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Risk sensitivity
Risk pertaining to financial assets
The table below summarizes the results of sensitivity analysis on the value of the investment portfolio to volatility in interest rates, FX rates and the prices of equities. This analysis does not take into account the impact exerted by changing interest rates on the insurance agreements presented in liabilities or the investment contracts and receivables due from bank clients.
Financial assets exposed to foreign exchange risk include the PZU Group’s investment financial assets and financial derivatives denominated in foreign currencies.
| Sensitivity of the asset portfolio (in PLN m) | Change of the risk factor | 31 December 2018 | 31 December 2019 |
| Change in portfolio value | Change in portfolio value | ||
| Interest rate risk | decrease by 100 bp | 1,45 | 2,224 |
| increase by 100 bp | -1,369 | -2,101 | |
| Foreign exchange risk | increase by 20% | -110 | 195 |
| decrease by 20% | 148 | -142 | |
| Equity instruments price risk | increase by 20% | 190 | 112 |
| decrease by 20% | -190 | -112 |
Interest rate risk – the possibility of incurring a loss as a result of changes in the value of financial instruments or assets and a change in the present value of projected cash flows from liabilities, caused by changes in the term structure of market rates or in the volatility of risk-free market interest rates.
Foreign exchange risk – the possibility of incurring loss as a result of changes in the value of assets, liabilities and financial instruments, caused by changes in the level or in the volatility of currency exchange rates.
Equity price risk – the possibility of incurring loss as a result of changes in the values of assets, liabilities and financial instruments caused by changes in the level or in the volatility of market prices of equities.
The differences in asset portfolio sensitivity between 2018 and 2019 ensue from the execution of the adopted investment strategy and the resulting alignment investment portfolio.
The following table shows the evolution of the level contractual sensitivity of interest income (NII) to change in interest rates by 100 bps and value sensitivity economic capital (EVE) of the PZU Group banks for a change interest rates by 200 bps.
| Sensitivity in % | 31.12.2018 | 31.12.2019 | |||
| decrease | increase | decrease | increase | ||
| Bank Pekao Group | NII | -8.64% | 6.22% | -6.98% | 4.08% |
| EVE | -0.95% | 0.87% | 1.61% | -3.04% | |
| Alior Bank Group | NII | -5.97% | 2.45% | -6.86% | 3.14% |
| EVE | -2.36% | 3.31% | -1.70% | 1.35% | |
data for December 2018 according to the methodology applicable before the implementation of the EBA requirements regarding IRRBB, that took place in June 2019
Risk pertaining to technical rates and mortality
The table above presents a sensitivity analysis of the net result and equity to changes in the assumptions used to calculate the provision for the capitalized value of annuities. This analysis does not incorporate the impact exerted by changes in the valuation of deposits used to calculate the provision.
| Sensitivity of provisions | Impact of changes in assumptions on the net financial result and equity | |
| 31 December 2018 | 31 December 2019 | |
| Changes in assumptions regarding provisions for the net capitalized value of annuities in non-life insurance (in PLN m) | ||
| Technical rate - increase by 0.5 p.p. | 426 | 416 |
| Technical rate - decrease by 1.0 p.p. | -1,105 | -1,080 |
| Mortality at 110% of the currently assumed rate | 127 | 128 |
| Mortality at 90% of the currently assumed rate | -143 | -141 |
| Changes in the assumptions for annuities in life insurance (in PLN m) | ||
| Technical rate - decrease by 1.0 p.p. | -25 | -22 |
| Mortality at 90% of the currently assumed rate | -11 | -10 |
| Change in assumptions regarding provisions in life insurance excluding annuity products (in PLN m) | ||
| Technical rate - decrease by 1.0 p.p. | -2,062 | -1,976 |
| Mortality at 110% of the currently assumed rate | -869 | -850 |
| 110% morbidity and accident rate | -143 | -138 |