E.6. Liquidity risk
Liquidity risk arises in the general funding of the Group’s activities and in the management of its positions. It includes both the risk of being unable to fund assets using instruments with appropriate maturities and rates and the risk of being unable to liquidate an asset sufficiently quickly and in the appropriate amount, and the risk of being unable to meet obligations as they become due.
All the business units have access to a diverse funding base. Apart from insurance liabilities, which serve as a main source of financing, funds are raised using a broad range of instruments including deposits, other liabilities evidenced by paper, reinsurance policy, subordinated liabilities and shareholder equity. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds.
The business units strive to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities; for details see also the section above on asset and liability matching. Further, all the business units hold a portfolio of liquid assets as part of its liquidity risk management strategy. Special attention is paid to the liquidity management of non-life insurance business requiring sufficient funding to meet all the potential obligations in the event of a natural disaster or other extraordinary event.
All the business units as well as the Group as a whole continually assesses the liquidity risk by identifying and monitoring changes in the funding required to meet business goals and the targets set in terms of the overall strategy.
The following table shows an analysis of the Group’s financial assets and liabilities broken down into their relevant maturity bands based on the residual contractual maturities.
Residual contractual maturities of financial assets:
| 31.12.2015 (CZK million) | Less than 1 year | Between 1 and 5 years | More than 5 years | Unspecified | Total |
|---|---|---|---|---|---|
| Investments | 22,801 | 57,547 | 74,693 | 19,671 | 174,712 |
| Loans | 5,526 | 905 | – | – | 6,431 |
| Held to maturity | – | – | – | – | – |
| Available for sale | 15,337 | 50,530 | 74,962 | 9,229 | 150,058 |
Bonds | 15,337 | 50,530 | 74,962 | – | 140,829 |
Equities | – | – | – | 2,193 | 2,193 |
Investment fund units | – | – | – | 7,036 | 7,036 |
| Financial assets at fair value through profit or loss | 1,938 | 6,112 | (269) | 10,442 | 18,223 |
Bonds | 1,201 | 6,014 | – | – | 7,215 |
Equities | – | – | – | 165 | 165 |
Investment fund units | – | – | – | 2,681 | 2,681 |
Unit-linked investments | 66 | 6 | 130 | 7,596 | 7,798 |
Derivatives | 671 | 92 | (399) | – | 364 |
| Receivables | 6,736 | 22 | 514 | – | 7,272 |
| Cash and cash equivalents | 4,143 | – | – | – | 4,143 |
| Total financial assets | 33,680 | 57,569 | 75,207 | 19,671 | 186,127 |
| 31.12.2014 (CZK million) | Less than 1 year | Between 1 and 5 years | More than 5 years | Unspecified | Total |
|---|---|---|---|---|---|
| Investments | 25,021 | 56,305 | 74,108 | 19,613 | 175,047 |
| Loans | 5,000 | 885 | 57 | – | 5,942 |
| Available-for-sale | 16,213 | 52,934 | 68,950 | 7,772 | 145,869 |
Bonds | 16,213 | 52,934 | 68,950 | – | 138,097 |
Equities | – | – | – | 2,319 | 2,319 |
Investment fund units | – | – | – | 5,453 | 5,453 |
| Financial assets at fair value through profit or loss | 3,808 | 2,486 | 5,101 | 11,841 | 23,236 |
Bonds | 3,796 | 2,331 | 5,041 | – | 11,168 |
Equities | – | – | – | 228 | 228 |
Investment fund units | – | – | – | 4,226 | 4,226 |
Unit-linked investments | 6 | 11 | – | 7,387 | 7,404 |
Derivatives | 6 | 144 | 60 | – | 210 |
| Receivables | 5,852 | 309 | 694 | – | 6,855 |
| Cash and cash equivalents | 5,050 | – | – | – | 5,050 |
| Total financial assets | 35,923 | 56,614 | 74,802 | 19,613 | 186,952 |
Of which relates to the Transformed fund
| 31.12.2015 (CZK million) | Less than 1 year | Between 1 and 5 years | More than 5 years | Unspecified | Total |
|---|---|---|---|---|---|
