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OJSC IC Allianz

Consolidated Financial Statements

for the year ended

31 December 2015

Allianz

Consolidated Financial Statements for the Year Ended 31 December 2015

2

Contents

Statement of Management’s Responsibilities for the Preparation and Approval of the Consolidated

Financial Statements for the year ended 31 December 2015 ......................................................................................... 3

Auditors’ Report ......................................................................................................................................................... 4-5

Consolidated Statement of Financial Position................................................................................................................ 6

Consolidated Statement of Profit or Loss and Other Comprehensive Income ............................................................... 7

Consolidated Statement of Cash Flows .......................................................................................................................... 8

Consolidated Statement of Changes in Equity ............................................................................................................... 9

Notes to the Consolidated Financial Statements

1. Background ......................................................................................................................................................... 10 2. Basis of Preparation ............................................................................................................................................ 11 3. Significant Accounting Policies ......................................................................................................................... 11 4. Cash and Cash Equivalents ................................................................................................................................. 19 5. Deposits with Banks ........................................................................................................................................... 19 6. Available-for-Sale Financial Instruments ........................................................................................................... 20 7. Receivables ......................................................................................................................................................... 21 8. Prepayments ....................................................................................................................................................... 21 9. Obligatory medical insurance ............................................................................................................................. 21 10. Property, Equipment and Intangible Assets ........................................................................................................ 22 11. Provision for Unearned Premiums ...................................................................................................................... 22 12. Loss Provision .................................................................................................................................................... 23 13. Claims Development Analysis ........................................................................................................................... 25 14. Payables .............................................................................................................................................................. 26 15. Other liabilities ................................................................................................................................................... 26 16. Share Capital and Additional paid-in Capital ..................................................................................................... 26 17. Income and Expenses Analysis by Type of Business ......................................................................................... 27 18. Analysis of Premiums and Claims by Lines of Business and analysis of operating profit ................................. 29 19. Interest income ................................................................................................................................................... 30 20. Acquisition Costs ................................................................................................................................................ 31 21. Operating Expenses ............................................................................................................................................ 32 22. Other Commission Income ................................................................................................................................. 33 23. Income Tax ......................................................................................................................................................... 33 24. Risk Management and Internal Controls ............................................................................................................ 35 25. Capital Management ........................................................................................................................................... 43 26. Contingencies and Commitments ....................................................................................................................... 44 27. Fair Value of Financial Instruments ................................................................................................................... 45 28. Related Party Transactions ................................................................................................................................. 46 29. Principal Subsidiaries and Associates ................................................................................................................. 47 30. Discontinued operations ..................................................................................................................................... 47 31. Subsequent Events .............................................................................................................................................. 48

Allianz

Notes to the Consolidated Financial Statements for the Year Ended 31 December 2015

(in thousands of Russian Roubles)

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1. Background

Organization and operations

These consolidated financial statements include the financial statements of OJSC IC Allianz (the Company) and its

subsidiaries. The Company and its subsidiaries together are referred to as the Group.

The Open Joint-Stock Company Insurance Company “Allianz” was registered in the Russian Federation in 1992. In

December 2011 the Company changed its name to OJSC IC Allianz from OJSC IC “Rosno”. The principal activity

of Allianz and its subsidiaries is the provision of insurance. The Group operates under insurance and reinsurance

license №0290 dated 10 November 2014 issued by the Central Bank of the Russian Federation.

In accordance with the new strategy adopted in 2014, the Group stopped writing retail insurance business, such as

auto-transport and other private property and liability insurance, and focused on corporate insurance business, such

as medical, property and casualty insurance and reinsurance. The insurance license in obligatory motor third party

liability insurance was restricted in 2015 and the Company was not allowed to write new obligatory motor third

party liability business up until 15 January 2016, when the license was renewed.

In November 2015, the management committed to a plan to sell voluntary medical insurance business of the

Company to Allianz Life Insurance Company, Ltd., an entity under common shareholders’ control, following a

strategic decision to place greater focus on the Group’s key competencies (note 30).

Insurance business written by the Group includes medical, property, casualty, life insurance and reinsurance. The

Group has also contracted with the Government Fund for Obligatory Medical Insurance (GFOMI), which carries out

an obligatory medical insurance program to provide Russian Federation citizens with free of charge medical services

via certain appointed insurers, including the Group. The Group has contracted with GFOMI to administer a portion

of this program and receives commissions for providing this service.

As at 31 December 2015, the Company has 5 branches (2014: 75 branches) within the Russian Federation and its

subsidiaries have 42 branches (2014: 125 branches).

The Company is registered at the following address: Russia, 115184, Moscow, Ozerkovskaya Naberezhnaya, 30.

As at 31 December 2015 and 2014, the Company is 100% ultimately owned and controlled by Allianz SE, a

worldwide insurance company, which has publicly available financial statements. A list of principal consolidated

subsidiaries and associates is disclosed in note 29.

Business environment

The Group’s operations are located primarily in the Russian Federation. Consequently, the Group is exposed to the

economic and financial markets of the Russian Federation which display characteristics of an emerging market. The

legal, tax and regulatory frameworks continue development, but are subject to varying interpretations and frequent

changes which together with other legal and fiscal impediments contribute to the challenges faced by entities

operating in the Russian Federation.

The conflict in Ukraine and related events has increased the perceived risks of doing business in the Russian

Federation. The imposition of economic sanctions on Russian individuals and legal entities by the European Union,

the United States of America, Japan, Canada, Australia and others, as well as retaliatory sanctions imposed by the

Russian government, has resulted in increased economic uncertainty including more volatile equity markets, a

depreciation of the Russian Rouble, a reduction in both local and foreign direct investment inflows and a significant

tightening in the availability of credit. In particular, some Russian entities may be experiencing difficulties in

accessing international equity and debt markets and may become increasingly dependent on Russian state banks to

finance their operations. The longer term effects of recently implemented sanctions, as well as the threat of

additional future sanctions, are difficult to determine. Management of the Group believes that it takes all the

necessary efforts to support the economic stability of the Group in the current environment.

The consolidated financial statements reflect management’s assessment of the impact of the Russian business

environment on the operations and the financial position of the Group. The future business environment may differ

from management’s assessment.

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2. Basis of Preparation

Basis of Preparation. These consolidated financial statements are prepared in accordance with International

Financial Reporting Standards (IFRS).

The Group maintains its accounting records in accordance with Russian insurance and accounting regulations. These

consolidated financial statements have been prepared from those accounting records and adjusted as necessary in order

to be in accordance with IFRS. These adjustments include certain reclassifications to reflect the economic substance of

underlying transactions including reclassifications of certain assets and liabilities, income and expenses to appropriate

financial statements captions.

Basis of measurement. These consolidated financial statements are prepared on the historical cost basis except that

available-for-sale financial instruments are stated at fair value.

Going concern basis of accounting. The consolidated financial statements have been prepared on a going concern

basis, which assumes that the Group will be able to meet its obligations. Management has a reasonable expectation that

the Group has adequate resources to continue in operational existence for the foreseeable future. The Group has a plan

for achieving self-sustainability through capital generation and optimization of product structure and business strategy,

therefore, management believes that there is no significant uncertainty regarding the ability of the Group to continue as

a going concern.

Presentation currency. These consolidated financial statements are presented in Russian Roubles (RUB). Financial

information presented in RUB is rounded to the nearest thousand.

Use of estimates. Management makes a number of estimates and assumptions relating to the reporting of assets and

liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements in

conformity with IFRS. Actual results could differ from these estimates. In particular, information about significant areas of

estimation uncertainty and critical judgments in applying accounting policies are described in the following notes:

loss provision estimate - note 12

impairment allowance for insurance and reinsurance receivables estimate - note 7

tax loss carry forward recoverability - note 23.

3. Significant Accounting Policies

The accounting policies set out below are applied consistently to all periods presented in these consolidated financial

statements, and are applied consistently by Group’s entities.

Subsidiaries. Subsidiaries are investees controlled by the Group. The Group controls an investee when it is exposed

to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns

through its power over the investee. In particular the Group consolidates investees that it controls on the basis of de

facto circumstances. The financial statements of subsidiaries are included in the consolidated financial statements

from the date that control commences until the date that control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries. The assets and liabilities

and contingent liabilities of a subsidiary are measured at their fair values at the date of acquisition, plus costs

directly attributable to the acquisition. The Group measures goodwill as the fair value of the consideration

transferred (including the fair value of any previously-held equity interest in the acquiree) and the recognized

amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the

identifiable assets acquired and liabilities assumed, all measured as at the acquisition date. When the excess is

negative, a bargain purchase gain is recognized immediately in profit or loss. Intercompany transactions, balances

and unrealized gains on transactions between Group companies are eliminated; unrealized losses are also eliminated

unless cost cannot be recovered. Where necessary, accounting policies of subsidiaries are changed to ensure

consistency with the policies adopted by the Group.

Non-controlling interests is that part of the net results and of the net assets of a subsidiary attributable to interests

which are not owned, directly or indirectly, by the Group. Non-controlling interests are recorded within equity.

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In translating the financial statements of a foreign operation into the Group’s presentation currency for incorporation

in the consolidated financial statements, the Group applies IAS 21 The Effects of Changes in Foreign Exchange

Rates as follows:

assets and liabilities, both monetary and non-monetary, of the foreign operation are translated into the Group’s

presentation currency at the closing exchange rate of the Central Bank of Russian Federation;

income and expense items of the foreign operation are translated into the Group’s presentation currency at

exchange rates of the Central Bank of Russian Federation at the approximate dates of the transactions;

all resulting exchange differences are classified within equity as foreign exchange translation reserve until the

disposal of the investment;

on disposal of the investment in the foreign operation, the foreign exchange translation reserve is transferred to

profit or loss.

Associates. Associates (note 29) are entities over which the Group has between 20% and 50% of the voting rights, or

over which the Group has an ability to exercise significant influence, but which it does not control. Investments in

associates are accounted for using the equity method of accounting. Under this method, the Group’s share of the post-

acquisition profits or losses of associates is recognized in profit or loss, and its share of the post-acquisition other

comprehensive income is recorded in other comprehensive income. The cumulative post-acquisition movements are

adjusted against the cost of the investment. Unrealized gains on transactions between the Group and its associates are

eliminated to the extent of the Group’s interest in the associates; unrealized losses are also eliminated unless the

transaction provides evidence of an impairment of the asset transferred.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, the Group does not

recognize further losses unless the Group has incurred obligations or made payments on behalf of the associate. Where

necessary, accounting policies used by associates have been changed to ensure consistency with the policies adopted by

the Group.

Goodwill. Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the

identifiable assets, liabilities and contingent liabilities of the acquired subsidiary or associate at the date of acquisition.

After control of an entity is obtained, changes in the parent’s ownership interest that do not result in a loss of control

are accounted for as equity transactions. Profit or loss is not recognized as a result of such transactions, and carrying

amount of goodwill does not change.

At each reporting date the Group estimates the recoverable amount of goodwill. A write down is made if the carrying

amount exceeds the recoverable amount.

On acquisition, fair values of the acquiree’s identifiable assets, liabilities and contingent liabilities are determined

provisionally. Adjustments to those provisional values are recognized within twelve months of the acquisition date.

Merger of entities or businesses under common control. A merger of entities or businesses under common control

is a merger in which all of the combining entities or businesses ultimately are controlled by the same party or parties

both before and after the combination, and that control is not transitory. Assets and liabilities of the merger of

businesses under common control are recognized in the consolidated financial statements as of the date of the

merger using book value (carry-over basis) accounting. Comparative financial information is not restated.

Discontinued operations. A discontinued operation is a component of the Group’s business, the operations and cash

flows of which can be clearly distinguished from the rest of the Group and which:

represents a separate major line of business or geographical area of operations;

is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of

operations; or

is a subsidiary acquired exclusively with a view to resale.

Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be

classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative

statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the

comparative period.

Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be

recovered principally through a sale transaction and a sale is considered highly probable. They are stated at the

lower of carrying amount and fair value less costs to sell.

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Recognition of financial instruments. Regular way purchases and sales of financial assets and liabilities are

recognized using trade date accounting.

Management determines the appropriate classification of financial instruments upon initial recognition. Financial assets

and liabilities are initially recognized at fair value plus, in the case of a financial asset or financial liability not at fair

value through profit or loss, transaction costs that are directly attributable to acquisition or issue of the financial asset or

financial liability. The accounting policies for subsequent measurement of these items are set out below.

Cash and cash equivalents. Cash and cash equivalents are items, which can be converted into cash within one business

day and includes cash on hand and in banks and has no restrictions on its availability. All short-term bank placements

are included in deposits with banks.

Deposits with banks, promissory notes and originated loans. Deposits with banks, promissory notes and originated

loans are loans originated by the Group by providing money directly to the counterparties. All deposits with banks,

promissory notes and originated loans are recorded when cash is advanced to counterparties. Initially they are recorded at

fair value, and subsequently are measured at amortized cost, using the effective interest method, less allowance for impairment.

Interest income on deposits with banks, promissory notes and originated loans is recognized in profit or loss as

interest income using the effective interest rate method.

Financial assets and liabilities at fair value through profit or loss. Financial assets and liabilities at fair value

through profit or loss represent securities acquired principally for the purpose of selling them in the near term, or are

a part of portfolio of identified financial instruments that are managed together and for which there is evidence of a

recent and actual pattern of short-term profit taking or securities that upon initial recognition are designated by the

Group at fair value through profit or loss. Financial assets and liabilities at fair value through profit or loss are

initially recorded and subsequently measured at fair value. Changes in fair value of financial assets and liabilities at

fair value through profit or loss are recognized in profit or loss.

Available-for-sale financial instruments. This classification includes non-derivative financial assets that are

designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial

instruments at fair value through profit or loss which management intends to hold for an indefinite period of time, that

may be sold in response to needs for liquidity or changes in interest rates, exchange rates or market quotes.

Available-for-sale financial instruments are initially recorded and subsequently measured at fair value. Unrealized

gains and losses arising subsequent to initial recognition are recognized as other comprehensive income (except for

impairment losses and foreign exchange gains and losses) until the asset is derecognized at which time the

cumulative gain or loss previously recognized in other comprehensive income is recognized in profit or loss.

Coupon and interest earned on available-for-sale financial instruments are recognized in profit or loss within interest

income using the effective interest rate method. Dividends received are reflected in profit or loss within other

investment income.

