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9.3 Reclassification between fair value hierarchy levels

PZU AR 2021 > Results > Supplementary information and notes > 9. Fair value > 9.3 Reclassification between fair value hierarchy levels
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If the method of measurement of assets or liabilities changes because of e.g. losing (or obtaining) access to quotations observed on an active market, such assets or liabilities are reclassified between levels I and II.

Assets or liabilities are reclassified between Levels II and III (or accordingly between Levels III and II) when:

  • there is a change in the measurement model resulting from the application of new unobservable factors (or accordingly observable ones) or
  • previously used factors that had a significant impact on the measurement are no longer observable (or accordingly become observable) on the active market.

Reclassifications between different levels of the fair value hierarchy are effected on the date ending each quarter according to the value as at that date.

In 2021, the following transfers of assets between fair value levels were made:

  • reclassification from level III to level II was applied to corporate and municipal bonds measured using market information about the prices of comparable financial instruments, corporate and municipal bonds for which the estimated credit parameters had no significant impact on their measurement and capital market derivatives for which the estimated correlation had no significant impact on their measurement;
  • reclassification from level II to level III was effected with respect to corporate to municipal bonds, for which the estimated credit parameters exerted material impact on the measurement, and capital market derivatives for which the estimated volatility exerted a material impact on the measurement;
  • reclassification from level I to level II was effected with respect to government bonds for which measurement was made using information on the prices of comparable financial instruments and participation units in mutual funds for which measurement based on market quotations was discontinued due to a decline in market activity.

In 2020, the following transfers of assets between fair value levels were made:

  • reclassification from level III to level II was applied to corporate bonds measured using market information about the prices of comparable financial instruments, corporate and municipal bonds for which the estimated credit parameters had no significant impact on their measurement and capital market derivatives for which the estimated parameter (correlation) had no significant impact on their measurement;
  • reclassification from level II to level III was applied to corporate and municipal bonds for which the impact exerted by the estimated credit parameters on the measurement was material, treasury bonds for which the impact of the estimated spread to the reference bond had significant impact on the measurement, and capital market derivatives for which the estimated parameter (correlation) exerted a significant impact on the measurement;
  • reclassification from level II to level I was applied to treasury bonds measured using quotations from an active market;
  • reclassification from level I to level II was effected with respect to government bonds for which measurement was made using information on the prices of comparable financial instruments and participation units in mutual funds for which measurement based on market quotations was discontinued due to a decline in market activity.