (2 486)

4 non-deductible expenses (1 517) (2 486)

5 Unrecognised changes in net deferred tax asset, other than related to unrecognised losses (362) -

6 Income tax expense (45 852) (53 227) Differences between accounting (RAS and IFRS) and taxation regulations of the Russian Federation give rise to certain temporary differences between the carrying amount of certain assets and liabilities for financial reporting purposes and for the Company’s profits tax purposes. The differences between accounting (RAS and IFRS) and tax legislation for the year 2019 are presented below:

Line item

number

Line item At 31 December

2019 Reported in profit or loss

Reported in other

comprehensive income

At 31 Decembe

r 2018

Section I. Tax effect of deductible temporary differences and deferred tax loss

1 Provisions for impairment of receivables 8 543 1 281 - 7 262

2 Advances (prepayments) paid 286 (1) - 287

3 Non- life insurance provisions 17 414 14 429 - 2 985

4 Gross deferred tax asset 26 243 15 709 - 10 534

5 Deferred tax asset prior to offset with deferred tax liabilities

26 243 15 709 - 10 534

Section II. Tax effect of taxable temporary differences

6 Premises and equipment 14 036 (127) 376 13 787

7 Investment property 46 870 2 777 - 44 093

8 Intangible assets 284 (1) - 285

9 Reinsurer’s share of non-life insurance provisions

17 414 14 429 - 2 985

10 Gross deferred tax liability 78 604 17 078 376 61 150

11 Net deferred tax liability (52 361) (1 369) (376) (50 616)

12 Recognised deferred tax liability (52 361) (1 369) (376) (50 616)


50

The differences between accounting (RAS and IFRS) and tax legislation for the year 2018 are presented below:

Line item number

Line item At 31 December

2019 Reported

in profit or loss

Reported in other

comprehensive income

At 31 December

2018

Section I. Tax effect of deductible temporary differences and deferred tax loss

1 Provisions for impairment of receivables 7 262 8 7 254

2 Advances (prepayments) paid 287 274 13

3 Non- life insurance provisions 2 985 (951) 3 936

4 Gross deferred tax asset 10 534 (669) 11 203

5 Deferred tax asset prior to offset with

deferred tax liabilities 10 534 (669) 11 203

Section II. Tax effect of taxable temporary differences

6 Premises and equipment 13 787 (158) 128 13 817

7 Investment property 44 093 1 780 42 313

8 Intangible assets 285 273 12

9 Reinsurer’s share of non-life Insurance

provisions 2 985 (951) 3 936

10 Gross deferred tax liability 61 150 944 128 60 078

11 Net deferred tax liability (50 616) (1 613) (128) (48 875)

12 Recognised deferred tax liability (50 616) (1 613) (128) (48 875)

30. Risk Management

Below is information about the exposure to catastrophe risk for which the insurer provides insurance coverage as at 31 December 2019:

Line item

number

Line item Expected claim payments

Expected claim payments - net of

reinsurance 1 Flood in Russia 301 270 22 500 2 Earthquake in Azerbaijan 107 871 35 757 3 Earthquake in Russia 101 031 22 500 4 Total 510 172 80 757


51

Below is information about the exposure to catastrophe risk for which the insurer provides insurance coverage as at 31 December 2018:

Line item

number

Line item Expected claim payments

Expected claim payments - net of

reinsurance 1 Flood in Russia 296 449 22 500 2 Earthquake in Azerbaijan 121 067 30 990 3 Earthquake in Russia 87 470 22 500 4 Total 504 986 75 990

Below is the information on concentration of reinsurance contract liabilities by main lines of business as at 31 December 2019.

Line item

number

Line of business

Loss provisions –

net of reinsurance

Provision for unearned

premiums – net of

reinsurance

Provision for claims

handling expenses –

net of reinsurance

Estimate of future proceeds

from subrogatio

n and recourses –

net of reinsuranc

e

Total provisions – net of

reinsurance

1 Accidents and health insurance 3 865 3 121 61 (12) 7 035

2 Motor TPL insurance - 209 - - 209

3 Land transport insurance 76 413 20 242 1 190 (232) 97 613

4

Air and water transport insurance, including TPL insurance of their owners, and cargo insurance 23 025 893 722 (140) 24 500

5 Property insurance 455 046 214 957 10 300 (2 010) 678 293 6 Liability insurance 360 177 5 (1) 541

7 Non-proportional reinsurance contracts 396 459 133 984 18 473 (3 607) 545 309

8 Total 955 168 373 583 30 751 (6 002) 1 353 500 Below is the information on concentration of reinsurance contract liabilities by main lines of business as at 31 December 2018.