Derecognition of financial instruments. A financial asset is derecognized when the contractual rights to the cash

flows from the financial asset expire or when the Group transfers substantially all of the risks and rewards of

ownership of the financial asset. Any rights or obligations created or retained in the transfer are recognized

separately as assets or liabilities. The Group derecognizes a financial liability when its contractual obligations are

discharged or cancelled or expire.

Receivables and prepayments. Receivables are accounted for on the accrual basis. Receivables consist of

outstanding direct premiums due from policyholders, outstanding assumed premiums due from ceding companies,

receivables due from claims ceded and other receivables, carried at cost less allowance for impairment.

Prepayments are recorded on the payment date and are charged to profit or loss when the services are provided.

Prepayments include prepayments made under obligatory and voluntary medical insurance programs and other

prepayments.

Offsetting. Financial assets and liabilities are offset and the net amount reported in the consolidated statement of

financial position only when there is a legally enforceable right to offset the recognized amounts, and there is an

intention to either settle on a net basis, or to realize the asset and settle the liability simultaneously.

Fair value measurement principles. Fair value is the price that would be received to sell an asset or paid to transfer

a liability in an orderly transaction between market participants at the measurement date in the principal, or in its

absence, the most advantageous market to which the Group has access at that date. The fair value of a liability

reflects its non-performance risk.

When available, the Group measures the fair value of an instrument using quoted prices in an active market for that

instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient

frequency and volume to provide pricing information on an ongoing basis.

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When there is no quoted price in an active market, the Group uses valuation techniques that maximize the use of

relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique

incorporates all the factors that market participants would take into account in these circumstances.

The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price,

i.e., the fair value of the consideration given or received. If the Group determines that the fair value at initial

recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active

market for an identical asset or liability nor based on a valuation technique that uses only data from observable

markets, the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair

value at initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on

an appropriate basis over the life of the instrument, but no later than when the valuation is supported wholly by

observable market data or the transaction is closed out.

Impairment

Available-for-sale financial instruments. An available-for-sale debt security is impaired if there is objective

evidence that a loss event has occurred, which has impaired the expected cash flows, i.e. all amounts due according to

the contractual terms of the security are not considered collectible. Typically, this is due to deterioration in the

creditworthiness of the issuer. A decline in fair value below amortized cost due to changes in risk free interest rates

does not by itself represent objective evidence of a loss event.

If there is objective evidence that the cost may not be recovered, an available-for-sale equity security is considered

impaired. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes

a significant or prolonged decline in the fair value below cost. The Group’s policy considers decline to be significant

when the fair value is below the weighted average cost by more than 20% or when the fair value is below the weighted

average cost for more than nine months.

If an available-for-sale equity security is impaired based upon the qualitative or quantitative impairment criteria, any

further declines in the fair value at subsequent reporting dates are recognized as impairment. Therefore, at each reporting

period, for an equity security that is determined to be impaired based upon the impairment criteria, an impairment is

recognized for the difference between the fair value and the original cost basis, less any previously recognized impairment.

If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can

be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment

loss is reversed, with the amount of the reversal recognized in profit or loss. However, any subsequent recovery in the

fair value of an impaired available-for-sale equity security is recognized in other comprehensive income.

Financial assets carried at amortized cost. Financial assets carried at amortized cost consist principally of

promissory notes and originated loans (“loans”).The Group reviews its loans, to assess impairment on a regular

basis. A loan is impaired and impairment losses are incurred if, and only if, there is objective evidence of

impairment as a result of one or more events that occurred after the initial recognition of the loan and that event (or

events) has had an impact on the estimated future cash flows of the loan that can be reliably estimated.

The Group first assesses whether objective evidence of impairment exists individually for loans that are individually

significant, and individually or collectively for loans that are not individually significant. If the Group determines

that no objective evidence of impairment exists for an individually assessed loan, it includes the loan in a group of

loans with similar credit risk characteristics and collectively assesses them for impairment. Loans that are

individually assessed for impairment and for which an impairment loss is or continues to be recognized are not

included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on a loan has been incurred, the amount of the loss is measured

as the difference between the carrying amount of the loan and the present value of estimated future cash flows

including amounts recoverable from guarantees and collateral discounted at the loan’s original effective interest rate.

Contractual cash flows and historical loss experience adjusted on the basis of relevant observable data that reflect

current economic conditions provide the basis for estimating expected cash flows.

In some cases, the observable data required to estimate the amount of an impairment loss on a loan may be limited

or no longer fully relevant to current circumstances. This may be the case when a borrower is in financial difficulties

and there is little available historical data relating to similar borrowers. In such cases, the Group uses its experience

and judgment to estimate the amount of any impairment loss.

All impairment losses in respect of loans are recognized in profit or loss and are only reversed if a subsequent increase

in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized.

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Financial assets carried at cost. Financial assets carried at cost include receivables and prepayments. If there is

objective evidence of impairment, the impairment loss is calculated as the difference between the carrying amount

and the present value of the estimated future cash flows discounted at the current market rate of return for a similar

financial asset. All impairment losses in respect of these assets are recognized in profit or loss.

Non-financial assets. Other non-financial assets, except for deferred taxes, are assessed at each reporting date for any

indications of impairment. The recoverable amount of non-financial assets is the greater of their fair value less costs to

sell and their value in use. In assessing value in use, the estimated future cash flows are discounted to their present

value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks

specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the

recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is

recognized when the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount.

All impairment losses in respect of non-financial assets are recognized in profit or loss and reversed only if there has

been a change in the estimates used to determine the recoverable amount. Any impairment loss reversed is only

reversed to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been

determined, net of depreciation or amortization, if no impairment loss had been recognized.

Accrued interest income and expenses. Accrued interest income and expenses, including both accrued coupon and

amortized discount, are included in the carrying values of the related asset and liability in the consolidated statement of

financial position.

Property and equipment. Property and equipment are stated at cost, restated to the equivalent purchasing power of

the Russian Rouble as at 31 December 2002 for assets acquired prior to 1 January 2003, less accumulated depreciation

and allowance for impairment, where required.

Construction in progress is carried at cost. Upon completion, assets are transferred to property, plant and equipment

at their carrying amount. Construction in progress is not depreciated until the asset is available for use.

Result on disposal of property and equipment is determined by reference to carrying amount and is recognized as

profit or loss for the reporting period. Repairs and maintenance are recognized as expense in the period in which

they are incurred.

Depreciation. Depreciation is applied on a straight-line basis over the estimated useful lives of the assets using the

following rates:

2015 2014

Premises 2.5% per annum 2.5% per annum

Office equipment 20% per annum 20% per annum

Computer equipment 33% per annum 33% per annum

Intangible assets. Intangible assets represent software licenses obtained by the Group and computer software

development costs. Costs associated with maintaining computer software are recorded as an expense as incurred.

Costs that are directly associated with identifiable and unique software products controlled by the Group and that

will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets.

Expenditure, which enhances or extends the performance of computer software beyond their original specifications

is recorded as a capital improvement and added to the original cost of the software. Computer software development

costs recorded as assets are amortized using the straight-line method over their useful lives, not exceeding a period

of 5 years.

At each reporting date the Group assesses whether there is any indication of impairment of intangible assets. If any

such indication exists, the Group estimates the recoverable amount, which is determined as the higher of an asset’s

net selling price or its value in use. Where the carrying amount of an asset is greater than its estimated recoverable

amount, it is written down to its recoverable amount and the difference is charged to profit or loss. An impairment

loss recognized for an asset in prior periods is reversed if there has been a change in the estimates used to determine

the assets recoverable amount.

Investment property. Investment property is property held by the Group to earn rental income and for capital

appreciation rather than for use in the supply of services or for administrative purposes in the ordinary course of

business. Investment property is measured at cost (which includes transaction costs).

Earned rental income is recorded in profit or loss within other investment income. Direct operating expenses

(including repairs and maintenance) arising from investment property are recorded as incurred within investment

operating expenses in profit or loss.

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16

Borrowings. Borrowings are financial liabilities of the Group, where the contractual arrangement results in an obligation

either to deliver cash or another financial asset to the creditor, or to otherwise settle an obligation. After initial recognition,

borrowings are subsequently measured at amortized cost using the effective interest method. Gains and losses are

recognized in profit or loss when borrowings are derecognized as well as through the amortization process.

Share capital. Contributions to share capital, made before 1 January 2003 are recognized at their cost restated for

inflation. Contributions to share capital made after 1 January 2003 are recognized at cost.

Treasury shares. Where the Company or its subsidiaries purchase the Company’s equity share capital, the

consideration paid including any attributable incremental external costs net of income taxes is deducted from total

equity as treasury shares until they are cancelled or disposed of. Where such shares are subsequently disposed or

reissued, any consideration received is included in equity.

Share premium. Share premium represents the excess of consideration over the nominal value of the shares issued.

Classification of insurance contracts. Contracts under which the Group accepts significant insurance risk from

another party (the policyholder) by agreeing to compensate the policyholder or other beneficiary if a specified uncertain

future event (the insured event) adversely affects the policyholder or other beneficiary are classified as insurance

contracts. Insurance risk is a risk other than financial.

Financial risk is the risk of a possible future change in one or more of a specified interest rate, security price,

commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index or other variable,

provided in the case of a non-financial variable that the variable is not specific to a party to the contract. Insurance

contracts may also transfer some financial risk. Insurance risk is significant if, and only if, an insured event could

cause the Group to pay significant claims. Once a contract is classified as an insurance contract, it remains classified

as an insurance contract until all rights and obligations are extinguished or expire. Contracts under which the

transfer of insurance risk to the Group from the policyholder is not significant are classified as financial instruments.

Non-life insurance operations

Premiums written. Upon inception of a contract, premiums are recognized when written and are earned primarily on a

pro-rata basis over the term of the related policy coverage. Premiums are disclosed gross of commission payable to

intermediaries and taxes and levies based on premiums. Premiums written include adjustments to estimates of

premiums written in previous years. The earned portion of premiums written is recognized as revenue. Premiums are

earned from the date of attachment of risk, over the indemnity period, based on the pattern of risks underwritten.

Outward reinsurance premiums are recognized as an expense in accordance with the pattern of reinsurance service

provided. The portion of outward reinsurance premiums not recognized as an expense is treated as a prepayment.

Provision for unearned premiums. Provision for unearned premiums represents the proportion of premiums written in the

period that relates to unexpired terms of policies in force at the reporting date, calculated on a time apportionment basis.

Claims paid. Claims paid including claims handling expenses are charged to profit or loss as incurred.

Loss provision. Loss provision represents outstanding claims provision (OCP), provision for losses incurred but not

yet reported (IBNR) and estimates of claims handling expenses (loss adjustment expenses reserve). OCP is provided in

respect of claims reported, but not settled as at the reporting date. The estimation is made on the basis of information

received by the Group during investigation of insurance cases after the reporting date less regresses. IBNR is

actuarially determined by the Group by line of business, and includes assumptions based on prior years’ claims. The

methods of determining such estimates and establishing the resulting provisions are continually reviewed and updated.

Resulting adjustments are recognized as profit or loss as they arise. The loss provision is estimated on an undiscounted

basis due to the relatively quick pattern of claims notification and payment.

Liability adequacy test. At each reporting date, liability adequacy tests are performed to ensure the adequacy of the

insurance contract provisions net of deferred acquisition costs (DAC). In performing this test, current best estimates of

future contractual cash flows and claims handling and administration expenses are used. When unearned premiums are

insufficient to meet claims and expenses, which may be incurred after the reporting date the additional liability –

unexpired risk reserve (URR) is recognized. To estimate the URR the Group uses historical experience and forward

looking assumptions of ultimate loss ratios (including claims handling expenses) and the level of in-force portfolio

maintenance expenses. URR is provided for unexpired risks arising from general insurance contracts where the

expected value of claims and expenses attributable to the unexpired periods of contracts in force at the reporting date

exceeds the provision for unearned premiums in relation to such contracts after the deduction of any deferred

acquisition costs. URR is calculated by reference to individual line of business that are managed together.

The expected claims are calculated with regard to events that have occurred prior to the reporting date. Any changes in

URR are immediately charged to profit or loss initially by writing off DAC and by subsequent establishing a provision

for losses arising from liability adequacy tests.

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Life insurance operations

Premiums written. Premiums from traditional life insurance are recognized as revenue when due from the

policyholder. Certain universal life contracts contain a discretionary participation feature (DPF) that entitles the

policyholders to a minimum guaranteed interest rate per annum (from 2.5 to 4% p.a. depending on product type) or,

when higher, a bonus rate declared by the Group from the DPF eligible surplus available (i.e. all interest and realized

gains and losses arising from the assets backing these contracts). Any portion of the DPF eligible surplus that is not

declared as a bonus rate and/or interest rate to individual contract holders is retained as a liability for the benefit of all

policyholders until declared and credited to them individually in future periods. Discretionary participation features

are included within the future policies benefits reserve.

Claims paid. Claims paid including claims handling expenses are recognized in profit or loss as incurred.

Future policies benefits reserve. The future polices benefits reserve is actuarially determined. The reserve is

calculated using the net premiums method on a policy-by-policy basis. The assumptions underlying the future polices

benefits reserve are based on the combination of historical experience, the best estimates of the future evolution of the

main valuation parameters and provision for adverse deviation (PAD). The key valuation assumptions are as follows:

discount rate or actual investment return (in terms of USD) – 3% (2014: 5%); premium collection expense – 1.7% of

premium (2014: 1.7%); maintenance expenses – USD 10 p.a. (2014: USD 10 p.a.) per policy.

Reinsurance. The Group assumes and cedes reinsurance in the normal course of business. Ceded reinsurance contracts

do not relieve the Group from its obligations to policyholders. Reinsurance assets include balances due from

reinsurance companies for paid claims, including claims handling expenses, and premiums ceded to the Group.

Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the

reinsured policy. Reinsurance payables are obligations of the Group for the transfer of reinsurance premiums to

reinsurers and of the Group’s share in claims in respect of insurance cases reinsured by the Group. Reinsurance

receivables and payables are offset where the legal right for such offset exists.

Deferred acquisition costs. Acquisition costs, representing commissions, salaries and certain other underwriting

expenses, which vary with and are incurred in connection with the acquisition or renewal of insurance policies, are

deferred and amortized over the period in which the related written premiums are earned. Deferred acquisition costs are

calculated separately for each line of business and are reviewed by line of business at the time of the policy issue and at

the end of each reporting period to ensure they are recoverable based on future estimates.

Payables. All payables are accounted for on the accruals basis.