| Investments | 12,703 | 32,489 | 46,858 | 2,674 | 94,724 |
| Loans | 2,750 | – | – | – | 2,750 |
| Held to maturity | – | – | – | – | – |
| Available for sale | 9,443 | 28,904 | 46,858 | 2,330 | 87,535 |
Bonds | 9,443 | 28,904 | 46,858 | – | 85,205 |
Equities | – | – | – | 123 | 123 |
Investment fund units | – | – | – | 2,207 | 2,207 |
| Financial assets at fair value through profit or loss | 510 | 3,585 | – | 344 | 4,439 |
Bonds | 450 | 3,571 | – | — | 4,021 |
Equities | – | – | – | 160 | 160 |
Investment fund units | – | – | – | 184 | 184 |
Unit-linked investments | – | – | – | – | – |
Derivatives | 60 | 14 | – | – | 74 |
| Receivables | 729 | – | – | – | 729 |
| Cash and cash equivalents | 632 | – | – | – | 632 |
| Total financial assets | 14,064 | 32,489 | 46,858 | 2,674 | 96,085 |
| 31.12.2014 (CZK million) | Less than 1 year | Between 1 and 5 years | More than 5 years | Unspecified | Total |
|---|---|---|---|---|---|
| Investments | 7,235 | 31,649 | 45,256 | 2,676 | 86,816 |
| Loans | 300 | – | – | – | 300 |
| Available for sale | 6,956 | 31,057 | 41,662 | 1,893 | 81,568 |
Bonds | 6,956 | 31,057 | 41,662 | – | 79,675 |
Equities | – | – | – | 82 | 82 |
Investment fund units | – | – | – | 1,811 | 1,811 |
| Financial assets at fair value through profit or loss | (21) | 592 | 3,594 | 783 | 4,948 |
Bonds | – | 550 | 3,574 | – | 4,124 |
Equities | – | – | – | 223 | 223 |
Investment fund units | – | – | – | 560 | 560 |
Derivatives | (21) | 42 | 20 | – | 41 |
| Receivables | 727 | – | – | – | 727 |
| Cash and cash equivalents | 1,132 | – | – | – | 1,132 |
| Total financial assets | 9,094 | 31,649 | 45,256 | 2,676 | 88,675 |
Residual contractual maturities of liabilities
| 31.12.2015 (CZK million) | Less than 1 year | Between 1 and 5 years | More than 5 years | Unspecified | Total |
|---|---|---|---|---|---|
| Financial liabilities | 2,073 | 3,052 | 349 | 1,400 | 6,873 |
| Financial liabilities at fair value through profit or loss | 755 | 1,013 | 349 | – | 2,117 |
| Other financial liabilities | 1,318 | 2,039 | – | 1,400 | 4,756 |
| Payables | 8,106 | 55 | 11 | – | 8,172 |
| Other liabilities | 1,880 | 105 | 12 | – | 1,997 |
| Total liabilities | 12,059 | 3,212 | 372 | 1,400 | 17,042 |
| 31.12.2014 (CZK million) | Less than 1 year | Between 1 and 5 years | More than 5 years | Unspecified | Total |
|---|---|---|---|---|---|
| Financial liabilities | 4,175 | 1,881 | 1,324 | 1,400 | 8,780 |
| Financial liabilities at fair value through profit or loss | 1,469 | 1,117 | 519 | – | 3,105 |
| Other financial liabilities | 2,706 | 764 | 805 | 1,400 | 5,675 |
| Payables | 8,505 | 69 | – | – | 8,574 |
| Other liabilities | 1,630 | 22 | – | – | 1,652 |
| Total liabilities | 14,310 | 1,972 | 1,324 | 1,400 | 19,006 |
Of which relates to the Transformed fund
| 31.12.2015 (CZK million) | Less than 1 year | Between 1 and 5 years | More than 5 years | Unspecified | Total |
|---|---|---|---|---|---|
| Financial liabilities | 251 | 357 | 212 | – | 820 |
| Financial liabilities at fair value through profit or loss | 251 | 357 | 212 | – | 820 |
| Other financial liabilities | – | – | – | – | – |
| Payables | 280 | – | – | – | 280 |
| Other liabilities | – | – | – | – | – |
| Total liabilities | 531 | 357 | 212 | – | 1,100 |
| 31.12.2014 (CZK million) | Less than 1 year | Between 1 and 5 years | More than 5 years | Unspecified | Total |
|---|---|---|---|---|---|
| Financial liabilities | 379 | 387 | 289 | – | 1,055 |
| Financial liabilities at fair value through profit or loss | 379 | 387 | 289 | – | 1,055 |
| Other financial liabilities | – | – | – | – | – |
| Payables | 294 | – | – | – | 294 |
| Other liabilities | – | – | – | – | – |
| Total liabilities | 673 | 387 | 289 | – | 1,349 |
The following table shows the amount of insurance liabilities and financial liabilities for investment contracts broken down by contractual maturity.