Line item

number

Line of business

Loss provisions –

net of reinsurance


premiums – net of reinsurance


handling expenses – net of reinsurance

Estimate of future

proceeds from

subrogation and

recourses – net of

reinsurance

Total provisions –

net of reinsurance

1 Accidents and health insurance 1 702 4 179 48 (25) 5 904

2 Motor TPL insurance 3 191 - - 194 3 Land transport insurance 68 307 17 956 1 768 (916) 87 115

4 Air and water transport insurance, including TPL 25 021 1 830 1 263 (654) 27 460


52

Line item

number

Line of business

Loss provisions –

net of reinsurance


premiums – net of reinsurance


handling expenses – net of reinsurance

Estimate of future

proceeds from

subrogation and

recourses – net of

reinsurance

Total provisions –

net of reinsurance

insurance of their owners, and cargo insurance

5 Property insurance 363 167 199 277 11 609 (6 016) 568 037 6 Liability insurance 512 242 13 (7) 760

7 Insurance of persons leaving their permanent place of residence 20 - 1 - 21

8 Non-proportional reinsurance contracts 275 884 140 152 11 172 (5 789) 421 419

9 Total 734 616 363 827 25 874 (13 407) 1 110 910 The Company is focused on signing facultative and treaty contracts related to reinsurance of property risks of commercial enterprises and large industrial complexes, including metallurgical, machine-building, oil and gas and electric power enterprises; construction and erection risks in the course of construction of industrial, commercial, infrastructural and social facilities; special-purpose vehicles; allied cargo risks; risks of personal accident and travel insurance, as well as risks of general third party liability insurance. As regards non-life insurance contracts, they are normally concluded for a period of 12 months. The most significant risks arising from reinsurance contracts within the Company's portfolio are caused by catastrophe risks of natural and manmade disasters. The usual practice for such events involves completion of settlement of claims within two to three years, which makes it possible to consider the risk of inflation on the assumed obligations as acceptable and insignificant. In all geographical regions where the Company reinsures risks, it has relative homogenous coverage of insurable risks by type and industry. The risks described above are reduced by applying adapted retentions for one risk and diversifying the portfolio of reinsurance contracts by geographic regions, industries, and types of objects. The Company's underwriting strategy provides for a thorough segment analysis of the types of risks, monitoring of the average payment for one event and the frequency of the claims payments to determine the optimal selection model and the balance of the risks within the entire portfolio of the Company. In addition, to reduce the portfolio exposure to adverse deviations from the forecast values, the Company applies a policy of thorough analysis of new cases and monitoring of the development of the current reported claims , and also maintains close interaction with the risk cedents to analyse the procedure for meeting legitimate original payment requirements and counteract possible fraudulent or unreasonable demands. The Company strictly adheres to the policy of active management and timely settlement of payments in order to mitigate the risk of unpredictable negative consequences in the future. Inflation risk under major claims is reduced by inflation adjustment when assessing obligations under reinsurance contracts. The Company monitors catastrophe risks on a regular basis in accordance with the Company's portfolio development dynamics. When accepting inward proportional reinsurance contracts in accordance with the adopted underwriting policy, a mandatory condition for participation in risks in areas prone to natural disasters is the existence of per one event limit in the inwards contract. The size of the Company's participation in such contracts shall be determined with consideration of this limit. To assess the portfolio's exposure to catastrophe risks and calculate the maximum possible loss from catastrophic events, the Company cooperates on an annual basis with AON Central and Eastern Europe a.s., a major international reinsurance broker. In case of excess of the risk levels accepted for net retention, the Company enters into a retrocessionary catastrophe excess of loss reinsurance agreement. The parameters of catastrophe protection are


53

determined based on the analysis of the portfolio and its exposure to risk and are approved by the Company's management taking into account the size of the Company's share capital and performance results. The geographical concentration of liabilities arising from reinsurance contracts as at 31 December 2019 is as follows:

Line item number

Line item Total provisions

Reinsurers’ share of provisions Net provisions

1 Russia 1 647 470 (27 079) 1 620 391

2 OECD (Organisation for Economic Co-operation and Development) 48 077 (1 147 606) (1 099 529)

3 Other countries 862 082 (29 444) 832 638 4 Total 2 557 629 (1 204 129) 1 353 500

The geographical concentration of liabilities arising from reinsurance contracts as at 31 December 2018 is as follows:

Line item number

Line item Total provisions

Reinsurers’ share of provisions Net provisions

1 Russia 953 223 (41 876) 911 347

2 OECD (Organisation for Economic Co-operation and Development) 29 992 (293 933) (263 941)

3 Other countries 492 899 (29 395) 463 504 4 Total 1 476 114 (365 204) 1 110 910

The main assumption used in assessing liabilities is that the development of the insurer's losses in the future will be similar to the prior loss development pattern. Sensitivity analysis The tables below show the results of analysing the sensitivity to the methods applied, assumptions and estimates of changes in the main actuarial assumptions used to calculate the best estimate of the claims provisions, taking into account the provision for claims handling expenses minus the recourse asset. A distinction is shown between the best estimate and the estimates made as part of the change in the respective assumptions. Increasing and decreasing values is meant to be multiplicative, that is, a 10% increase is a multiplication of the parameter value by 1.1; a 10% reduction is a multiplication of the parameter value by 0.9.