Obligatory medical insurance. The Government Fund for Obligatory Medical Insurance (FOMI) carries out an

obligatory medical insurance program to provide Russian Federation citizens with free of charge medical services

via certain appointed insurers, including the Group, which has contracted with FOMI to administer a portion of this

program.

The Group receives advances from FOMI and makes payments to medical centers for services provided by these

centers under the FOMI program. Funds received from FOMI by the Group, which are not paid out for medical

services are retained within the Group, and treated as a liability for future medical expenses. The Group does not

assume any insurance risk under this program.

The Group receives a commission for performing this service. These commissions are recognized in profit or loss

within other activity result.

Taxation. Current taxation is provided for in accordance with Russian legislation currently in force. Income tax

comprises current tax and changes in deferred tax. Income tax is recognized in profit or loss except to the extent that

it relates to items of other comprehensive income or transactions with shareholders recognized directly in equity, in

which case it is recognized within other comprehensive income or directly within equity. Current tax is calculated on

the basis of the taxable profit for the period, using the tax rates enacted during the reporting period. Taxes, other than

on income, are recorded within operating expenses.

Deferred income tax is provided, using the balance sheet method, for all temporary differences arising between the tax

basis of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax assets and

liabilities are measured at tax rates that are expected to apply to the period when the asset is realized or the liability is

settled, based on tax rates that have been enacted or substantively enacted as at the reporting date. Deferred tax assets

and liabilities are netted only within the individual companies of the Group, subject to any legal or regulatory

restrictions to such offsetting. A deferred tax asset is recognized only to the extent that it is probable that future taxable

profits will be available against which the temporary differences, unused tax losses and credits can be utilized. Deferred

tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

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Interest income and expenses, other income and expense recognition. Interest income and expense are recorded in

profit or loss for all interest bearing instruments on an accrual basis using the effective interest method. The effective

interest method is a method of calculating the amortized cost of a financial asset or liability and of allocating the

interest income or 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 liability.

When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the

financial instrument but does not consider future credit losses. The calculation includes all fees paid or received

between the parties to the contract that are an integral part of the effective interest rate, transaction costs and all other

premiums or discounts.

Other income is recognized in profit or loss when the related transactions are completed. Operating and other

expenses are generally recorded on an accrual basis when the product is received or the service is provided.

Portfolio and other management advisory and service fees are recorded based on the applicable service contracts.

Commission income. The Group receives commissions for ceding premiums to reinsurers. This type of commission is

recognized in profit or loss within the insurance activity section. Commission income from ceded reinsurance transactions

that represent the recovery of acquisition costs reduces the applicable unamortized acquisition costs in such a manner that

net acquisition costs are capitalized and charged to expenses in proportion to net revenue recognized. Amortization of

deferred commission income on reinsurance outwards is in profit or loss within net acquisition costs.

The Group also provides customers with non-insurance related services, on which the Group does not assume

insurance risk and earns commissions. These commissions are included in profit or loss within other activity result.

Asset management fees related to investment funds are recorded in profit or loss proportionally over the period the

service is provided.

Functional currency. Functional currency for each Group entity is determined as the currency of the primary

economic environment in which the entity operates. The Russian Rouble (RUB) is selected as the functional

currency for the Company and other Group entities domiciled in the Russian Federation. For Group entities

domiciled outside the Russian Federation the currencies of the respective countries in which these entities are

domiciled are selected as their functional currencies.

Foreign currency translation. Transactions in foreign currencies are translated to the functional currency of the

relevant Group entity at the exchange rate at the date of the transaction. Monetary assets and liabilities denominated

in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. The

foreign currency gain or loss on monetary assets or liabilities is the difference between amortized cost in the functional

currency at the beginning of the period, adjusted for interest accrued using the effective interest rate and payments

during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period.

Non-monetary assets and liabilities denominated in foreign currencies, which are stated at historical cost, are translated

to the functional currency at the exchange rate at the date of the transaction

Foreign exchange differences arising on retranslation are recognized in profit or loss, except for differences arising on

the retranslation of available-for-sale equity instruments unless the difference is due to impairment in which case

foreign currency differences that have been recognized in other comprehensive income are reclassified to profit or loss.

Operating leases. Where the Group is the lessee, the total lease payments, including those on expected termination, are

charged by the Group to the profit or loss on a straight-line basis over the period of the lease.

Provisions. Provisions are recorded when the Group has a present legal or constructive obligation as a result of past

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

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

Staff costs and related contributions. The Group contributions to the Russian Federation state pension and social

insurance funds in respect of its employees are expensed as incurred and included into operating expenses and

acquisition costs.

Restructuring. A provision for restructuring is recognized when the Group has approved a detailed and formal

restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating

costs are not provided for.

Reclassifications. With effect from 31 December 2015, the Group presents other provisions charge outside other

activity result in the consolidated statement of profit or loss and other comprehensive income. The Group previously

presented other provisions charge within other expenses from other activity result in the consolidated statement of

profit or loss and other comprehensive income for the year ended 31 December 2014. Other provisions charge

included in other expenses in 2014 amounts to RUB 241 000 thousand.

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New standards and interpretations that will come into effect in the next reporting periods. The following new standards,

amendments to standards and interpretations are not yet effective as at 31 December 2015, and are not applied in preparing

these consolidated financial statements. The Group plans to adopt these pronouncements when they become effective.

IFRS 9 Financial Instruments, published in July 2014, replaces International Financial Reporting Standard

IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines on the

classification and measurement of financial instruments, including a new expected credit loss model for

calculating impairment on financial assets, and the new general hedge accounting requirements. The Group

recognizes that the new standard introduces many changes to accounting for financial instruments and is likely

to have a significant impact on the consolidated financial statements. The Group has not analyzed the impact of

these changes yet. The Group does not intend to adopt this standard early. The standard will be effective for

annual periods beginning on or after 1 January 2018 and will be applied retrospectively with some exemptions.

Various Improvements to IFRS are dealt with on a standard-by-standard basis. All amendments, which result in

accounting changes for presentation, recognition or measurement purposes, will come into effect not earlier than

1 January 2016. The Group has not yet analysed the likely impact of the improvements on its consolidated

financial position or performance.

4. Cash and Cash Equivalents

2015 2014

Cash on hand 1 840 3 508

Correspondent accounts with banks

- Russian Rouble denominated accounts held under GFOMI program 2 484 458 2 468 038

- Russian Rouble denominated accounts other then held under GFOMI program 480 806 1 046 028

- Foreign currencies denominated accounts 997 562 638 782

Total cash and cash equivalents 3 964 666 4 156 356

As at 31 December 2015 and 2014, the concentration of cash and cash equivalents in 3 Russian banks constitutes

96% and 77% of total cash and cash equivalents respectively.

5. Deposits with Banks

2015 2014

Russian Rouble denominated

- Less than 30 days maturity 1 093 049 3 562 667

- More than 30 days maturity 1 200 882 1 732 588

Foreign currencies denominated

- Less than 30 days maturity - 145 068

- More than 30 days maturity 1 878 040 290 116

Total deposits with banks 4 171 971 5 730 439

As at 31 December 2015, the largest five deposits with banks are balances with Russian banks totaling

RUB 2 543 984 thousand or 61 % of total deposits with banks. As at 31 December 2014, the largest five deposits

with banks are balances with Russian banks totaling RUB 4 376 516 thousand or 76% of total deposits with banks.

As at 31 December 2015 and 2014, there are no overdue or impaired balances related to deposits with banks.

As at 31 December 2015, the average effective interest rate on deposits in Russian Rubles is 8.5% p.a. (2014: 17% p.a.),

on deposits in Euro is 0.2% (2014: no such deposits) and on deposits in Ukrainian Hryvna is 13% p.a. (2014: 13% p.a.).

All deposits with banks have fixed interest rates.

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6. Available-for-Sale Financial Instruments

2015 2014

Russian Rouble denominated

- Russian Government bonds 2 281 207 1 499 237

- Corporate bonds 1 087 497 4 100 511

- Municipal bonds 451 012 1 040 658

- Mutual investment funds 159 569 245 914

- Other 1 580 3 389

US dollar denominated

- Russian Corporate and Government Eurobonds 692 669 488 543

Euro denominated

- Russian Corporate and Government Eurobonds 392 851 286 183

Ukrainian Hryvna denominated

- Government bonds - 36

Total available-for-sale financial instruments 5 066 385 7 664 471

In 2015 the Group recognized an impairment loss of RUB 25 057 thousand in respect of mutual investment funds.

In 2014 the Group recognized an impairment loss of RUB 121 889 thousand in respect of mutual investment funds, an

impairment loss of RUB 184 057 thousand in respect of investments in non-state pension fund and an impairment loss

of RUB 2 691 thousand in respect of other investments.

As at 31 December 2015, Russian Rouble denominated corporate bonds have maturity dates ranging from 2016 to 2027

(2014: from 2015 to 2020), coupon rates of 9-11% p.a. (2014: 7-10% p.a.) and a market average effective yield to

maturity of 10% p.a. (2014: 15% p.a.) depending on the type of bond issue.

As at 31 December 2015, Russian Rouble denominated government bonds have maturity dates ranging from 2016 to 2036



As at 31 December 2015, Russian Rouble denominated municipal bonds have maturity dates ranging from 2016 to 2021



As at 31 December 2015, US dollar denominated eurobonds are bonds issued by the Russian government and

Russian companies that have maturity dates ranging from 2017 to 2034 (2014: from 2017 to 2034), coupon rates of

7-9% p.a. (2014: 7-9% p.a.) and a market average effective yield to maturity of 7% p.a. (2014: 8% p.a.) depending

on the type of bond issue.

As at 31 December 2015, Euro denominated eurobonds are bonds issued by the Russian government and Russian

companies that have maturity dates ranging from с 2018 to 2023 (2014: from 2018 to 2023), coupon rates of 4-6%

p.a. (2014: 3-7% p.a.) and a market average effective yield to maturity of 5% p.a. (2014: 8% p.a.) depending on the

type of bond issue.

As at 31 December 2015 and 2014, there are no overdue available-for-sale financial instruments.

All interest-bearing available-for-sale financial instruments have fixed interest rates.

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7. Receivables

2015 2014

Direct insurance operations 1 642 382 3 165 507

Claims ceded 1 349 963 2 307 214

Premiums assumed 162 746 924 072

Other 592 998 244 286

3 748 089 6 641 079

Less: Allowance for impairment (1 093 950) (2 152 414)

Total receivables 2 654 139 4 488 665

Receivables that are past due less than one month but are not impaired amount to RUB 11 498 thousand (2014: RUB 43 076 thousand).

Receivables that are more than one month overdue of RUB 1 849 929 thousand (2014: RUB 1 717 908 thousand) are allocated an impairment allowance of RUB 1 093 950 thousand (2014: RUB 884 650 thousand).

The Group is not subject to significant credit risk on receivables arising out of direct insurance operations as policies are cancelled and the unearned premium reserve relating to the policy is similarly cancelled when there is objective evidence that the policyholder is not willing or able to continue paying policy premiums.

For other categories of receivables and receivables arising out of direct insurance operations, for which the amount of unearned premium reserve relating to the policy is insufficient, the Group estimates impairment allowance based on an analysis of the future cash flows for individually significant impaired receivables, and based on its past loss experience for collectively assessed receivables. Individually significant receivables are reviewed on an individual basis based on external ratings, when available, and other available information. Impairment allowance for collectively assessed receivables are estimated based on the Group’s past historical loss experience, credit quality of recent underwritten business and expected impact of changes in the economic environment.

Movements in the allowance for impairment of receivables are as follows:

2015 2014

Allowance for impairment of receivables as at 1 January 2 152 414 1 052 858

Net (recovery) charge (209 693) 738 392

Write-offs (494 195) (200 014)

Change in receivables amount based on court decision (639 434) -

Effect of foreign currency translation 296 287 569 674

Net recovery allocated to discontinued operations (4 428) (8 496)

Transferred to disposal group (7 001) -

Allowance for impairment of receivables as at 31 December 1 093 950 2 152 414

Information on related party balances is disclosed in note 28.

8. Prepayments

2015 2014

Obligatory medical insurance program (note 9) 9 820 449 5 202 898

Voluntary medical insurance programs 11 973 172 057

Rent and subscription 2 397 2 870

Other 92 061 52 189

Total prepayments 9 926 880 5 430 014

9. Obligatory medical insurance

The Federal Fund for Obligatory Medical Insurance (“TFOMI”), being an insurer, carries out an obligatory medical insurance program to provide Russian Federation citizens with free of charge medical services via TFOMI. The Group contracted with TFOMI to administer portion this program. The Group does not assume any insurance risk under this program.

As at 31 December 2015, the Group made prepayments to medical institutions for purchases of medical equipment and for medical services, that are not yet provided, in total amount of RUB 9 820 449 thousand (2014: RUB 5 202 898 thousand).

In 2015 the Group received funds from TFOMI of RUB 176 762 657 thousand (2014: RUB 153 341 078 thousand) and penalties for violation of service quality from medical institutions of RUB 10 454 218 thousand (2014: RUB 9 874 077 thousand). In 2015 the Group made payments to medical institutions for services provided by these institutions of RUB 175 088 908 thousand (2014: RUB 157 466 145 thousand). Funds received from FOMI by the Group, which are not paid out for medical services are retained within the Group, and treated as a liability for future medical expenses. As at 31 December 2015, Group had liabilities on obligatory medical insurance in total amount of RUB 12 301 623 thousand (2014: RUB 7 667 834 thousand). During 2015 the Group received a commission of RUB 2 435 763 thousand (2014: RUB 2 380 925 thousand) for performing these services (note 22).

