2018 Registration document and annual fi nancial report - BNP PARIBAS172

4 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2018

4

Notes to the fi nancial statements

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 fi nancial instruments at fair value through profi t 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 classifi ed as Loans and receivables when they do not meet the conditions for classifi cation as fi nancial assets at fair value through profi t 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 fi nancial instruments at amortised cost .

Impairment losses recognised when there is objective evidence of impairment related to an event subsequent to the acquisition of the asset are presented under Cost of risk .

Held-to-maturity financial assets

Held-to-maturity fi nancial assets include debt securities, with fi xed maturity, that the Group has the intention and ability to hold until maturity.

Securities classifi ed in this category are recognised at amortised cost using the effective interest method.

Income received on these securities is presented under Net income from insurance activities and under sub-heading Net gain on fi nancial instruments at amortised cost . Impairment losses recognised when there is objective evidence of impairment related to an event subsequent to the acquisition of the asset are presented under Cost of risk .

Available-for-sale financial assets

The category Available-for-sale fi nancial assets includes debt or equity securities that do not fall within the previous three categories.

Assets included in the available-for-sale category are initially recorded at fair value, plus transaction costs where material. At the end of the reporting period, they are valued at their fair value and the changes in the latter, excluding accrued income, are presented under a specifi c heading of equity. On disposal of the securities, these unrealised gains or losses previously recognised in equity are reclassifi ed in the income statement under the heading Net income from insurance activities .

Income recognised using the effective interest method on debt securities, dividends received and impairment (in the event of a signifi cant or lasting decline in the value of the securities) of equity securities are presented under Net income from insurance activities and under section Net gain on available-for-sale fi nancial assets . Impairment losses on debt securities are presented under Cost of risk .

Investment property Investment property corresponds to buildings held directly by insurance companies and property companies controlled.

Investment property, except for those used for unit-linked contracts, is recognised at cost and follows the accounting methods of the assets described elsewhere.

Investment property, held in respect of unit-linked contracts, is valued at fair value or equivalent, with changes in value recognised in the income statement.

Equity-method investments Investments in entities or real estate funds over which the Group exercises signifi cant infl uence or joint control and for which the equity method is applied are recognised in the line Equity method investments .

1.f.3 Technical reserves and other insurance liabilities

The item Technical reserves and other insurance liabilities includes:

■ commitments to policyholders and benefi ciaries of contracts, which include technical reserves for insurance contracts subject to signifi cant insurance hazard (mortality, longevity, disability, incapacity...) and technical liabilities of investment contracts with a discretionary profi t- sharing feature, falling within IFRS 4. The discretionary participation clause grants life insurance policyholders the right to receive, in addition to the guaranteed remuneration, a share of the fi nancial results achieved;

■ other insurance liabilities related to unit-linked contracts that fall within the scope of IAS 39 (i.e. investment contracts with no discretionary participating features);

■ policyholders surplus reserve

■ liabilities arising from insurance and reinsurance operations, including liabilities due to policyholders;

■ fi nancial derivative instruments of insurance activities carried at fair value through profi t or loss, the fair value of which is negative. Group insurance entities underwrite derivative instruments for hedging purposes.

Financial liabilities that are not insurance liabilities (e.g. subordinated debt) fall under IAS 39. They are presented in Financial l iabilities at amortised cost .