54

Analysis of sensitivity to the methods, assumptions and estimates used when changing the main actuarial assumptions used to produce the best estimate of the claims provisions, including the provision for claims handling expenses, net of the recourse asset, as at 31 December 2019 is presented below:

Line item

number

Variable parameter

Estimated insurance asset or liability

Change of assumptions

Best estimate of the

measured insurance asset

or liability

Estimated insurance asset or

liability after change in

assumptions

Effect of modified

assumptions on the best estimate of

the insurance asset or liability

1

Values of the first four loss development factors selected by the Actuary

Loss provisions including the provision for claims handling expenses minus the recourse asset, net of reinsurance

+10% 979 918 993 854 13 936

-10% 979 918 962 726 (17 192)

2 Expected loss ratio

Loss provisions, including the provision for claims handling expenses minus the recourse asset, net of reinsurance

+10% 979 918 1 027 621 47 703

-10% 979 918 932 215 (47 703)

3

Change in the expected number of major losses

Loss provisions, including the provision for claims handling expenses minus the recourse asset, net of reinsurance

+1 major loss

979 918 1 002 418 22 500

-1 major loss 979 918 957 418 (22 500)


55

Analysis of sensitivity to the methods, assumptions and estimates used when changing the main actuarial assumptions used to produce the best estimate of the claims provisions, including the provision for claims handling expenses, net of the recourse asset, as at 31 December 2018 is presented below:

Line item

number

Variable parameter

Estimated insurance asset or liability

Change of assumptions

Best estimate of

the measured insurance asset or liability

Estimated insurance asset or

liability after change in

assumptions

Effect of modified

assumptions on the best estimate of

the insurance asset or liability

1

Values of the first four loss

development factors selected by the Actuary


10% 747 083 758 204 11 121

-10% 747 083 733 782 (13 301)

2 Expected loss

ratio


10% 747 083 783 809 36 726

-10% 747 083 717 257 (29 826)

3 Change in the

expected number of major losses


+1 major loss 747 083 769 583 22 500

-1 major loss 747 083 724 583 (22 500)

The credit rating analysis of financial assets that are not past due or impaired as at 31 December 2019 is as follows:

Line item

number

Line item Rating А Rating B Rating С

Unrated

1 Cash on settlement accounts, including: 219 655 - - - 2 cash on settlement accounts 219 655 - - - 3 Deposits with credit institutions, including: 1 559 898 - - -

4 deposits with credit institutions and non- resident banks 1 559 898 - - -

5 Reinsurance receivables, including: 236 884 44 536 - 67 835

6

accounts receivable under non-life insurance, co- insurance and reinsurance transactions 236 884 44 536 - 67 835

7 Reinsurers’ share of insurance provisions 1 186 612 17 517 - -


56

The credit rating analysis of financial assets that are not past due or impaired as at 31 December 2018 is as follows:

Line item

number

Line item Rating А Rating B Rating С

Unrated

1 Cash on settlement accounts, including: 267 641 - - - 2 cash on settlement accounts 267 641 - - - 3 Deposits with credit institutions, including: 1 073 949 - - -