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10. Property, Equipment and Intangible Assets

Premises

Office and

computer

equipment

Intangible

assets Total

Cost

Balance as at 1 January 2014 1 711 695 1 255 256 993 606 3 960 557

Reclassification of investment property 80 436 - - 80 436

Additions 254 77 106 112 623 189 983

Disposals (8 724) (165 511) (65 030) (239 265)

Disposals of subsidiary (1 091) (18 975) (41 564) (61 630)

Effect of foreign currency translation - (4 279) (1 557) (5 836)

Balance as at 31 December 2014 1 782 570 1 143 597 998 078 3 924 245

Additions - 39 273 86 245 125 518

Disposals (98 612) (308 481) (28 993) (436 086)

Effect of foreign currency translation - (97) (1 972) (2 069)

Balance as at 31 December 2015 1 683 958 874 292 1 053 358 3 611 608

Accumulated depreciation

Balance as at 1 January 2014 385 766 966 447 686 417 2 038 630

Depreciation and amortization charge 45 811 104 709 150 835 301 355

Disposals (3 522) (141 808) (50) (145 380)

Disposals of subsidiary (357) (16 904) (39 704) (56 965)

Effect of foreign currency translation - (3 297) (592) (3 889)

Balance as at 31 December 2014 427 698 909 147 796 906 2 133 751

Depreciation and amortization charge 42 673 89 760 151 990 284 423

Disposals (16 291) (268 239) (28 993) (313 523)

Effect of foreign currency translation - (2 314) (3 458) (5 772)

Balance as at 31 December 2015 454 080 728 354 916 445 2 098 879

Carrying amount as at 31 December 2014 1 354 872 234 450 201 172 1 790 494

Carrying amount as at 31 December 2015 1 229 878 145 938 136 913 1 512 729

11. Provision for Unearned Premiums

Movements in the provision for unearned premiums in 2015 and 2014 are as follows:

2015

2014

Gross

Reinsurer’s

share Net Gross

Reinsurer’s

share Net

Provision for unearned premiums

as at 1 January 12 336 653 (1 233 129) 11 103 524

17 816 442 (1 310 178) 16 506 264

Change in provision for the year (5 215 871) 101 571 (5 114 300)

(5 497 655) 68 043 (5 429 612)

Provision of unexpired risk 47 495 - 47 495 297 301 - 297 301

Effect of foreign currency translation (49 408) 7 221 (42 187) (34 084) 14 980 (19 104)

Net change in provision allocated to

discontinued operations (73 568) (30 638) (104 206) (245 351) (5 974) (251 325)

Transferred to disposal group (note 30) (1 945 637) 46 420 (1 899 217) - - -

Provision for unearned premiums

as at 31 December 5 099 664 (1 108 555) 3 991 109

12 336 653 (1 233 129) 11 103 524

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12. Loss Provision

Analysis of loss provision as at 31 December 2015 and 2014 is as follows:

2015 2014

Outstanding claims

provision and IBNR

Loss adjustment

expense reserve

Future polices

benefits reserve Total

Outstanding claims

provision and IBNR

Loss adjustment

expense reserve

Future polices


Gross loss provision 10 225 807 991 143 286 255 11 503 205 11 701 384 1 693 779 239 982 13 635 145

Reinsurers' share of loss provision (4 929 948) (95 190) - (5 025 138) (3 420 793) (258 353) - (3 679 146)

5 295 859 895 953 286 255 6 478 067 8 280 591 1 435 426 239 982 9 955 999

Included in disposal group (note 30):

Gross loss provision 556 522 27 826 - 584 348 - - - -

Reinsurers' share of loss provision (17 417) (871) - (18 288) - - - -

Loss provision, net of reinsurance 5 834 964 922 908 286 255 7 044 127 8 280 591 1 435 426 239 982 9 955 999

As at 31 December 2015, the largest three occurred claims reserves ceded to reinsurance excluding parent company

and its subsidiaries amounted to RUB 657 606 thousand or 13% of total occurred claims reserves ceded to

reinsurance. As at 31 December 2014, the largest three occurred claims reserves ceded to reinsurance excluding

parent company and subsidiaries amounted to RUB 811 194 thousand or 22% of total occurred claims reserves

ceded to reinsurance.

Movements in the loss provision during 2015 and 2014 are as follows:

2015 2014

Outstanding claims

provision and IBNR

Loss adjustment

expense reserve

Future polices


Outstanding claims

provision and IBNR

Loss adjustment

expense reserve

Future polices


Loss provision, net of reinsurance, as at 1 January 8 280 591 1 435 426 239 982 9 955 999 5 865 045 721 268 139 551 6 725 864

(Decrease) increase in provision, gross (1 042 149) (672 415) (20 614) (1 735 178) 3 431 119 865 501 143 4 296 763

Decrease (increase) in reinsurer’s share in provision (1 443 203) 163 163 - (1 280 040) (1 245 627) (152 959) - (1 398 586)

Effect of foreign currency translation 92 147 - 66 887 159 034 201 012 - 100 288 301 300

Net change in provision allocated to discontinued operations (52 422) (3 266) - (55 688) 29 042 1 616 - 30 658

Transferred to disposal group (note 30) (539 105) (26 955) - (566 060) - - - -

Loss provision, net of reinsurance, as at 31 December 5 295 859 895 953 286 255 6 478 067 8 280 591 1 435 426 239 982 9 955 999

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Assumptions and sensitivities used in estimating the loss provision

Process used to determine the assumptions. The assumptions used in the estimation of insurance assets and

liabilities are intended to result in provisions which are sufficient to cover any liabilities arising out of insurance

contracts so far as can reasonably be foreseen. However, given the uncertainty in establishing a provision for

outstanding claims, it is likely that the final outcome will prove to be different from the original liability established.

Provision at the reporting date represents the expected ultimate cost of settlement of all claims incurred in respect of

events up to that date, whether reported or not, together with related external claims handling expenses, less amounts

already paid. The loss provision is not discounted for the time value of money.

In calculating the estimated cost of unpaid claims (both reported or not), the Group estimation techniques are a

combination of loss-ratio-based estimates (where the loss ratio is defined as the ratio between the ultimate cost of

insurance claims and premiums earned in a particular reporting year in relation of such claims) and an estimate

based upon actual claims experience using predetermined formulae where greater weight is given to actual claims

experience as time passes.

The estimation of IBNR is generally subject to a greater degree of uncertainty than the estimation of the cost of

settling claims already notified to Group, where information about the claim event is available. IBNR claims may

not be apparent to the insured until many years after the event that gave rise to the claims has happened.

In estimating the loss provision the Group considers any information available from loss adjusters and information

on the cost of settling claims with similar characteristics in previous periods. Large claims are assessed on a case-

by-case basis or projected separately in order to allow for the possible distortive effect of their development and

incidence on the rest of the portfolio.

Where possible, the Group adopts multiple techniques to estimate the required level of provisions. This provides a

greater understanding of the trends inherent in the experience being projected. The projections given by the various

methodologies also assist in estimating the range of possible outcomes. The most appropriate estimation technique is

selected taking into account the characteristics of the business class and the extent of the development of each

accident year.

Assumptions. The initial loss-ratio estimate is the assumption that has the greatest effect on the measurement of the

loss reserves. The initial loss-ratio estimate is based on previous years’ experience, adjusted for factors such as

premium rate change, anticipated market experience and historical claims inflation. In addition, when determining

the loss provision, the projection of future cash flows includes estimated values of parameters that can affect the

amount of an individual claim (e.g. frequency of claims, risks connected with the insurance contract – death as a

result of an accident, persistent effects, recovery time, time between date of occurrence of the insured event and the

settlement date).

Sensitivity analysis. Management believes that, due to short-tailed nature of the Group’s business, the performance

of the Group’s portfolio is sensitive mainly to changes in expected loss ratios. The Group adjusts its insurance tariffs

on a regular basis based on the latest developments in these variables so that any emerging trends are taken into

account. However, the sensitivity of certain assumptions, such as legislative change, is not possible to quantify.

Furthermore because of delays that arise between the occurrence of a claim and its subsequent notification and

eventual settlement, the claims provisions are based on estimates.

Consequently the ultimate liability will vary as a result of subsequent developments. Differences resulting from

reassessment of the ultimate liabilities are recognized in the period when reassessment is made.

The table below indicates the effect of changes in the expected loss ratios of certain lines of business (auto-transport

insurance and voluntary medical insurance) related to the period of claim, which conforms with the related reporting

period, to the profit and loss before tax and equity before reinsurance. Listed lines of business are more sensitive to

changes in loss provision assumptions than others. Reinsurance does not significantly affect profit and loss.

2015 2014

Impact on profit

or loss before tax

Impact on

equity

Impact on profit

or loss before tax

Impact on

equity

Autotransport insurance

10% increase in claim development factors (765 359) (612 287) (1 777 958) (1 422 366)

10% decrease in claim development factors 586 890 469 512 1 941 148 1 552 919

Voluntary medical insurance

10% increase in claim development factors (120 678) (96 542) (186 268) (149 014)

10% decrease in claim development factors 120 678 96 542 71 963 57 570

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13. Claims Development Analysis

The claims development analysis is provided for the lines of business for which uncertainty about the amount and

timing of claims payments is typically resolved within more than one year, except for motor own damage insurance

included in Autotransport in the table below for which uncertainty about the amount and timing of claims payments

is typically resolved within one year. The estimate of claims at the end of a particular underwriting year does not

include claims filed and paid during the year. Other lines of business do not include Voluntary medical insurance,

Travel insurance and Green card insurance.

Autotransport

Year of claim 2011 2012 2013 2014 2015 Total

Estimate of cumulative claims:

At end of underwriting year 1 199 350 1 640 845 3 429 581 4 588 065 771 931 771 931

One year later 1 425 230 1 949 992 4 867 077 4 004 189 - 4 004 189

Two years later 1 453 623 2 154 976 4 753 809 - - 4 753 809

Three years later 1 404 359 2 095 039 - - - 2 095 039

Four years later 1 401 277 - - - - 1 401 277

Estimate of cumulative claims 1 401 277 2 095 039 4 753 809 4 004 189 771 931 13 026 245

Cumulative payments (1 419 519) (2 103 543) (4 462 436) (2 967 240) - (10 952 738)

Provision for claims incurred before 2011 - - - - - 22 139

Total provision for outstanding claims (18 242) (8 504) 291 373 1 036 949 771 931 2 095 646

Property



At end of underwriting year 1 010 848 529 815 623 110 2 667 075 721 435 721 435

One year later 887 080 553 873 324 459 3 464 331 - 3 464 331

Two years later 636 066 568 635 370 482 - - 370 482

Three years later 909 784 411 649 - - - 411 649

Four years later 921 062 - - - - 921 062

Estimate of cumulative claims 921 062 411 649 370 482 3 464 331 721 435 5 888 959

Cumulative payments (696 244) (376 088) (303 234) (727 953) - (2 103 519)


Total provision for outstanding claims 224 818 35 561 67 248 2 736 378 721 435 3 823 679

Other



At end of underwriting year 387 267 424 036 921 128 1 061 730 1 346 876 1 346 876

One year later 231 560 535 400 1 169 967 2 911 083 - 2 911 083

Two years later 249 371 568 700 1 231 409 - - 1 231 409

Three years later 299 858 643 438 - - - 643 438

Four years later 386 230 - - - - 386 230

Estimate of cumulative claims 386 230 643 438 1 231 409 2 911 083 1 346 876 6 519 036

Cumulative payments (381 969) (455 101) (817 432) (1 644 835) - (3 299 337)


Total provision for outstanding claims 4 261 188 337 413 977 1 266 248 1 346 876 3 345 186

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14. Payables

2015 2014

Premiums ceded 1 869 714 2 349 255

Insurance premiums received in advance 970 873 549 668

Payroll and social funds 846 261 470 058

Commissions payable to agents 403 429 407 513

Taxation 53 692 39 072

Payables arising out of claims assumed 21 460 17 736

Other payables 143 290 236 512

Total payables 4 308 719 4 069 814

Information on related party balances is disclosed in note 28.

15. Other liabilities

2015 2014

Provision for guarantees and letters of credit issued 671 486 241 000

Accrued penalties 146 453 50 122

Provision for court expenses 20 458 22 607

Other 47 186 22 942

Total other liabilities 885 583 336 671

Change in provision for guarantees and letters of credit issued for 2015 in the amount of RUB 430 486 thousand is

recognized as other provisions charge (2014: RUB 241 000 thousand).

16. Share Capital and Additional paid-in Capital

As at 31 December 2015 and 2014, authorised, issued and outstanding share capital of the Company

comprises 146 530 499 ordinary shares. All shares have a nominal value of RUB 40, rank equally and carry one vote

per share at annual and extraordinary general meetings of the Company’s shareholders.

As at 31 December 2015 and 2014, share capital recognized in the financial statement prepared under Russian statutory

requirements is RUB 5 861 220 thousand. The difference in the accounting for Russian statutory purposes and IFRS

results from the application of IAS 29 Financial Reporting in Hyperinflationary Economies under which

contributions to share capital, made prior to 1 January 2003 have been increased by the amount of RUB 1 180 074

thousand to account for changes in the general purchasing power of the RUB.

In 2015 the Company received financial aid of RUB 1 231 322 thousand (2014: RUB 4 354 389 thousand) from

Allianz SE and returned financial aid of RUB 413 182 thousand to Allianz SE (2014: nil) presented in these

consolidated financial statements as increase of additional paid-in capital.

No dividends were declared or paid during 2015 and 2014.

