Risk vulnerability

Risk pertaining to financial assets

In the table below summarizes the results of analysis of the sensitivity of the net financial result and equity of the PZU Group (excluding banks) to changes in interest rate risk, foreign exchange risk and equity instruments price risk. This analysis does not take into account the impact of changes in interest rates on the insurance agreements presented in the liabilities or the investment contracts and receivables of banks from its clients.

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

Interest rate risk: possibility of incurring a loss as a consequence of movement in the value of financial instruments or assets and movement in the current value of projected flows on liabilities as a result of shifts in the term structure of market interest rates or volatility of risk-free market interest rates.

Currency risk: possibility of incurring a loss as a consequence of movements in the value of assets, liabilities and financial instruments as a result of changes in currency exchange rates or volatility in currency exchange rates.

Equity price risk: possibility of incurring a loss as a consequence of movement in the value of assets, liabilities and financial instruments as a result of changes in the market prices of equities or volatility in the market prices of equities.

The differences in the sensitivity of the asset portfolio between 2017 and 2018 stem from executing the adopted investment strategy and aligning the investment portfolio to it. 

Risk pertaining to technical rates and mortality

In the table on page 108, a sensitivity analysis is presented of the net result and equity to changes in the assumptions used to calculate the provision for the capitalized value of annuities. This analysis does not take into account the impact of changes in the valuation of deposits taken into consideration in the calculation of the provision on the net financial result and equity. 

Banking activity

Interest rate risk

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

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

Foreign exchange risk

The fundamental measure of foreign exchange risk in both banks is the Value at Risk (VaR) model to designate the potential value of a loss on currency positions due to changes in exchange rates, while maintaining the assumed confidence level of 99% and the period in which the position is kept. This value is calculated daily for all areas responsible for risk taking and risk management, both on an individual and collective basis.