4 deposits with credit institutions and non- resident banks 1 073 949 - - -

5 Reinsurance receivables, including: 260 178 35 158 125 65 686

6 accounts receivable under non-life

insurance, co- insurance and reinsurance transactions 260 178 35 158 125 65 686

7 Reinsurers’ share of insurance provisions 348 776 15 177 - 1 251 Risk management is the basis of the Company's activities and is an essential element of the Company's operations. The Company's management considers risk management and control as an important aspect of the management process and operations, constantly integrating these functions into the corporate structure. The main task of risk management is to establish risk limits and then ensure compliance with the established limits and other internal control measures. Risk management should provide for proper compliance with internal regulations and procedures in order to minimise them. Risk management is carried out by the Company in relation to financial, insurance and legal risks. The activities of an insurance organisation are exposed to the risk of losses arising from inconsistency between the nature and scope of the insurer’s activities and (or) requirements of the applicable Russian legislation and the Company’s internal rules and procedures for commercial operations and other transactions, their violation by insurer’s employees and (or) other persons (due to incompetence, unintentional or wilful acts or inaction), inadequacy (insufficiency) of functional capabilities (characteristics) of the information, technological and other systems applied by the insurer and(or) their malfunction (functional failure), and as a result of impact of external events (hereinafter - the operational risk). When the internal control system ceases to function, operational risk can damage reputation, have legal consequences, or lead to financial losses. The insurer cannot assume that operational risk has been eliminated, but with the help of a control system and by tracking and appropriately responding to potential risks, the insurer can manage operational risk. The control system provides for effective segregation of duties, access rights, approval and reconciliation procedures, staff training, and assessment procedures, including internal audit. Risks associated with carrying out of activities - environmental and technological changes and changes in the industry - are controlled by the Company as part of the strategic planning process. The activities of an insurance organisation are subject to the risk of incurring losses due to non-compliance with the requirements of legal acts and concluded contracts, legal errors made in carrying out activities, and inadequacy of the legal system (inconsistencies in the legislation of the Russian Federation, absence of legal norms regulating issues arising in the course of the insurer's activities), violation by the counterparties of laws and regulations, as well as terms and provisions of the concluded contracts (hereinafter - the legal risk). Risk management procedures are regulated by internal documents as well as regulatory acts of the Bank of Russia, and are controlled by various management bodies of the Company. Risks are monitored by the Company's Risk Committee. The management approves both the general risk management policy of the Company and the policy for managing each of the significant types of risk. The Company sets limits on operations exposed to risk in accordance with the principles defined by the risk management policies and the investment policy of the Company. Stress testing associated with all significant types of risks is performed by the Company at least once a year. The results of stress testing are reviewed and discussed by the Company's management.


57

The Company accepts insurance risk in the course of its ordinary activities. The main risk of the Company is the underwriting risk, that is, the risk that the amount of payments under reinsurance contracts will exceed the expectations. The specialised SAP Business Objects multi-factor data analysis system and the document management and workflow system on the Lotus Notes platform allow real-time monitoring of the risk portfolio structure, determining acceptable risk parameters and monitoring loss development. The Company manages insurance risk with the help of targeted actions aimed at limiting and minimising the insurance risk when entering into reinsurance contracts: by tracking rates on the reinsurance portfolio corresponding to the current level of risks; analysing reinsurance payments to identify hidden patterns that may affect the frequency of insurance claims and the amount of possible losses; predicting the amount of payments depending on the type of risks, counterparties, objects reinsured and other parameters; using the transfer of risk to reinsurance in order to reduce the liquidity risk in case of major losses; diversifying accepted risks; implementing comprehensive actuarial support for underwriting. The Company also classifies the risks of catastrophic losses and under-provision as potentially dangerous, which can have a significant impact on solvency. The Company manages the risk of catastrophic losses by imposing restrictions on the parameters of acceptable risks. To eliminate the risk of under-provision, a balanced provisioning policy is used, which takes into account actuarial methods for assessing assumed insurance liabilities (insurance provisions). Scenario analysis or modelling is used in predicting possible ways of current situation development. In the process of scenario analysis, the ways of the Company's response to changes in external conditions are developed. The responsibility for the scenario analysis and selection of the optimal scenario rests with the Company's Risk Committee. The Company's financial risk management strategy is based on compliance with the principles of safety, profitability, diversification and liquidity of invested funds. Financial risks include market risk (consisting of currency risk, interest rate risk, and other price risks), credit risk, and liquidity risk. To manage and mitigate various types of financial risks, the Company uses the following procedures and tools. The Company uses the liquidity risk policy to reduce its exposure to the risk of difficulties in paying off its insurance obligations (hereinafter - liquidity risk). For prompt management of liquidity risk the Company regularly monitors external factors, which could influence the Company’s liquidity level, and forecasts cash flows. For the medium- and long-term liquidity risk management the Company analyses maturity mismatches of assets and liabilities. To manage its liquidity, the Company is required to analyse the level of liquid assets needed to settle the liabilities on their maturity, provide access to various sources of financing, provide plans to solve the problems with financing. The Company regularly monitors its liquidity position by monitoring the expected maturities and conducts liquidity testing under various scenarios that cover standard and more severe market conditions. The Company follows a conservative investment strategy. The main investments are real estate and deposits with Russian banks. To provide for additional liquidity cushion, a significant portion of cash is placed on current accounts. Compliance with the liquidity risk policy is monitored and violations are reported to the Risk Committee. The policy is regularly reviewed for adequacy and relevance. The probability of losses due to negative changes in the financial condition of counterparties and other debtors constitutes the Company's credit risk. To reduce its credit risk the Company uses the credit risk policy according to which the Company’s credit risks are assessed and determined. Compliance with the policy is monitored, and information about all risks and violations is reported to the Company's Risk Committee. The policy is regularly reviewed for relevance, as well as for changes in risk. The Company establishes marginal values of net risk exposure for each counterparty or group of counterparties, geographical and industry segments (that is, maximum values are set for investments and cash deposits, while also determining the minimum credit rating for investments that the Company may have). Reinsurance contracts are concluded with counterparties with a good credit rating, and in order to avoid risk concentrations, guidelines are used for counterparties regarding maximum amounts, which are annually set by the Company's management and regularly reviewed. At each reporting date, management examines