Allianz



27

17. Income and Expenses Analysis by Type of Business

Analysis of income and expense by type of business for 2015 is as follows:

Russia Ukraine Total

INSURANCE

Gross premiums written 6 281 359 289 962 6 571 321

Premiums ceded (3 517 277) (208 792) (3 726 069)

Net premiums written 2 764 082 81 170 2 845 252

Change in provision for unearned premiums, net 4 935 186 131 619 5 066 805

Net premiums earned 7 699 268 212 789 7 912 057

Gross claims paid (8 586 980) (176 034) (8 763 014)

Claims ceded 2 767 821 49 497 2 817 318

Net claims paid (5 819 159) (126 537) (5 945 696)

Claims handling expenses (1 796 437) (29 014) (1 825 451)

Change in loss provision, net 2 979 702 35 516 3 015 218

Net claims incurred (4 635 894) (120 035) (4 755 929)

Acquisition costs (3 333 191) (63 354) (3 396 545)

Insurance operating expenses (1 373 634) (66 918) (1 440 552)

Change in allowance for impairment of insurance receivables 209 854 (161) 209 693

Insurance activity result (1 433 597) (37 679) (1 471 276)

INVESTMENT

Interest income 842 736 42 966 885 702

Net realized loss arising from investment securities available-for-sale (158 405) - (158 405)

Impairment of available-for-sale financial instruments (25 057) - (25 057)

Other investment income 507 - 507

Investment operating expenses (28 808) (955) (29 763)

Investment activity result 630 973 42 011 672 984

OTHER

Other commission income 2 435 763 - 2 435 763

Other operating expenses (2 267 123) (4 789) (2 271 912)

Net foreign exchange income 276 511 2 518 279 029

Other income 233 990 9 465 243 455

Other activity result 679 141 7 194 686 335

Loss before other provisions charge and tax (123 483) 11 526 (111 957)

Other provisions charge (430 486) - (430 486)

Loss before tax from continued operations (553 969) 11 526 (542 443)

Income tax expense (180 453) (9 733) (190 186)

Loss for the year from continued operations (734 422) 1 793 (732 629)

Profit for the year from discontinued operations 29 759 - 29 759

Loss for the year (704 663) 1 793 (702 870)

Allianz



28

Analysis of income and expense by type of business for 2014 is as follows:

Russia

Asset

Management Ukraine Intergroup Total

INSURANCE

Gross premiums written 18 081 555 - 658 817 - 18 740 372

Premiums ceded (4 282 692) - (190 210) - (4 472 902)

Net premiums written 13 798 863 - 468 607 - 14 267 470

Change in provision for unearned premiums, net 5 163 516 - (31 205) - 5 132 311

Net premiums earned 18 962 379 - 437 402 - 19 399 781

Gross claims paid (15 120 779) - (249 455) - (15 370 234)

Claims ceded 1 716 751 - 40 185 - 1 756 936

Net claims paid (13 404 028) - (209 270) - (13 613 298)

Claims handling expenses (2 792 282) - (37 271) - (2 829 553)

Change in loss provision, net (2 871 372) - (26 805) - (2 898 177)

Net claims incurred (19 067 682) - (273 346) - (19 341 028)

Acquisition costs (7 209 517) - (128 615) - (7 338 132)

Insurance operating expenses (1 404 984) - (117 242) (12 508) (1 534 734)

Change in allowance for impairment of insurance receivables (755 885) - 2 075 15 418 (738 392)

Other insurance income 4 021 - - - 4 021

Insurance activity result (9 471 668) - (79 726) 2 910 (9 548 484)

INVESTMENT

Interest income 986 043 12 931 63 207 - 1 062 181

Net realized loss arising from investment securities

available-for-sale (62 999) (2 452) 1 148 - (64 303)

Impairment of investments in associated undertakings (9 903) - - - (9 903)

Impairment of available-for-sale financial instruments (308 637) - - - (308 637)

Other investment income 10 726 3 - - 10 729

Investment operating expenses (43 083) (212 029) (1 005) 55 323 (200 794)

Investment activity result 572 147 (201 547) 63 350 55 323 489 273

OTHER

Other commission income 2 380 925 102 949 - (42 815) 2 441 059

Other operating expenses (2 101 135) - (3 067) - (2 104 202)

Net foreign exchange expenses (208 655) (260) (27 872) - (236 787)

Disposal of subsidiary - (97 122) - - (97 122)

Other income 216 738 2 19 253 (15 418) 220 575

Other expenses (2 698) - - - (2 698)

Other activity result 285 175 5 569 (11 686) (58 233) 220 825

Loss before other provisions charge and tax (8 614 346) (195 978) (28 062) - (8 838 386)

Other provisions charge (241 000) - - - (241 000)

Loss before tax from continued operations (8 855 346) (195 978) (28 062) - (9 079 386)

Income tax expense (460 014) 15 959 (19 091) - (463 146)

Loss for the year from continued operations (9 315 360) (180 019) (47 153) - (9 542 532)

Profit for the year from discontinued operations 351 315 - - - 351 315

Loss for the year (8 964 045) (180 019) (47 153) - (9 191 217)

Allianz



29

18. Analysis of Premiums and Claims by Lines of Business and Analysis of Operating Profit

An analysis of premiums and claims by line of business for 2015 is provided in the following table (including

discontinued operations):

Property insurance Finance

Personal accident

Auto-transport insurance

Voluntary medical

insurance Other

insurance Total

Gross premiums written 2 941 200 464 610 410 371 354 814 7 976 126 1 360 177 13 507 298

Premiums ceded (2 148 427) (383 741) (171 171) (45 958) (2 711 701) (907 738) (6 368 736)

Net premiums written 792 773 80 869 239 200 308 856 5 264 425 452 439 7 138 562

Change in provision for unearned premiums, net 515 726 338 386 1 675 253 2 542 499 49 932 49 215 5 171 011

Net premiums earned 1 308 499 419 255 1 914 453 2 851 355 5 314 357 501 654 12 309 573

Gross claims paid (1 709 843) (1 252 662) (534 474) (4 403 064) (6 012 151) (92 380) (14 004 574)

Claims ceded 1 363 255 1 221 241 38 229 25 279 1 675 991 147 800 4 471 795

Net claims paid (346 588) (31 421) (496 245) (4 377 785) (4 336 160) 55 420 (9 532 779)

Claims handling expenses (160 544) (151 377) (35 952) (1 365 932) (334 863) (33 964) (2 082 632)

Change in loss provision, net 54 061 (363 148) (155 959) 3 705 485 78 200 (247 733) 3 070 906

Net claims incurred (453 071) (545 946) (688 156) (2 038 232) (4 592 823) (226 277) (8 544 505)

Net underwriting result 855 428 (126 691) 1 226 297 813 123 721 534 275 377 3 765 068

An analysis of premiums and claims by line of business for 2014 is provided in the following table (including

discontinued operations):

Property insurance Finance

Personal accident

Auto-transport insurance

Voluntary medical

insurance Other

insurance Total

Gross premiums written 3 986 712 1 315 177 2 469 576 8 024 012 8 724 711 1 531 017 26 051 205

Premiums ceded (2 407 914) (973 042) (198 690) (153 429) (272 766) (684 364) (4 690 205)

Net premiums written 1 578 798 342 135 2 270 886 7 870 583 8 451 945 846 653 21 361 000

Change in provision for unearned premiums, net 397 685 192 225 369 091 4 115 584 337 830 (28 779) 5 383 636

Net premiums earned 1 976 483 534 360 2 639 977 11 986 167 8 789 775 817 874 26 744 636

Gross claims paid (1 491 428) (749 460) (701 184) (11 447 822) (6 279 666) (158 454) (20 828 014)

Claims ceded 1 060 818 462 990 121 712 45 369 123 705 71 572 1 886 166

Net claims paid (430 610) (286 470) (579 472) (11 402 453) (6 155 961) (86 882) (18 941 848)

Claims handling expenses (113 002) (43 684) (65 745) (2 486 950) (307 784) (21 800) (3 038 965)

Change in loss provision, net (43 646) 9 826 (348 471) (2 526 598) 73 846 (93 792) (2 928 835)

Net claims incurred (587 258) (320 328) (993 688) (16 416 001) (6 389 899) (202 474) (24 909 648)

Net underwriting result 1 389 225 214 032 1 646 289 (4 429 834) 2 399 876 615 400 1 834 988

Management analyses the consolidated financial result in terms of Operational profit, which is calculated as follows:

2015 2014

Loss for the year (702 870) (9 191 217)

Less expenses excluded from calculation of Operational profit:

Income tax expense from continuing operations 190 186 463 146

Income tax expense from discontinued operations 7 440 87 170

Other provisions charge 430 486 241 000

Disposal of subsidiary - 97 122

Net realized loss arising from investment securities available-for-sale from continuing operations 158 405 64 303

Net realized loss arising from investment securities available-for-sale from discontinued operations 29 876 7 933

Impairment of investments in associated undertakings - 9 903

Impairment of available-for-sale financial instruments 25 057 308 637

Operational profit 138 580 (7 912 003)

Allianz



30

In accordance with the new strategy adopted in 2014, the Group stopped writing retail insurance business, such as

auto-transport and other private property and liability insurance, and focused on corporate insurance business, such

as property, medical and casualty insurance and reinsurance.

In November 2015, the management committed to a plan to sell voluntary medical insurance business of the

Company to Allianz Life Insurance Company, Ltd., an entity under common shareholders control, following a

strategic decision to place greater focus on the Group’s key competencies (note 30).

A reconciliation of premiums and claims from continued and discontinued operations is provided below:

2015 2014

Continued

operations

Discontinued

operations

(note 30) Total

Continued

operations

Discontinued

operations

(note 30) Total

Gross premiums written 6 571 321 6 935 977 13 507 298 18 740 372 7 310 833 26 051 205

Premiums ceded (3 726 069) (2 642 667) (6 368 736) (4 472 902) (217 303) (4 690 205)

Net premiums written 2 845 252 4 293 310 7 138 562 14 267 470 7 093 530 21 361 000

Change in provision for unearned

premiums, net 5 066 805 104 206 5 171 011

5 132 311 251 325 5 383 636

Net premiums earned 7 912 057 4 397 516 12 309 573 19 399 781 7 344 855 26 744 636

Gross claims paid (8 763 014) (5 241 560) (14 004 574) (15 370 234) (5 457 780) (20 828 014)

Claims ceded 2 817 318 1 654 477 4 471 795 1 756 936 129 230 1 886 166

Net claims paid (5 945 696) (3 587 083) (9 532 779) (13 613 298) (5 328 550) (18 941 848)

Claims handling expenses (1 825 451) (257 181) (2 082 632) (2 829 553) (209 412) (3 038 965)

Change in loss provision, net 3 015 218 55 688 3 070 906 (2 898 177) (30 658) (2 928 835)

Net claims incurred (4 755 929) (3 788 576) (8 544 505) (19 341 028) (5 568 620) (24 909 648)

19. Interest income

2015 2014

Available-for-sale financial instruments 529 213 815 949

Deposits with banks 329 218 217 306

Cash and cash equivalents 26 308 24 363

Promissory notes and originated loans 963 4 563

Total interest income 885 702 1 062 181

Allianz



31

20. Acquisition Costs

Acquisition costs comprise the following:

2015 2014

Deferrable costs

Brokerage and agents commission 797 137 4 197 930

Salary costs 400 713 1 016 397

Social security and related employee costs 146 712 440 033

Other 12 907 105 602

Total deferrable costs 1 357 469 5 759 962

Non-deferrable costs Salary costs and social security 435 649 772 567

Rent 55 593 316 691

Administration expenses 53 551 359 819

Advertising and marketing 14 338 30 502

Communication expenses 10 820 27 884

Business trip expenses 5 272 9 006

Consulting and legal service fees 3 430 6 093

Transport 3 402 11 188

Depreciation 1 031 14 014

Other 51 594 59 576

Total non-deferrable costs 634 680 1 607 340

Total acquisition costs 1 992 149 7 367 302

Less: Commission income on reinsurance ceded (526 423) (616 055)

Net change in deferred acquisition costs 1 930 819 586 885

Acquisition costs 3 396 545 7 338 132

Changes in deferred acquisition costs during 2015 and 2014 are presented below:

2015 2014

Deferred acquisition costs as at 1 January 4 142 391 4 795 918

Change in deferred acquisition costs (1 923 949) (1 219 775)

Change in deferred acquisition costs related to deferred commission income on reinsurance outwards 20 924 (46 931)

Provision for unexpired risks (27 794) 679 821

Net change in deferred acquisition costs (1 930 819) (586 885)

Net change in deferred acquisition costs allocated to discontinued operations (note 30) (12 008) (61 691)

Transferred to disposal group (note 30) (141 417) -

Effect of foreign currency translation (13 903) (4 951)

Deferred acquisition costs as at 31 December 2 044 244 4 142 391

Allianz



32

21. Operating Expenses

Insurance operating expenses comprise the following:

2015 2014

Salary costs and bonuses 538 431 442 822

Information and consulting 255 724 197 213

Depreciation 232 650 239 122



Communications 46 803 64 142

Rent 40 358 33 448

Transport 18 783 18 109

Bank fees 15 631 28 954

Repair 11 608 9 485


Business trip expenses 8 323 11 346

Legal service fees 1 559 2 797

Other expenses 9 256 68 473

Total insurance operating expenses 1 440 552 1 534 734

Investment operating expenses comprise the following:

2015 2014



Salary costs and bonuses 3 616 122 900

Social security and related employee costs 904 20 229

Business trip expenses 12 555

Depreciation and amortization - 5 884

Advertising and marketing - 1 975

Rent - 1 501

Communications - 982

Other 2 307 12 139

Total investment operating expenses 29 763 200 794

Investment operating expenses for 2014 primarily comprised operating expenses of Allianz Investments, a former

subsidiary of the Group and a provider of asset management and trustee services. In 2014, the Group recognized

commission income from asset management services of RUB 60 134 thousand (note 22). On 19 December 2014, the

Group disposed of its investment in Allianz Investments.

Other operating expenses comprise the following:

2015 2014

Salary costs and bonuses 1 146 523 1 065 804




Rent 155 886 147 420

Depreciation and amortization 50 742 42 335


Communications 30 696 23 259

Low value items and materials 30 075 21 436

Transport 28 094 24 729

Other 56 194 51 718

Total other operating expenses 2 271 912 2 104 202

Other operating expenses are primarily associated with administration of obligatory medical insurance program (note 9).

Allianz



33

22. Other Commission Income

2015 2014

Obligatory medical insurance (note 9) 2 435 763 2 380 925

Asset management - 60 134

Total other commission income 2 435 763 2 441 059

23. Income Tax

Income tax expense is comprised of the following:

2015 2014

Current tax charge 160 227 143 261

Deferred taxation movement due to origination and reversal of temporary differences 29 959 319 885

Total income tax expense 190 186 463 146

In 2015 and 2014 income tax rate applicable to the majority of the income of the Company and its subsidiaries is

20%. In accordance with the Ukrainian Law the subsidiary in Ukraine is taxed on net premiums written at 3%, other

operations - at 19% and premiums ceded to non-residential reinsurers with no rating – at 12%.

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

2015 2014

Loss before tax from continued operations (542 443) (9 079 386)

Loss before tax from discontinued operations 37 199 438 485

Loss before tax (505 244) (8 640 901)

Theoretical tax benefit at the applicable statutory rate of 20% 101 049 1 728 180

Tax effect of items which are not deductible or assessable for taxation purposes:

- Non-deductible expenses (518 492) (729 537)

- Income on government securities taxed at different rates 7 432 18 965

- Overprovided in prior years 9 000 36 439

- Income taxed at different rate (9 733) (24 428)

- Income exempt from taxation 36 003 45 219

- Other - (2 001)

Change in unrecognized deferred tax asset 177 115 (1 623 153)

Income tax expense allocated to discontinued operations (note 30) 7 440 87 170

Total income tax (expense) benefit (190 186) (463 146)

Allianz



34

Differences between IFRS and statutory taxation regulations give rise to certain temporary differences between the

carrying amount of certain assets and liabilities for financial reporting purposes and for profits tax purposes. In 2015

and 2014 the tax effect of the movement on these temporary differences is recorded at the rate of 20%, except for

income on government and municipal securities that is taxed at 9-15%.