Estimated cash flows of insurance liabilities and liabilities of investment contracts with DPF
| 31.12.2015 (CZK million) | Less than 1 year | Between 1 and 5 years | Between 5 and 10 years | Between 10 and 15 years | Between 15 and 20 years | More than 20 years | Total |
|---|---|---|---|---|---|---|---|
| Non-life insurance liabilities | 6,714 | 3,811 | 1,784 | 1,622 | 1,460 | 1,135 | 16,526 |
| RBNS & IBNR | 6,404 | 3,811 | 1,784 | 1,622 | 1,460 | 1,135 | 16,216 |
| Other insurance liabilities | 310 | – | – | – | – | – | 310 |
| Life insurance liabilities | 7,067 | 14,060 | 10,928 | 5,564 | 3,658 | 5,825 | 47,102 |
| Financial liabilities from investment contracts | 31,409 | 14,830 | 11,105 | 8,405 | 8,476 | 13,436 | 87,661 |
| Total | 45,190 | 32,701 | 23,817 | 15,591 | 13,594 | 20,396 | 151,289 |
| 31.12.2014 (CZK million) | Less than 1 year | Between 1 and 5 years | Between 5 and 10 years | Between 10 and 15 years | Between 15 and 20 years | More than 20 years | Total |
|---|---|---|---|---|---|---|---|
| Non-life insurance liabilities | 8,180 | 3,929 | 1,938 | 1,635 | 1,456 | 1,133 | 18,271 |
| RBNS & IBNR | 7,894 | 3,929 | 1,938 | 1,635 | 1,456 | 1,133 | 17,985 |
| Other insurance liabilities | 286 | – | – | – | – | – | 286 |
| Life insurance liabilities | 7,957 | 17,241 | 11,169 | 6,247 | 4,123 | 6,638 | 53,375 |
| Financial liabilities from investment contracts | 29,402 | 14,512 | 9,665 | 7,632 | 7,115 | 12,359 | 80,685 |
| Total | 45,539 | 35,682 | 22,772 | 15,514 | 12,694 | 20,130 | 152,331 |
Of which relates to the Transformed fund
| 31.12.2015 (CZK million) | Less than 1 year | Between 1 and 5 years | Between 5 and 10 years | Between 10 and 15 years | Between 15 and 20 years | More than 20 years | Total |
|---|---|---|---|---|---|---|---|
| Life insurance liabilities | 18 | 8 | 6 | 5 | 5 | 8 | 50 |
| Financial liabilities from investment contracts | 31,396 | 14,830 | 11,105 | 8,405 | 8,476 | 13,436 | 87,648 |
| Total | 31,414 | 14,838 | 11,111 | 8,410 | 8,481 | 13,444 | 87,698 |
| 31.12.2014 (CZK million) | Less than 1 year | Between 1 and 5 years | Between 5 and 10 years | Between 10 and 15 years | Between 15 and 20 years | More than 20 years | Total |
|---|---|---|---|---|---|---|---|
| Life insurance liabilities | 4 | 10 | 10 | 8 | 7 | 10 | 49 |
| Financial liabilities from investment contracts | 29,388 | 14,513 | 9,665 | 7,632 | 7,115 | 12,359 | 80,672 |
| Total | 29,392 | 14,523 | 9,675 | 7,640 | 7,122 | 12,369 | 80,721 |