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the solvency of reinsurers and amends the strategy for entering into reinsurance contracts, determining the amount of impairment provisions. Outward portfolio protection is formed with the participation of only leading international companies with high ratings, with which the Company has been cooperating for more than 20 years. For the entire time of the Company's operation, there were no instances of the realisation of credit risk for payment of losses by retrocessionaires. The Company sets maximum amounts and limits for counterparties based on their long-term credit ratings. In order to classify financial assets by credit quality categories, the Company uses credit ratings of leading Russian and International rating agencies: ACRA, Expert RA, S & P Global Ratings, Moody`s, A.M. Best. The Company refers counterparties with credit ratings from AAA to A- to Category A and from BBB to B- to Category B. The credit risk in respect of receivables due to non-payment of the reinsurance premium will remain during the payment delay period specified in the reinsurance contract until payments are made under the reinsurance contract or the contract is terminated. The Company takes on exposure to credit risk which is the risk of non-performance, untimely or incomplete performance by the counterparty of its financial liabilities under the contract. The main sources of credit risk are: payment of premiums by the cedents and payment of losses by retrocessionaires. Credit risks are monitored by the Company on a regular basis. The Company controls the credit risk it undertakes by regular analysis of the ability of the existing counterparties to repay the amounts due under reinsurance contracts. In forming its reinsurance portfolio, the Company adheres to a certain level of concentration of its transactions as it operates in the specific segment and specialises in provision of services to specific clients represented by major Russian insurance companies with extensive market experience. The Company avoids concentration in insufficiently explored, new or non-traditional sectors (marine and aviation reinsurance, etc.). The maturity of reinsurance receivables is continually analysed. The collection of premiums in terms of counterparties, territories and types of business is analysed on a weekly basis aiming to maintain sufficient diversification. The Company's customers are insurance companies. In the overwhelming majority of cases, insurance contracts are terminated on the initiative of the primary insured (insurance company client), with whom the Company has no direct relationship and is unable to evaluate or influence this decision. At the same time, in relation to major long-term risks offered for reinsurance, the Company pursues a policy of primary assessment of the insured's financial condition on the basis of published financial statements and indirect sources of information. Commissions paid to intermediaries are offset against their receivables in order to reduce the risk of doubtful debts. The maximum amount of the Company's credit risk by the insurer balance sheet component represents the carrying amount of the respective assets. The Company is exposed to market risk, which is the risk of financial losses or decline in the value of assets due to adverse changes in market prices (foreign exchange rates and interest rates). The Company sets limits on the level of accepted risk and monitors their compliance. The use of this approach does not prevent losses beyond these limits in the event of more significant market movements. For each type of market risk to which the Company is exposed at the end of the reporting period a sensitivity analysis is carried out, reflecting information on how the likely changes in the corresponding risk variable that could have occurred at the end of the reporting period, would affect the profit or loss. The Company manages market risk in accordance with the market risk management policy. The main objectives of market risk management are: the optimisation of the risk-return ratio, minimisation of losses during the implementation of adverse events and reduction of the deviation of the actual financial result from the expected one. To manage the currency risk, the Company’s Risk Committee performs a regular analysis of the claimed losses, accounts receivable and payable categorised by major counterparty and currency. Cash is placed on deposits with banks so as to match cash flows in different currencies by expected maturity. The Company sets limits on the level of exposure by currency and in total, which are monitored weekly. The main operations of the Company are carried out in roubles. When conducting transactions in foreign currencies, the Company is exposed to the risk that the fair value of future cash flows on a financial instrument will fluctuate due to changes in foreign exchange rates (hereinafter – the currency risk).


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The Company's financial assets are mainly denominated in the same currency as reinsurance liabilities. Thus, the main currency risk is attributed to recognised assets and liabilities denominated in currencies other than currencies in which repayment of liabilities under reinsurance contracts is expected. For minimising currency risk relating to payment of losses under contracts ceded to reinsurers, conditions are stipulated under which losses under outward reinsurance contracts are stated in a currency similar to the currency of losses under inward reinsurance contracts. Settlements with reinsurers relating to payment of losses are made in foreign currency (Euros or US dollars) on the date of payment. After that Company converts the funds received into the currency of the assumed reinsurance contract and makes payment to the reinsured in the shortest possible period of time. Exchange differences arising from settlements with the reinsureds affect the Company's financial result. The geographical concentration of the Company’s financial assets and liabilities as at 31 December 2019 is set out below:

Line item number

Line item Russia OECD Other countries

Total

Section 1. Assets 1 Cash and cash equivalents 219 704 - - 219 704 2 Deposits with banks 1 559 898 - - 1 559 898 3 Reinsurance receivables 145 521 1 527 202 207 349 255

4 Reinsurers’ share of non-life insurance provisions 27 078 1 147 605 29 446 1 204 129

5 Total assets 1 952 201 1 149 132 231 653 3 332 986 Section 2. Liabilities

6 Reinsurance payables 976 159 300 32 396 192 672 7 Non-life insurance provisions 1 647 470 48 077 862 082 2 557 629 8 Other liabilities 55 987 - - 55 987 9 Total liabilities 1 704 433 207 377 894 478 2 806 288 10 Net balance sheet position 247 768 941 755 (662 825) 526 698

The geographical concentration of the Company’s financial assets and liabilities as at 31 December 2018 is set out below:

Line item number

Line item Russia OECD Other countries

Total

Section 1. Assets 1 Cash and cash equivalents 267 642 - 50 267 692 2 Deposits with banks 1 073 949 - - 1 073 949 3 Reinsurance receivables 225 762 3 866 131 519 361 147

4 Reinsurers’ share of non-life insurance provisions 41 876 293 933 29 394 365 203

5 Total assets 1 609 229 297 799 160 963 2 067 991 Section 2. Liabilities

6 Reinsurance payables 9 815 124 358 14 994 149 167 7 Non-life insurance provisions 953 223 29 992 492 899 1 476 114 8 Other liabilities 46 358 - 52 46 410 9 Total liabilities 1 009 396 154 350 507 945 1 671 691 10 Net balance sheet position 599 833 143 449 (346 982) 396 300


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Below is analysis of liabilities (based on contractual undiscounted cash flows) by their remaining maturities as at 31 December 2019.

Line item number

Line item Less than 3

months

From 3 months to

1 year

From 1 to 3 years

Total

1 Reinsurance payables 73 347 119 014 311 192 672

2 Other liabilities 53 312 2 675 - 55 987 3 Total liabilities 126 659 121 689 311 248 659

Below is analysis of liabilities (based on contractual undiscounted cash flows) by their remaining maturities as at 31 December 2018.

Line item number

Line item Less than 3

months

From 3 months to

1 year

From 1 to 3 years

Total

1 Reinsurance payables 81 998 67 169 - 149 167

2 Other liabilities 43 935 2 475 - 46 410 3 Total liabilities 125 933 69 644 - 195 577

Analysis of assets and liabilities by remaining contractual maturities (based on expected maturity) Below is remaining maturity analysis of assets and liabilities based on expected maturity as at 31 December 2019.

Line item number

Line item Less than 3 months

From 3 months to 1

year More than 1 year Total

Section 1. Assets

1 Cash and cash equivalents 219 704 - - 219 704

2 Deposits with banks 314 552 1 058 112 187 234 1 559 898 3 Reinsurance receivables 176 413 163 808 9 034 349 255

4 Reinsurers’ share of non-life insurance provisions 280 239 550 921 372 969 1 204 129

5 Deferred acquisition costs 6 762 46 362 4 852 57 976 6 Total assets 997 670 1 819 203 574 089 3 390 962

Section 2. Liabilities

7 Reinsurance payables 73 347 119 014 311 192 672

8 Non-life insurance provisions 567 565 1 258 188 731 876 2 557 629 9 Other liabilities 53 312 2 675 - 55 987 10 Total liabilities 694 224 1 379 877 732 187 2 806 288 11 Total liquidity gap 303 446 439 326 (158 098) 584 674


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Below is the remaining maturity analysis of assets and liabilities based on expected maturity as at 31 December 2018.

Line item number

Line item Less than 3 months

From 3 months to 1

year More than 1 year Total

Section 1. Assets 1 Cash and cash equivalents 267 692 - - 267 692 2 Deposits with banks 318 484 755 465 - 1 073 949 3 Reinsurance receivables 236 540 122 012 2 595 361 147 4 Reinsurers’ share of non-life

insurance provisions 107 509 178 528 79 167 365 204 5 Deferred acquisition costs 4 747 31 984 1 431 38 162 6 Total assets 934 972 1 087 989 83 193 2 106 154

Section 2. Liabilities 7 Reinsurance payables 81 998 67 169 - 149 167 8 Non-life insurance provisions 389 845 786 947 299 322 1 476 114 9 Other liabilities 46 409 - - 46 409 10 Total liabilities 518 252 854 116 299 322 1 671 690 11 Total liquidity gap 416 720 233 873 (216 129) 434 464

Below is the summary table of the insurer’s assets and liabilities by major currencies as at 31 December 2019.