In the context of the Group’s current structure, tax losses and current tax assets of different companies may not be

offset against current tax liabilities and taxable profits of other companies and, accordingly, taxes may accrue even

where there is a net consolidated tax loss. Therefore, a deferred tax asset of one company of the Group may not be

offset against a deferred tax liability of another company.

The net deferred tax asset represents income taxes recoverable through future revenues and is recorded as an asset.

A deferred tax asset is recorded for tax loss carry forwards only to the extent that realization of the related tax

benefit is probable.

As at 31 December 2015, cumulative deferred tax assets that have not been recognised total RUB 1 608 533 thousand

(2014: RUB 1 785 648 thousand), including unrecognized cumulative tax loss carry forwards totaling RUB 1 367 084

thousands expiring in 2023-2025 (2014: RUB 1 353 734 thousand, expiring in 2023-2024). Deferred tax assets have

not been recognised because it is not probable that future taxable profit will be available against which the Group can

utilise the benefits therefrom.

As at

1 January

2014

Recognized

in profit

or loss

Disposal of

subsidiaries

Recognized

in other

compre-

hensive

income

As at

31 December

2014

Recognized

in profit

or loss

Recognized

in other

compre-

hensive

income

As at

31 December

2015

Tax effect of deductible

temporary differences

Receivables, prepayments

and payables 712 984 (176 635) - - 536 349 (413 409) - 122 940

Financial instruments - 29 697 - 296 642 326 339 (74 310) (252 029) -

Loss reserves 292 663 423 697 - - 716 360 34 088 - 750 448

Other 99 188 193 424 (73 439) - 219 173 42 240 - 261 413

Gross deferred tax

asset before tax loss

carried forward 1 104 835 470 183 (73 439) 296 642 1 798 221 (411 391) (252 029) 1 134 801

Tax loss carry forwards 601 448 (601 448) - - - - - -

Gross deferred tax

asset 1 706 283 (131 265) (73 439) 296 642 1 798 221 (411 391) (252 029) 1 134 801

Tax effect of taxable

temporary differences

Deferred acquisition costs (947 187) 132 539 - - (814 648) 378 351 - (436 297)

Provision for unearned

premiums (54 353) (313 815) - - (368 168) 31 529 - (336 639)

Financial instruments 10 556 (10 556) - - - (85 919) - (85 919)

Property and equipment (216 036) 3 212 - - (212 824) 57 471 - (155 353)

Gross deferred tax

liability (1 207 020) (188 620) - - (1 395 640) 381 432 - (1 014 208)

Net deferred tax asset

(liability) 499 263 (319 885) (73 439) 296 642 402 581 (29 959) (252 029) 120 593

Comprising of:

Deferred tax asset 499 263 (23 243) (73 439) - 402 581 (29 959) (252 029) 120 593

Deferred tax liability - (296 642) - 296 642 - - - -

Allianz



35

24. Risk Management and Internal Controls

Insurance risk

The primary insurance activity carried out by the Group assumes the risk of loss from individuals or organizations that are directly subject to the risk. As such the Group is exposed to the uncertainty surrounding the timing and severity of claims under the insurance contract. Such risks relate to:

Auto-transport insurance which includes fully comprehensive motor insurance (Casco), obligatory motor third party liability insurance (OMTPL) and voluntary motor third party liability insurance (VMTPL). Under Casco contracts, corporate entities and individuals are reimbursed for any loss of, or damage caused to their vehicles. MTPL contracts provide indemnity cover to the owner of the motor vehicle against compensation payable to third parties for property damage, death or personal injury.

Voluntary medical insurance under which the Group pays benefits to policyholders for medical treatment and hospital expenses. The portfolio consists predominantly of collective corporate policies.

Property insurance comprises both private property insurance and industrial property insurance and indemnifies the policyholder, subject to any limits or excesses, against the loss or damage to their own tangible property.

Finance insurance under which the Group indemnifies policyholders for losses resulting from business interruption insured events and agricultural losses (e.g. loss of crops).

The Group also provides coverage for life insurance, inwards reinsurance, cargo, marine, liability and a number of other lines of business under which the Group indemnifies the policyholders for the risk of losses.

In accordance with the new strategy adopted in 2014, the Group stopped writing retail insurance business, such as auto-transport and other private property and liability insurance, and focused on corporate insurance business, such as medical, property and casualty insurance and reinsurance. The insurance license in obligatory motor third party liability insurance was restricted in 2015 and until 15 January 2016.

In November 2015, the management committed to a plan to sell voluntary medical insurance business of the Company to Allianz Life Insurance Company, Ltd., an entity under common shareholders control, following a strategic decision to place greater focus on the Group’s key competencies (note 30).

The Group cedes insurance risk to limit exposure to underwriting losses under various agreements that cover individual and portfolio risks. These reinsurance agreements spread the risk and reduce the effect of losses. The amount of each risk retained depends on the Group’s evaluation of the specific risk.

Under the terms of the reinsurance agreements, the reinsurer agrees to reimburse the ceded amount in the event the claim is incurred. However, the Group remains liable to its policyholders with respect to ceded insurance if any reinsurer fails to meet the obligations it assumes.

When selecting a reinsurer the Group considers their relative creditworthiness. The creditworthiness of the reinsurer is assessed from public rating information and from internal investigations.

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable.

For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number of amount of claims and benefits will vary from year to year from the estimate established using statistical techniques.

Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Group has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome.

Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered.

The Group manages these risks through its underwriting strategy, adequate reinsurance arrangements and proactive claims handling. The underwriting strategy attempts to ensure that the underwritten risks are well diversified in terms of type and amount of risk, industry and geography. Underwriting limits are in place to enforce appropriate risk selection criteria. The Group has the right to re-price the risk or renewal. It also has the ability to impose deductibles and reject fraudulent claims.

The reinsurance arrangements include excess and catastrophe coverage. The Group has a group-wide retention limit. In addition, under the Group reinsurance program, individual business units are permitted to purchase additional reinsurance protection.

Allianz



36

Financial risk

The financial risk management function within the Group is carried out in respect of credit, market (which includes

foreign exchange, interest rate and equity price risks), currency and liquidity risks. The primary objectives of the financial

risk management function are to establish risk limits, and then ensure that exposure to risks stays within these limits.

The Board of Directors of the Group has overall responsibility for the oversight of the risk management framework,

monitoring the management of key risks and reviewing the Group’s risk management policies and procedures as

well as approving significant large exposures.

The day to day financial risk management function is carried out primarily by the Risk Management department and

Treasury, heads of both departments report directly to the Chief Financial Officer.

The Group manages open positions in financial risk within an investment framework that has been developed to

achieve long-term investment returns in excess of the Group obligations under insurance and investment contracts.

The principal technique of the investment framework is to match assets to the liabilities arising from insurance and

investment contracts by reference to the type of benefits payable to contract holders. For each distinct category of

liabilities, a separate portfolio of assets is maintained. The Group’s investment framework is integrated with the

management of financial risks associated with the other financial assets and liabilities not directly associated with

insurance and investment liabilities (in particular borrowings and investments in foreign operations).

Additional financial risk mitigation is imposed by Russian legislation (Ukazanie of Central Bank of Russian Federation

№3445-u detailing requirements for types and structure of assets which are admitted for coverage of insurer’s equity).

The Treasury makes the balance sheet forecast for the Group on a quarterly basis to ensure compliance with

legislative requirements.

Credit risk

The Group takes on exposure to credit risk which is the risk that counterparty will be unable to pay amounts in full

when due. The major credit risk exposure is through settlement accounts and deposits with banks, promissory notes

and originated loans and available-for-sale financial instruments which form the majority of investment portfolio.

Credit risk management procedures are primarily focused on setting counterparty limits and monitoring of

compliance with these limits.

Group counterparty credit limits are updated by the Risk Management department and approved by the Investment

Committee on a monthly basis. The internal methodology for setting of limits is based on analysis of counterparties’

official financial reports and certain non-financial information.

Monitoring of compliance with existing credit limits is performed by the Risk Management department on a

monthly basis.

The Group structures its credit risks by placing limits on the amount of risk accepted from individual counterparties

and types of debt instrument.

The Group’s maximum exposure to credit risk is presented in the following table. The impact of possible netting of

assets and liabilities to reduce potential credit exposure is not significant.

2015 2014

Cash and cash equivalents - correspondent accounts with banks 3 962 826 4 152 848

Deposits with banks 4 171 971 5 730 439

Promissory notes and originated loans 5 735 15 137

Available-for-sale financial instruments 5 066 385 7 664 471

Receivables 2 654 139 4 488 665

Reinsurers' share of loss provision 5 025 138 3 679 146

Total maximum exposure to credit risk 20 886 194 25 730 706

As at 31 December 2015, the maximum exposure to credit risk from unrecognized contractual commitments

(guarantee issued to MTS Bank and other financial liabilities) is RUB 430 486 thousand (2014: RUB 241 000 thousand).

Allianz



37

The following table details geographical concentration of credit risk as at 31 December 2015. Included in

Commonwealth of Independent States (CIS) countries are primarily balances of the Ukrainian subsidiary.

Russian

Federation Europe CIS

Other

countries Total

Cash and cash equivalents - correspondent

accounts with banks 3 958 626 - 4 200 - 3 962 826

Deposits with banks 2 293 933 1 593 984 284 054 - 4 171 971

Promissory notes and originated loans 5 735 - - - 5 735

Available-for-sale financial instruments 5 066 385 - - - 5 066 385

Receivables 1 950 517 317 923 14 166 371 533 2 654 139

Reinsurers' share of loss provision 127 376 4 582 108 - 315 654 5 025 138

Total maximum exposure to credit risk 13 402 572 6 494 015 302 420 687 187 20 886 194

The following table details geographical concentration of credit risk as at 31 December 2014:

Russian

Federation Europe CIS

Other

countries Total

Cash and cash equivalents - correspondent

accounts with banks 4 129 255 - 23 593 - 4 152 848

Deposits with banks 5 295 255 - 435 184 - 5 730 439


Available-for-sale financial instruments 7 664 435 - 36 - 7 664 471

Receivables 3 786 517 533 468 115 767 52 913 4 488 665

Reinsurers' share of loss provision 48 050 3 502 943 - 128 153 3 679 146

Total maximum exposure to credit risk 20 938 649 4 036 411 574 580 181 066 25 730 706

Financial assets that are neither past due nor impaired are graded according to the current international credit rating

they have been awarded by an internationally regarded rating agencies. The Group uses the rating scale provided by

Standard&Poors and Fitch depending on the availability of the rating for the respective counterparties. The

following table details the credit ratings of financial assets held by the Group as at 31 December 2015:

AA A BBB BB Below BB Not rated Total

Cash and cash equivalents -

correspondent accounts with banks - - 1 625 3 455 924 14 977 490 300 3 962 826

Deposits with banks - - 1 593 984 1 891 254 686 733 - 4 171 971

Promissory notes and originated loans - - - - - 5 735 5 735

Available-for-sale financial instruments - - 2 083 186 2 043 049 12 785 927 365 5 066 385

Receivables 211 656 105 336 290 154 318 887 45 019 1 683 087 2 654 139

Reinsurers' share of loss provision 2 536 683 1 589 192 - 772 048 - 127 215 5 025 138

Total 2 748 339 1 694 528 3 968 949 8 481 162 759 514 3 233 702 20 886 194

The following table details the credit ratings of financial assets held by the Group as at 31 December 2014:

AA A BBB BB Below BB Not rated Total

Cash and cash equivalents -

correspondent accounts with banks - 131 4 075 014 24 409 36 435 16 859 4 152 848

Deposits with banks - - 3 820 747 496 383 828 938 584 371 5 730 439

Promissory notes and originated loans - - - - - 15 137 15 137

Available-for-sale financial instruments - - 5 220 745 2 165 655 28 733 249 338 7 664 471

Receivables 573 767 - 207 312 477 155 68 920 3 161 511 4 488 665

Reinsurers' share of loss provision 2 499 931 938 759 6 771 24 085 - 209 600 3 679 146

Total 3 073 698 938 890 13 330 589 3 187 687 963 026 4 236 816 25 730 706

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38

Liquidity risk. The Group is exposed to liquidity risk, which is the risk that the Group will encounter difficulty in

meeting its commitments when they fall due. The Group’s policy is to ensure, as far as possible, that it has sufficient

liquidity to meet its liabilities when due, without risking damage to reputation or incurring unacceptable losses

(e.g. investment losses due to urgent withdrawal of assets from investment portfolio).

Liquidity risk management is the function of the Treasury Department. In order to ensure availability of sufficient

funds for timely settlement of payables, the Treasury Department performs cash flow planning with a 2 week

horizon. To ensure maximum predictability of cash outflows, payments require cash reservation in advance. Also,

the Group mitigates liquidity risk by fixing a statistically determined optimal share of cash in the investment

portfolio as well as by diversifying deposits by maturity dates. Liquidity analysis is presented further within analysis

of interest rate risk.

Market risk. Market risk is the risk that the value or future cash flows of financial instruments will fluctuate because of

changes in market factors. Market risk comprises three types of risks: currency risk, interest rate risk and other price risk.

Interest rate risk. Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates. The Group is exposed to interest rate risk through its interest-

bearing assets and interest-bearing liabilities. Other assets and liabilities of the Group are mostly not interest-

bearing. Interest rate risk is managed in the Group by means of volatility analysis of interest rates by instruments.

Conclusions based on this analysis determine investment policy.

The following tables show assets and liabilities as at 31 December 2015 by separating interest-bearing and non-

interest-bearing assets and liabilities and disclose their remaining contractual maturity. The undiscounted cash flows

on the Group’s financial liabilities on the basis of their earliest possible contractual maturity do not vary materially

from this analysis.

