E.6. Liquidity risk
Liquidity risk arises in the general funding of the Company’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.
The Company has 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, real estates and shareholder equity. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds.
The Company strives 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, the Company holds a portfolio of liquid assets as part of its liquidity risk management strategy. The Company continuously monitors the liquidity risk to gain smoothly access to funds to meet known obligations, with an additional buffer to cover potential unknown situations. 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.
The Company continually assesses its liquidity risk by identifying and monitoring changes in the funding required to meet business goals and the targets set in terms of the overall Company strategy.
The following tables show an analysis of the Company’s financial assets and liabilities broken down into their relevant maturity bands based on the residual contractual maturities.
Residual contractual maturities of financial assets:
| In CZK million, as at 31 December 2016 | Less than 1 month | Between 1 and 3 months | Between 3 months and 1 year | Between 1 and 5 years | More than 5 years | Non- specified | Total |
|---|---|---|---|---|---|---|---|
| Investments | 7,250 | 1,190 | 6,875 | 25,406 | 32,604 | 14,989 | 88,314 |
Loans | 6,631 | – | 49 | 2,073 | – | – | 8,753 |
Available-for-sale | 540 | 628 | 6,750 | 20,900 | 33,167 | 7,252 | 69,237 |
Bonds | 540 | 628 | 6,750 | 20,900 | 33,167 | – | 61,985 |
Equities | – | – | – | – | – | 1,480 | 1,480 |
Investment fund units | – | – | – | – | – | 5,772 | 5,772 |
Financial assets at fair value through profit or loss | 79 | 562 | 76 | 2,433 | (563) | 7,737 | 10,324 |
Bonds | – | – | 86 | 2,266 | – | – | 2,352 |
Unit-linked investments | 55 | 1 | – | 130 | – | 7,737 | 7,923 |
Derivatives | 24 | 561 | (10) | 37 | (563) | – | 49 |
| Receivables | 4,309 | 662 | 9 | 302 | 978 | – | 6,260 |
| Cash and cash equivalents | 2,769 | – | – | – | – | – | 2,769 |
| Total financial assets | 14,328 | 1,852 | 6,884 | 25,708 | 33,582 | 14,989 | 97,343 |
| In CZK million, as at 31 December 2015 | Less than 1 month | Between 1 and 3 months | Between 3 months and 1 year | Between 1 and 5 years | More than 5 years | Non- specified | Total |
|---|---|---|---|---|---|---|---|
| Investments | 3,134 | 1,858 | 6,315 | 27,867 | 33,961 | 16,202 | 89,337 |
Loans | 2,333 | – | 45 | 2,010 | – | – | 4,388 |
Available-for-sale | 185 | 1,643 | 5,586 | 23,421 | 34,234 | 8,605 | 73,674 |
Bonds | 185 | 1,643 | 5,586 | 23,421 | 34,234 | – | 65,069 |
Equities | – | – | – | – | – | 2,065 | 2,065 |
Investment fund units | – | – | – | – | – | 6,540 | 6,540 |
Financial assets at fair value through profit or loss | 616 | 215 | 684 | 2,436 | (273) | 7,597 | 11,275 |
Bonds | – | 210 | 630 | 2,352 | – | – | 3,192 |
Unit-linked investments | 49 | 6 | 11 | 6 | 125 | 7,597 | 7,794 |
Derivatives | 567 | (1) | 43 | 78 | (398) | – | 289 |
| Receivables | 2,985 | 2,381 | 185 | 21 | 514 | – | 6,086 |
| Cash and cash equivalents | 1,946 | – | – | – | – | – | 1,946 |
| Total financial assets | 8,065 | 4,239 | 6,500 | 27,888 | 34,475 | 16,202 | 97,369 |
Residual contractual maturities of liabilities:
| In CZK million, as at 31 December 2016 | Less than 1 month | Between 1 and 3 months | Between 3 months and 1 year | Between 1 and 5 years | More than 5 years | Non- specified | Total |
|---|---|---|---|---|---|---|---|
| Financial liabilities | 5,373 | (30) | 635 | 978 | 1,630 | – | 8,586 |
Other financial liabilities | 4,718 | 1,860 | 499 | – | – | – | 7,077 |
Financial liabilities at fair value through profit or loss | 655 | (1,890) | 136 | 978 | 1,630 | – | 1,509 |
| Payables | 2,428 | 4,614 | 707 | – | – | – | 7,749 |
| Other liabilities | 1,773 | 281 | – | – | – | – | 2,054 |
| Total liabilities | 9,574 | 4,865 | 1,342 | 978 | 1,630 | – | 18,389 |
| In CZK million, as at 31 December 2015 | Less than 1 month | Between 1 and 3 months | Between 3 months and 1 year | Between 1 and 5 years | More than 5 years | Non- specified | Total |
|---|---|---|---|---|---|---|---|
| Financial liabilities | 64 | 129 | 314 | 1,157 | 137 | 1,400 | 3,201 |
Other financial liabilities | – | 2 | – | 500 | – | 1,400 | 1,902 |
Financial liabilities at fair value through profit or loss | 64 | 127 | 314 | 657 | 137 | – | 1,299 |
| Payables | 2,378 | 4,507 | 934 | – | – | – | 7,819 |
| Other liabilities | 1,671 | 195 | 15 | 1 | – | – | 1,882 |
| Total liabilities | 4,113 | 4,831 | 1,263 | 1,158 | 137 | 1,400 | 12,902 |
Estimated cash flows of insurance liabilities and liabilities for investment contracts with DPF
| In CZK million, as at 31 December 2016 | 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 | 6,479 | 3,712 | 1,759 | 1,563 | 1,407 | 1,094 | 16,014 |
| RBNS & IBNR | 6,096 | 3,712 | 1,759 | 1,563 | 1,407 | 1,094 | 15,631 |
| Other insurance liabilities | 383 | – | – | – | – | – | 383 |
| Life assuranceliabilities | 4,400 | 12,551 | 10,974 | 5,787 | 4,208 | 6,011 | 43,931 |
Of which guaranteed liability for investment contracts with DPF | 145 | 376 | 347 | 207 | 149 | 366 | 1,590 |
| Total | 10,879 | 16,263 | 12,733 | 7,350 | 5,615 | 7,105 | 59,945 |
| In CZK million, as at 31 December 2015 | 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 | 6,703 | 3,804 | 1,781 | 1,619 | 1,457 | 1,133 | 16,497 |
| RBNS & IBNR | 6,394 | 3,804 | 1,781 | 1,619 | 1,457 | 1,133 | 16,188 |
| Other insurance liabilities | 309 | – | – | – | – | – | 309 |
| Life assurance liabilities | 7,034 | 14,007 | 10,860 | 5,501 | 3,603 | 5,653 | 46,658 |
Of which guaranteed liability for investment contracts with DPF | 252 | 467 | 428 | 260 | 170 | 418 | 1,995 |
| Total | 13,737 | 17,811 | 12,641 | 7,120 | 5,060 | 6,786 | 63,155 |