Line item number

Line item RUB USD EUR

Other currencies Total

Section 1. Assets 1 Cash and cash equivalents 21 757 67 477 130 331 139 219 704 2 Deposits with banks 1 057 688 502 210 - - 1 559 898 3 Reinsurance receivables 152 560 75 729 15 261 105 705 349 255

4 Reinsurers’ share of non-life insurance provisions 1 038 813 104 012 17 626 43 678 1 204 129

5 Other assets 12 073 29 103 4 424 12 376 57 976 6 Total assets 2 282 891 778 531 167 642 161 898 3 390 962

Section 2. Liabilities 7 Reinsurance payables 15 769 20 177 144 180 12 546 192 672 8 Non-life insurance provisions 1 869 439 392 540 35 545 260 105 2 557 629 9 Other liabilities 55 988 - - - 55 988 10 Total liabilities 1 941 196 412 717 179 725 272 651 2 806 289 11 Net balance sheet position 341 695 365 814 (12 082) (110 753) 584 673


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Below is the summary table of the insurer’s assets and liabilities by major currencies as at 31 December 2018.

Line item number

Line item RUB USD EUR

Other currencies Total

Section 1. Assets 1 Cash and cash equivalents 106 005 115 183 46 382 122 267 692 2 Deposits with banks 792 119 281 830 - - 1 073 949 3 Reinsurance receivables 191 369 43 242 52 456 74 080 361 147

4 Reinsurers’ share of non-life insurance provisions 98 871 10 325 256 008 365 204

5 Other assets 16 097 14 298 1 421 6 346 38 162 6 Total assets 1 204 461 464 878 356 267 80 548 2 106 154

Section 2. Liabilities 7 Reinsurance payables 25 313 4 845 114 234 4 775 149 167 8 Non-life insurance provisions 809 195 254 775 105 235 306 909 1 476 114 9 Other liabilities 46 358 - - 52 46 410 10 Total liabilities 880 866 259 620 219 469 311 736 1 671 691 11 Net balance sheet position 323 595 205 258 136 798 (231 188) 434 463

31. Contingent liabilities.

In the current period of the insurer's activity, the court authorities received claims against the insurer. Based on its own assessment, as well as recommendations of internal and external professional consultants, the insurer believes that the proceedings will not lead to significant losses for the insurer, and, accordingly, has not formed a litigation provision in the financial statements.

32. Fair Value of Financial Instruments.

Below are levels of the fair value hierarchy, which include multiple fair value measurements, as at 31 December 2019.

Line item number Fair value by input level Level 1 Level 2 Level 3 Total

1 Assets measured at fair value, including: - - 560 444 560 444

2 Non-financial assets measured at fair value, including: - - 560 444 560 444

3 premises and equipment (buildings) - - 101 838 101 838

4 investment property - - 458 606 458 606 Below are levels of the fair value hierarchy, which include multiple fair value measurements, as at 31 December 2018.

Line item number Fair value by input level Level 1 Level 2 Level 3 Total

1 Assets measured at fair value, including: - -

548 059

548 059

2 Non-financial assets measured at

fair value, including: - -

548 059

548 059

3 premises and equipment (buildings) - -

101 158

101 158

4 investment property - -

446 901

446 901


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Below are valuation methods and inputs used for Level 3 fair value measurements as at 31 December 2019.

Line item number

Line item Fair value Valuation methods Inputs used Range of inputs (weighted average)

Evidence of change

Sensitivity of fair value measurement

1 Assets measured at fair value, including:

560 444

2 Non-financial assets at fair value, including:

560 444

3

Premises and equipment ( buildings)

101 838 The fair value is determined by the market and income approaches.

-

Bargain adjustment (from 8% to 11%); adjustment for technical condition; capitalisation rate (from 8% to 11%); expected percentage of unoccupied space (from 7% to 18.1%).

There were no changes in the input data.

A higher bargain adjustment results in a lower fair value; worse physical condition of an item results in a lower fair value; a higher capitalisation rate results in a lower fair value; a higher percentage of unoccupied space results in a lower fair value.

4

investment property 458 606 The fair value is determined by the market and income approaches.

-





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Below are valuation methods and inputs used for Level 3 fair value measurements as at 31 December 2018.

Line item number

Line item Fair value Valuation methods Inputs used Range of inputs (weighted average)

Evidence of change

Sensitivity of fair value measurement

1 Assets measured at

fair value, including:

548 059

2 Non-financial assets

at fair value, including:

548 059

3

premises and equipment ( buildings)


-




4

investment property


-





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Information on the reconciliation of changes in Level 3 of the fair value hierarchy during the reporting period is presented below.