Up to 1

month

1 month to

1 year

1 year to

5 years

Over

5 years

Maturity

undefined Total

Assets

Interest-bearing assets

Cash and cash equivalents 3 964 666 - - - - 3 964 666

Deposits with banks 1 093 049 2 660 968 417 954 - - 4 171 971

Promissory notes and originated loans - - 5 735 - - 5 735

Available-for-sale financial instruments 238 403 1 822 766 1 848 707 995 359 - 4 905 235

Total interest bearing assets 5 296 118 4 483 734 2 272 396 995 359 - 13 047 607

Non-interest bearing assets

Available-for-sale financial instruments - - - - 161 150 161 150

Receivables 68 387 2 585 752 - - - 2 654 139

Prepayments - 9 926 880 - - - 9 926 880

Reinsurers' share of provision for unearned

premiums 2 001 771 083 334 493 978 - 1 108 555

Reinsurers' share of loss provision - 5 025 138 - - - 5 025 138

Deferred acquisition costs 3 408 301 015 1 730 574 9 247 - 2 044 244

Goodwill - - - - 213 819 213 819

Deferred tax asset - - - - 120 593 120 593

Other assets - - 217 073 - - 217 073

Investments in associated undertakings - - - - 1 374 1 374

Property, equipment and intangible assets - - - - 1 512 729 1 512 729

Assets of disposal group held for distribution 2 748 257 - - - - 2 748 257

Total non-interest bearing assets 2 822 053 18 609 868 2 282 140 10 225 2 009 665 25 733 951

Total assets 8 118 171 23 093 602 4 554 536 1 005 584 2 009 665 38 781 558

Non-interest bearing liabilities

Provision for unearned premiums 13 823 1 959 660 3 088 838 37 343 - 5 099 664

Loss provision - 11 503 205 - - - 11 503 205

Payables 184 618 4 124 101 - - - 4 308 719

Obligatory medical insurance liability - 12 301 623 - - - 12 301 623

Other liabilities - 214 097 671 486 - - 885 583

Liabilities of disposal group held for distribution 2 683 098 - - - - 2 683 098

Total non-interest bearing liabilities 2 881 539 30 102 686 3 760 324 37 343 - 36 781 892

Total liabilities 2 881 539 30 102 686 3 760 324 37 343 - 36 781 892

Net liquidity gap 5 236 632 (7 009 084) 794 212 968 241 2 009 665 1 999 666

Cumulative liquidity gap 5 236 632 (1 772 452) (978 240) (9 999) 1 999 666

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39

The following tables show assets and liabilities as at 31 December 2014 by separating interest-bearing and non-

interest-bearing assets and liabilities and disclose their remaining contractual maturity. The undiscounted cash flows

on the Group’s financial liabilities on the basis of their earliest possible contractual maturity do not vary materially

from this analysis.

Up to 1

month

1 month to

1 year

1 year to

5 years

Over

5 years

Maturity

undefined Total

Assets

Interest-bearing assets

Cash and cash equivalents 4 156 356 - - - - 4 156 356

Deposits with banks 3 707 735 1 604 818 417 886 - - 5 730 439

Promissory notes and originated loans - 416 14 721 - - 15 137

Available-for-sale financial instruments 405 1 914 778 4 204 268 1 295 717 - 7 415 168

Total interest bearing assets 7 864 496 3 520 012 4 636 875 1 295 717 - 17 317 100

Non-interest bearing assets

Available-for-sale financial instruments - - - - 249 303 249 303

Receivables 390 785 4 097 880 - - - 4 488 665

Prepayments - 5 430 014 - - - 5 430 014

Reinsurers' share of provision for unearned

premiums - 771 802 458 590 2 737 - 1 233 129

Reinsurers' share of loss provision - 3 679 146 - - - 3 679 146

Deferred acquisition costs 12 951 1 151 016 2 961 897 16 527 - 4 142 391

Goodwill - - - - 213 819 213 819

Deferred tax asset - - - - 402 581 402 581

Other assets - 5 876 - - - 5 876

Investments in associated undertakings - - - - 1 374 1 374

Property, equipment and intangible assets - - - - 1 790 494 1 790 494

Total non-interest bearing assets 403 736 15 135 734 3 420 487 19 264 2 657 571 21 636 792

Total assets 8 268 232 18 655 746 8 057 362 1 314 981 2 657 571 38 953 892

Non-interest bearing liabilities

Provision for unearned premiums 58 121 6 978 153 5 233 029 67 350 - 12 336 653

Loss provision - 13 635 145 - - - 13 635 145

Payables 373 299 3 696 515 - - - 4 069 814

Obligatory medical insurance liability - 7 667 834 - - - 7 667 834

Other liabilities - 336 671 - - - 336 671

Total non-interest bearing liabilities 431 420 32 314 318 5 233 029 67 350 - 38 046 117

Total liabilities 431 420 32 314 318 5 233 029 67 350 - 38 046 117

Net liquidity gap 7 836 812 (13 658 572) 2 824 333 1 247 631 2 657 571 907 775

Cumulative liquidity gap 7 836 812 (5 821 760) (2 997 427) (1 749 796) 907 775

The following tables present the sensitivity of the Group profit before tax and equity to fair value interest rate risk,

which has been determined based on reasonably possible changes in the risk variable. The level of these changes is

determined by Management.

2015 2014

-1.0% 1.0% -1.0% 1.0%

Available-for-sale financial instruments 103 432 (103 432) 182 421 (182 421)

Net impact on equity 82 746 (82 746) 145 937 (145 937)

The following table presents the sensitivity of the Group’s profit after tax and equity to reprising risk of interest

rates of deposits and promissory notes.

2015 2014

Parallel shift by 1% towards interest rates growth 24 771 34 312

Parallel shift by 1% towards interest rates decline (24 771) (34 312)

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Equity price risk is a risk that the value of an equity financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments traded in the market. Price risk arises when the Group takes a long or short position in an equity financial instrument.

The following tables detail the Group’s sensitivity to a 10% increase and decrease in market price:

2015 2014

-10% 10% -10% 10%

Available-for-sale financial instruments (16 115) 16 115 (24 930) 24 930

Net impact on equity (12 892) 12 892 (19 944) 19 944

The above table demonstrates the effect of a change in a key assumption while other assumptions remain unchanged. In reality, there is a correlation between the assumptions and other factors. It should also be noted that these sensitivities are non-linear, and larger or smaller impacts should not be interpolated or extrapolated from these results.

The sensitivity analyses do not take into consideration that the Group’s assets and liabilities are actively managed. Additionally, the financial position of the Group may vary at the time that any actual market movement occurs. For example, the Group’s financial risk management strategy aims to manage the exposure to market fluctuations. As investment markets move past various trigger levels, management actions could include selling investments, changing investment portfolio allocation and taking other protective action. Consequently, the actual impact of a change in the assumptions may not have any impact on the liabilities, whereas assets are held at market value on the statement of financial position. In these circumstances, the different measurement bases for liabilities and assets may lead to volatility in shareholder equity.

Other limitations in the above sensitivity analyses include the use of hypothetical market movements to demonstrate potential risk that only represent the Group’s view of possible near-term market changes that cannot be predicted with any certainty; and the assumption that all interest rates, exchange rates or market prices move in an identical fashion.

Currency risk is a risk that the value or future cash flows of financial instruments will fluctuate due to changes in foreign exchange rates. The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows.

Asset Liability Matching methodology is used by the Group and provides appropriate currency structure to mitigate currency risk. This methodology allows the Group to calculate and manage the currency structure of the investment portfolio to minimize currency risk. The Group manages this currency risk by investing into US dollar and EURO instruments and maintaining US dollar cash balances to the extent allowed under Russian insurance regulations.

The Group’s exposure to currency risk as at 31 December 2015 is presented below.

RUB USD EUR Other Total

Assets

Cash and cash equivalents 2 967 104 70 099 924 151 3 312 3 964 666

Deposits with banks 2 293 920 - 1 593 996 284 055 4 171 971


Available-for-sale financial instruments 3 980 865 692 669 392 851 - 5 066 385

Receivables 1 886 637 552 158 185 846 29 498 2 654 139

Prepayments 9 900 361 10 160 553 15 806 9 926 880

Reinsurers' share of provision for unearned premiums 356 942 330 097 373 555 47 961 1 108 555

Reinsurers' share of loss provision 2 268 409 551 265 473 613 1 731 851 5 025 138

Deferred acquisition costs 1 868 116 138 674 28 303 9 151 2 044 244

Goodwill 213 819 - - - 213 819

Deferred tax asset 120 593 - - - 120 593

Other assets 71 039 - 146 034 - 217 073

Investments in associated undertakings 1 374 - - - 1 374

Property, equipment and intangible assets 1 501 738 - - 10 991 1 512 729

Assets of disposal group held for distribution 2 748 257 - - - 2 748 257

Total assets 30 184 909 2 345 122 4 118 902 2 132 625 38 781 558

Liabilities

Provision for unearned premiums 4 187 825 542 437 270 147 99 255 5 099 664

Loss provision 7 563 307 1 659 378 496 797 1 783 723 11 503 205

Payables 2 808 083 469 935 960 053 70 648 4 308 719

Obligatory medical insurance liability 12 301 623 - - - 12 301 623

Other liabilities 882 305 - - 3 278 885 583

Liabilities of disposal group held for distribution 2 683 098 - - - 2 683 098

Total liabilities 30 426 241 2 671 750 1 726 997 1 956 904 36 781 892

Net position (241 332) (326 628) 2 391 905 175 721 1 999 666

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41

The Group’s exposure to currency risk as at 31 December 2014 is presented below.

RUB USD EUR Other Total

Assets

Cash and cash equivalents 3 517 574 152 174 469 281 17 327 4 156 356

Deposits with banks 5 295 255 - - 435 184 5 730 439


Available-for-sale financial instruments 6 889 709 488 543 286 183 36 7 664 471

Receivables 2 986 895 881 108 522 260 98 402 4 488 665

Prepayments 5 406 354 6 427 507 16 726 5 430 014

Reinsurers' share of provision for unearned premiums 295 100 420 463 482 684 34 882 1 233 129

Reinsurers' share of loss provision 1 392 728 447 715 1 024 020 814 683 3 679 146

Deferred acquisition costs 3 875 465 176 303 16 601 74 022 4 142 391

Goodwill 213 819 - - - 213 819

Deferred tax asset 402 581 - - - 402 581

Other assets 5 876 - - - 5 876

Investments in associated undertakings 1 374 - - - 1 374

Property, equipment and intangible assets 1 769 945 - - 20 549 1 790 494

Total assets 32 067 812 2 572 733 2 801 536 1 511 811 38 953 892

Liabilities

Provision for unearned premiums 11 116 853 677 016 273 395 269 389 12 336 653

Loss provision 10 508 218 980 963 1 195 204 950 760 13 635 145

Payables 1 695 520 970 692 1 282 538 121 064 4 069 814

Obligatory medical insurance liability 7 667 834 - - - 7 667 834

Other liabilities 336 671 - - - 336 671

Total liabilities 31 325 096 2 628 671 2 751 137 1 341 213 38 046 117

Net position 742 716 (55 938) 50 399 170 598 907 775

The following tables detail the Group’s sensitivity to a 20% increase in the USD and EUR against the RUB. The

sensitivity analysis includes only outstanding foreign currency denominated items and adjusts their translation at the

end of the period for a 20% change in foreign currency rates. 20% is the sensitivity rate that represents

management’s assessment of reasonably possible change in foreign currency exchange rates.

2015 2014

Impact on profit or

loss before tax

Impact on

equity

Impact on profit or

loss before tax

Impact on

equity

20% appreciation of USD against RUB (65 326) (52 261) (11 188) (8 950)

20% appreciation of EUR against RUB 478 381 382 705 10 080 8 064

A strengthening of the RUB against the above currencies at 31 December 2015 and 2014 would have had the equal but

opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.

The above sensitivity analysis does not take into consideration that the Group’s assets and liabilities are actively

managed, so that Group’s exposure to market fluctuations is minimal. Management action could include selling

investments, changing investment portfolio allocation and other protective actions.

Also, the analysis demonstrates the effect of change in one of the key factors (foreign exchange rate), while other

factors remain unchanged. In reality there is correlation between key economic factors. It should also be noted that

the sensitivities shown above are non-linear, larger or smaller impacts should not be extrapolated or interpolated

from these results.

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42

Corporate governance framework. The Company is established as an open joint stock company in accordance with

Russian law. The supreme governing body of the Company is the general shareholders’ meeting that is called for

annual or extraordinary meetings. The general shareholders’ meeting makes strategic decisions on the Company’s

operations.

The general shareholders’ meeting elects the Board of Directors. The Board of Directors is responsible for overall

governance of the Company's activities.

Russian legislation and the charter of the Company establish lists of decisions that are exclusively approved by the

general shareholders’ meeting and that are approved by the Board of Directors.

General activities of the Company are managed by the sole executive body of the Company - General Director and

collective executive body of the Company – Management Board. The Board of Directors elects the General director

and members of Management Board. The executive bodies of the Company are responsible for implementation of

decisions of the general shareholders’ meeting and the Board of Directors of the Company. Executive bodies of the

Company report to the Board of Directors of the Company and to the general shareholders’ meeting.

Internal control policies and procedures. The Board of Directors and the Management Board have responsibility

for the development, implementation and maintaining of internal controls in the Group that are commensurate with

the scale and nature of operations.

The purpose of internal controls is to ensure:

proper and comprehensive risk assessment and management;

proper business and accounting and financial reporting functions, including proper authorization, processing and

recording of transactions;

completeness, accuracy and timeliness of accounting records, managerial information, regulatory reports, etc.;

reliability of IT-systems, data and systems integrity and protection;

prevention of fraudulent or illegal activities, including misappropriation of assets;

compliance with laws and regulations.

Management is responsible for identifying and assessing risks, designing controls and monitoring their

effectiveness. Management monitors the effectiveness of the Group’s internal controls and periodically implements

additional controls or modifies existing controls as considered necessary.

The Group developed a system of standards, policies and procedures to ensure effective operations and compliance

with relevant legal and regulatory requirements, including the following areas:

requirements for appropriate segregation of duties, including the independent authorization of transactions;

requirements for the recording, reconciliation and monitoring of transactions;

compliance with regulatory and other legal requirements;

documentation of controls and procedures;

requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures

to address the risks identified;

requirements for the reporting of operational losses and proposed remedial action;

development of contingency plans;

training and professional development;

ethical and business standards and

risk mitigation, including reinsurance where this is effective.

There is an hierarchy of requirements for authorization of transactions depending on their size and complexity. A

significant portion of operations are automated and the Group put in place a system of automated controls.

Compliance with Group’s standards is supported by a program of periodic reviews undertaken by Internal Audit.

The Internal Audit function is independent from management and reports directly to the Board of Directors. The

results of Internal Audit reviews are discussed with relevant business process managers, with summaries submitted

to the Audit Committee and Board of Directors and senior management of the Company.

