2019 Universal registration document and annual financial report - BNP PARIBAS 171
4Consolidated finanCial statements for the year ended 31 deCemBer 2019
4
Notes to the financial statements
This temporary exemption from IFRS 9, which was limited to groups that predominantly undertook insurance activities according to the IASB amendment, has been extended to the insurance sector of financial conglomerates as defined by the Directive 2002/87/EC as adopted by the European Union. This exemption is subject to conditions, notably the absence of internal transfer of financial instruments, other than financial instruments that are measured at fair value through profit or loss, between insurance entities and other entities of the financial conglomerate.
BNP Paribas Group applies this amendment to all its insurance entities, including funds related to this activity, which will apply IAS 39 Financial instruments: Recognition and Measurement until 31 December 2020.
All other insurance company assets and liabilities are accounted for using the policies applied to the Group s assets and liabilities generally, and are included in the relevant balance sheet and profit and loss account headings in the consolidated financial statements.
1.f.1 Profit and loss account
Income and expenses recognised under insurance contracts issued by the Group are presented in the income statement under Net income from insurance activities .
This heading in the income statement includes premiums earned, net gain in investment contracts with no discretionary participation feature and other services, net investment income (including income on investment property and impairment on shares and other equity instruments), technical charges related to contracts (including policyholders surplus reserve), net charges from ceded reinsurance and external charges related to contracts (including commissions).
Other income and expenses relating to insurance activities (i.e. recorded by insurance entities) are presented in the other income statement headings according to their nature.
1.f.2 Financial investments of insurance activities
Investments of insurance activities mainly include:
■ investments by insurance entities in financial instruments that are recognised in accordance with the principles of IAS 39, which include investments representing technical reserves of insurance activities and notably unit-linked contracts;
■ derivative instruments with a positive fair value. Group insurance entities underwrite derivative instruments for hedging purposes;
■ investment properties;
■ equity method investments;
■ and reinsurers share in liabilities arising from insurance and investment contracts.
Investments in financial instruments Financial investments held by the Group s insurance entities are classified in one of the four categories provided for in IAS 39: Financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.
Financial assets at fair value through profit or loss
The category of Financial assets at fair value through profit or loss includes derivatives and financial assets that the Group has elected to recognise and measure at fair value through profit or loss at inception, in accordance with the option offered by IAS 39.
Financial assets may be designated at fair value through profit or loss in the following cases (in accordance with IAS 39):
■ hybrid financial instruments containing one or more embedded derivatives which otherwise would have been separated and accounted for separately. An embedded derivative is such that its economic characteristics and risks are not closely related to those of the host contract;
■ where using the option enables the entity to eliminate or significantly reduce a mismatch in the measurement and accounting treatment of assets and liabilities that would arise if they were to be classified in separate accounting categories;
■ when the group of financial assets and/or financial liabilities is managed and measured on the basis of fair value, in accordance with a documented risk management and investment strategy.
Investments held in respect of insurance or investment contracts where the financial risk is borne by policyholders (unit-linked contracts) are recognised at fair value through profit or loss.
When the Group measures at fair value through profit or loss investments made in respect of its insurance activities in entities over which it exercises significant influence or joint control, these investments are presented under the line Financial assets at fair value through profit or loss (cf. §1.b.2).
Financial instruments classified in this category are initially recognised at their fair value, with transaction costs being directly recognised in the income statement.
At the closing date, they are valued at their fair value.
Changes in value compared to the last valuation, income, dividends and realised gains and losses are presented under Net income from insurance activities and under Net gain on financial instruments at fair value through profit or loss .
Loans and advances
Fixed or determinable -income securities, which are not quoted in an active market, other than those for which the holder may not recover substantially all of its initial investment for reasons other than credit deterioration, are classified as Loans and receivables when they do not meet the conditions for classification as financial assets at fair value through profit or loss.
Loans and receivables are initially recognised at their fair value or equivalent, which generally corresponds to the net amount originally paid.
Loans and receivables are subsequently measured at amortised cost using the effective interest method and net of repayments of principal and interest.
Interest is calculated using the effective interest method, which includes interest, transaction costs and commissions included in their initial value and is presented under Net income from insurance activities and under sub-heading Net gain on financial instruments at amortised cost .