Line item number

Line item Non-financial assets

1 Fair value at 1 January 2018 541 885 2 Income or expenses recognised in profit or loss for the year 6 720 3 Income or expenses recognised in other comprehensive income (546) 4 Fair value at 31 December 2018 548 059 5 Income or expenses recognised in profit or loss for the year 11 705 6 Income or expenses recognised in other comprehensive income 680 7 Fair value at 31 December 2019 560 444

Fair value analysis by fair value hierarchy levels and carrying amount of financial assets and liabilities not measured at fair value Below is the fair value analysis by the fair value hierarchy levels and the carrying amount of financial assets and liabilities not measured at fair value as at 31 December 2019.

Line item

number

Line item Level 1 Level 2 Level 3 Total fair value

Carrying amount

Section 1. Financial assets

1 Financial assets not measured at fair

value, including: 219 704 1 559 898 1 611 361 3 390 963 3 390 963

2 Cash and cash equivalents less provision, including: 219 704 - - 219 704 219 704

3 cash on hand 49 - - 49 49 4 cash on settlement accounts 219 656 - - 219 656 219 656 5 Deposits with banks - 1 559 898 - 1 559 898 1 559 898

6 deposits with credit institutions and non- resident banks - 1 559 898 - 1 559 898 1 559 898

7 Reinsurance receivables, including: - - 349 255 349 255 349 255

8 non-life insurance receivables, including: - - 349 255 349 255 349 255

9 receivables under assumed reinsurance contracts - - 341 840 341 840 341 840

10 receivables under contracts ceded to reinsurers - - 1 505 1 505 1 505

11 premium and claim deposits receivable - - 5 910 5 910 5 910

12 Reinsurers’ share of insurance provisions - - 1 204 129 1 204 129 1 204 129

13 Other assets - - 57 976 57 976 57 976 Section 2. Financial liabilities

14 Financial liabilities not measured at fair value, including: - - 2 806 289 2 806 289 2 806 289

15 Reinsurance payables, including: - - 192 672 192 672 192 672

16 payables under non-life insurance,

co-insurance and reinsurance transactions, including: - - 192 672 192 672 192 672

17 payables under assumed reinsurance contracts - - 2 617 2 617 2 617

18 payables under contracts ceded to reinsurers - - 159 559 159 559 159 559

19 premium and claim deposits payable - - 5 5 5

20 payables to insurance agents and brokers - - 29 920 29 920 29 920


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Line item

number

Line item Level 1 Level 2 Level 3 Total fair value

Carrying amount

21 other insurance payables - - 571 571 571 22 Non-life insurance provisions - - 2 557 629 2 557 629 2 557 629 23 Other liabilities - - 55 988 55 988 55 988

Below is the fair value analysis by the fair value hierarchy levels and the carrying amount of financial assets and liabilities not measured at fair value as at 31 December 2018.

Line item

number

Line item

Level 1 Level 2 Level 3 Total

fair value Carrying amount

Section 1. Financial assets

1 Financial assets not measured at fair value, including: 267 692 1 073 949 726 350 2 067 991 2 067 991

2 Cash and cash equivalents less provision, including: 267 692 - - 267 692 267 692

3 cash on hand 51 - - 51 51 4 cash on settlement accounts 267 641 - - 267 641 267 641 5 Deposits with banks - 1 073 949 - 1 073 949 1 073 949

6 deposits with credit institutions and non- resident banks - 1 073 949 - 1 073 949 1 073 949

7 Reinsurance receivables, including: - - 361 147 361 147 361 147

8 non-life insurance receivables, including: - - 361 147 361 147 361 147

9 receivables under assumed reinsurance contracts - - 115 628 115 628 115 628

10 receivables under contracts ceded to reinsurers - - 641 641 641

11 premium and claim deposits receivable - - 7 045 7 045 7 045

12 receivables from agents and brokers 237 203 237 203 237 203

13 other receivables - - 631 631 631

14 Reinsurers' share of liabilities under non-life insurance contracts - - 365 204 365 204 365 204

15 Other assets 38 162 38 162 38 162 Section 2. Financial liabilities

16 Financial liabilities not measured at

fair value, including: - - 1 671 690 1 671 690 1 671 690

17 Reinsurance payables, including: - - 149 167 149 167 149 167

18 Payables under non- life insurance, co-insurance and reinsurance transactions, including: - - 149 167 149 167 149 167

19 payables under assumed reinsurance contracts - - 1 893 1 893 1 893

20 payables under contracts ceded to reinsurers - - 125 031 125 031 125 031

21 premium and claim deposits payable - - 24 24 24

22 payables to insurance agents and brokers - - 21 779 21 779 21 779

23 other insurance payables - - 440 440 440 24 Non-life insurance provisions - - 1 476 114 1 476 114 1 476 114 25 Other liabilities 46 409 46 409 46 409

translation from the russian original · main actuarial assumptions used for measurement of...

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