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43

The internal control system in the Company comprises:

the Board of Directors and its committees, including the Audit committee;

the Chief Executive officer and the Board of Management;

the Chief Accountant;

the Chief Actuary;

the Supervisory Board;

the risk management function;

the security function, including IT-security;

the human resource function;

the internal audit function;

other employees, division and functions that are responsible for compliance with the established standards,

policies and procedures, including:

heads of branches and heads of business units;

business processes managers;

the internal controls division responsible for compliance with anti-money laundering requirements;

professional securities market participant controller – an executive office responsible for compliance with the

requirements for securities market participants;

the legal officer – an employee responsible for compliance with the legal and regulatory requirements;

the internal controls and coordination of corporate and regulatory procedures division responsible for the

compliance with internal controls rules and realization of programs of such rules implementation, developed

in accordance with anti-money laundering legislation of the Russian Federation;

other employees/divisions with control responsibilities.

Russian legislation, including the Law dated 27 November 1992 No 4015-1 On organization of insurance activity in

the Russian Federation, establishes the professional qualifications, business reputation and other requirements for

members of the Board of Directors, Management Board, Head of internal audit function and other key management

personnel. All members of the Company’s governing and management bodies meet with these requirements.

Management believes that the Group complies with the regulatory requirements related to internal control systems,

including requirements related to the internal audit function, and that Group’s internal control systems are

appropriate for the scale, nature and complexity of operations.

25. Capital Management

The Insurance Regulatory Bodies of the Russian Federation set and monitor capital requirements for the Company.

The Company recognizes as Capital, items which are defined in accordance with legislation of the Russian

Federation as capital.

The main objective of the Company's capital management is to comply with the regulatory requirements of the

Russian Federation legislation in respect of financial stability and solvency of the Company and its ability to

continue carrying out its financial and economic activity in accordance with going concern principle.

The regulatory requirement for fully paid minimum share capital of the Company which provides any type of

reinsurance coverage is RUB 480 000 thousand.

As at 31 December 2015 and 2014, the actual fully paid share capital of the Company is RUB 5 861 220 thousand

which complies with the minimum statutory limit.

In order to comply with regulatory requirements in respect of capital and insurance reserves allocation the Company

implements an investment policy which imposes certain restrictions on the structure of investment assets. The

Company monitors application of investment policy on a daily basis. The Company assesses capital adequacy level

on a regular basis to comply with the minimum paid share capital requirements and regulatory solvency margin

level. The Company monitors compliance with the stated above requirements on a monthly basis. Regular

monitoring of capital adequacy level enables the Company to forecast the need for additional capital investment.

As at 31 December 2015 and 2014, the Company complied with the requirements set by the Insurance Regulatory

Bodies of the Russian Federation in respect of solvency margin level, placements of insurance reserves funds and

structure of assets used for coverage of equity.

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44

26. Contingencies and Commitments

Legal proceedings. From time to time and in the normal course of business, claims against the Group are received. On

the basis of own estimates and internal and external professional advice, Management is of the opinion that no material

losses will be incurred, which are not already recorded as a provision in these consolidated financial statements.

Tax legislation. The taxation system in the Russian Federation continues to evolve and is characterized by frequent

changes in legislation, official pronouncements and court decisions, which are sometimes contradictory and subject

to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of

authorities who have the authority to impose severe fines, penalties and interest charges. A tax year remains open for

review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax

year may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking

a more assertive position in their interpretation and enforcement of tax legislation.

These circumstances may create tax risks in the Russian Federation that are substantially more significant than in

other countries. Management believes that it has provided adequately for tax liabilities based on its interpretations of

applicable Russian tax legislation, official pronouncements and court decisions. However, the interpretations of the

relevant authorities could differ and the effect on the financial position, if the authorities were successful in

enforcing their interpretations, could be significant.

Transfer pricing legislation enacted in the Russian Federation starting from 1 January 2012 provides for major

modifications making local transfer pricing rules closer to OECD guidelines, but creating additional uncertainty in

practical application of tax legislation in certain circumstances.

These transfer pricing rules introduce an obligation for the taxpayers to prepare transfer pricing documentation with

respect to controlled transactions and prescribe new basis and mechanisms for accruing additional taxes and interest

in case prices in the controlled transactions differ from the market level.

The transfer pricing rules primarily apply to cross-border transactions between related parties, as well as to certain

cross-border transactions between independent parties, as determined under the Russian Tax Code. In addition, the

rules apply to in-country transactions between related parties if the accumulated annual volume of the transactions

between the same parties exceeds a particular threshold (RUB 1 billion in 2014 and thereon).

Since there is no practice of applying the new transfer pricing rules by the tax authorities and courts as transfer

pricing tax audits under new rules started recently, however, it is anticipated that transfer pricing arrangements will

be subject to very close scrutiny potentially having effect on these consolidated financial statements.

The Management believes that their interpretation of the relevant legislation is appropriate and the Group’s tax,

currency and customs positions will be sustained. Accordingly, as at 31 December 2015 and 2014 no provision for

potential tax liabilities is recognized.

Operating lease commitments. Where the Group is the lessee, the future minimum lease payments under non-

cancellable operating leases are as follows:

2015 2014

Less than 1 year 207 358 416 865

Between 1 and 5 years 150 879 268 131

More than 5 years - 103

Total operating lease commitments 358 237 685 099

Pensions and retirement plans. As at 31 December 2015 and 2014, the Group was not liable for any supplementary

pensions, post-retirement health care, insurance benefits, or retirement indemnities to its current or former employees.

Fiduciary assets. In 2014 the Group provided trustee services to its customers through its asset management subsidiary

– Allianz Investments. As at 31 December 2014 total amount of assets managed by Allianz Investments was equal to

RUB 13 080 903 thousand and included federal loan bonds, corporate bonds and shares and government bonds. Allianz

Investments was disposed of in 2015. The Group no longer carries out asset management activity.

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45

27. Fair Value of Financial Instruments

The following table shows the carrying amounts and fair values of financial assets as at 31 December 2015 and 2014:

Carrying amounts as at 31 December 2015 Carrying amounts as at 31 December 2014

Loans and receivables

Available-for-sale financial

instruments Designated at fair value Total

Loans and receivables

Available-for-sale financial

instruments Designated at fair value Total

Financial assets and liabilities measured at fair value

Debt securities - 4 905 236 - 4 905 236 - 7 415 168 - 7 415 168

Mutual investment funds and other - 161 149 - 161 149 - 249 303 - 249 303

Other assets measured at fair value - - 146 034 146 034 - - 101 867 101 867

Payables measured at fair value - - (101 888) (101 888) - - (75 722) (75 722)

- 5 066 385 44 146 5 110 531 - 7 664 471 26 145 7 690 616

Financial assets not measured at fair value

Cash and cash equivalents 3 964 666 - - 3 964 666 4 156 356 - - 4 156 356

Deposits with banks 4 171 971 - - 4 171 971 5 730 439 - - 5 730 439

Promissory notes and originated loans 5 735 - - 5 735 15 137 - - 15 137

Receivables 2 654 139 - - 2 654 139 4 488 665 - - 4 488 665

10 796 511 - - 10 796 511 14 390 597 - - 14 390 597

Other assets and payables measured at fair value relate to remuneration of senior management (note 28).

The estimates of fair value are intended to approximate the price that would be received to sell an asset, or paid to transfer a liability in an orderly transaction between market participants at the measurement date. However, given the uncertainties and the use of subjective judgment, the fair value should not be interpreted as being realisable in an immediate sale of the assets or transfer of liabilities.

The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements:

Level 1: quoted market price (unadjusted) in an active market for an identical instrument.

Level 2: inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: inputs that are unobservable. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of available-for-sale financial instruments that are traded in active markets and other assets and payables measured at fair value are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines fair values using other valuation techniques. The estimated fair values of all financial assets and liabilities approximate their carrying values.

The table below analyses financial instruments measured at fair value as at 31 December 2015 and 2014, by the level in the fair value hierarchy into which the fair value measurement is categorized. The amounts are based on the values recognized in the consolidated statement of financial position:

Carrying amounts as at 31 December 2015 Carrying amounts as at 31 December 2014

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Available-for-sale financial instruments 4 905 236 - 161 149 5 066 385 7 415 168 - 249 303 7 664 471

Other assets measured at fair value 146 034 - - 146 034 101 867 - - 101 867

Payables measured at fair value (101 888) - - (101 888) (75 722) - - (75 722)

Other assets and payables measured at fair value relate to remuneration of senior management (note 28).

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46

The following table shows a reconciliation for the year ended 31 December 2015 for fair value measurements in Level 3 of the fair value hierarchy:

2015 2014

As at 1 January 249 303 -

Transfer to Level 3 - 249 303

Increase in fair value recognized in equity 5 494 -

Net gains and losses recognized in profit or loss (11 215) -

Consideration received from sale of investments in mutual fund (82 433) -

As at 31 December 161 149 249 303

As at 31 December 2015, available-for-sale financial instruments categorized into Level 3 include investments in one mutual investment fund totaling RUB 159 569 thousand (2014: RUB 154 075 thousand), whose net assets primarily comprise of investments in land plots and banks’ deposits. The mutual investment fund’s fair value is estimated based on a combination of independent third-party evidence and internally developed models, which use both observable and non-observable data. To the extent that fair value of the land plots held by the mutual investment fund differs by plus/minus 10% the fair value of the investments in the mutual investment fund would be RUB 8 338 thousand (2014: RUB 8 051 thousand) higher/lower.

In 2015, the Group sold stake in one mutual investment fund with a carrying amount as at 31 December 2014 of RUB 91 839 thousand for consideration of RUB 82 433 thousand.

28. Related Party Transactions

For the purposes of these consolidated financial statements, parties are considered to be related as defined by IAS 24 Related Party Disclosures. In considering each possible related party relationship, attention is directed to the substance, not merely the legal form. The outstanding balances as at 31 December 2015 and 2014, as well as income and expenses for 2015 and 2014 with related parties are as follows:

2015 2014

Parent company

Other subsidiaries of the Parent company Parent company

Other subsidiaries of the Parent company

Assets and liabilities Receivables 149 883 370 325 10 196 241 499

Reinsurers' share of provision for unearned premiums 200 405 669 131 20 518 729 434

Reinsurers' share of loss provision 273 254 2 956 635 211 906 1 855 851

Provision for unearned premiums (7 154) (1 841) (21 183) (975)

Payables (45 711) (1 233 417) (21 309) (1 195 936)

Income and expenses Gross premiums written 614 85 237 1 995 1 704

Change in provision for unearned premiums, gross 14 029 (866) 16 898 (407)

Premiums ceded (415 079) (2 445 864) (227 430) (2 677 313)

Change in reinsurers' share of provision for unearned premiums 179 887 (60 303) 13 918 (4 847)

Gross claims paid (423) (13 884) (3 223) -

Claims ceded 236 277 2 700 252 360 358 676 735

Change in reinsurer’s share of loss provision including effect of foreign currency translation 61 348 1 100 784 182 042 (961 461)

Claims handling expenses (1 596) (3 257) - -

Acquisition costs (471) (1 608) (956) -

Commission income on reinsurance outwards 26 683 438 722 2 657 520 749

Insurance operating expenses (83 849) (48 783) (104 198) (154 787)

Net (expenses) income allocated to discontinued operations (98 567) (28 763) 75 (23 826)

In 2015 the total remuneration of the key management and discretionary compensation amounts to RUB 221 211 thousand (2014: RUB 319 648 thousand). As at 31 December 2015, loans issued to employees of the Group amount to RUB 5 735 thousand (2014: RUB 15 137 thousand).

Remuneration of senior management includes grants of restricted stock units (“RSU”), which obligate the Group to pay in cash the average market price of shares of the Group’s parent, Allianz SE, or to issue one Allianz SE share, or other equivalent equity instrument, for each unit granted to the senior management upon expiration of the vesting period of 5 years. RSU’s are virtual stocks without dividend payments. RSU’s are accounted for as cash settled plans as the Group intends to settle in cash. The Group accrues the fair value of the RSU as a compensation expense over the vesting period. As at 31 December 2015, accrued liability on RSU’s amounted to RUB 146 034 thousand (2014: RUB 101 867 thousand) and presented within payables. When issuing RSU’s, the Group also purchases virtual stocks from the parent, Allianz SE, which are accounted for at fair value through profit or loss and are presented within other assets (note 27).

Allianz



47

29. Principal Subsidiaries and Associates

The following subsidiaries of the Group are included into these consolidated financial statements as at

31 December 2015 and 2014:

Name

Country of

incorporation

Percentage of equity

controlled as at

31 December

Principal activity 2015 2014

Rosno MS Russia 100% 100% Medical insurance

Allianz Ukraine Ukraine 100% 100% Insurance

Allianz Ukraine Life Ukraine 100% 100% Insurance

Medexpress Russia 100% 99.9% Insurance

Medexpress Service (Allianz Eurasia Medicina) Russia 100% 100% Medical services

My Clinic Russia 100% 100% Renting of premises

Progress-Med Russia 100% 100% Medical services

Risk Audit Russia 100% 100% Consulting

The following associates of the Group are accounted for by the equity method of accounting in these consolidated

financial statements as at 31 December 2015 and 2014:

Name

Country of

incorporation

Percentage of equity

held as at 31 December

Principal activity 2015 2014

MedCentreStrakh Russia 36% 36% Medical insurance

Povolzhskiy Leasing Center Russia 20% 20% Leasing

Avarijnyj Komissar Russia 23% 23% Assistance

30. Discontinued operations

In November 2015, the management committed to a plan to sell the voluntary medical insurance business of the

Company to Allianz Life Insurance Company, Ltd., an entity under common shareholders’ control, following a

strategic decision to place greater focus on the Group’s key competencies. Accordingly, the related assets and

liabilities are presented as a disposal group held for distribution. The sale is expected to close in January 2016. The

comparative consolidated statement of profit or loss and other comprehensive income has been restated to show the

discontinued operations separately from continued operations.

2015

Assets of disposal group held for distribution

Cash and cash equivalents 172 930

Available-for-sale financial instruments 1 194 382

Receivables 1 070 437

Prepayments 96 273

Reinsurers' share of provision for unearned premiums 46 420

Reinsurers' share of loss provision 18 288

Deferred acquisition costs 149 527

Total assets of disposal group held for distribution 2 748 257

Liabilities of disposal group held for distribution

Provision for unearned premiums 1 945 637

Loss provision 584 348

Deferred acquisition income on reinsurance 8 110

Payables 145 003

Total liabilities of disposal group held for distribution 2 683 098

Fair values of available-for-sale financial instruments included in the assets of disposal group held for distribution are based on quoted market prices and are categorized into Level 1 of the fair value hierarchy. The estimated fair values of all other financial assets and liabilities approximate their carrying values. Sensitivity analysis for loss provision is presented in note 12.

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