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9.3 Reclassification between fair value hierarchy levels

Annual Report 2019 > 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 2019, the following transfers of assets between fair value levels were made:

  • reclassification from Level III to Level II was applied to municipal and corporate bonds measured using market information about prices of comparable financial instruments, municipal and corporate bonds for which the estimated credit parameters had no significant impact on their measurement because the unobservable factor (correlation) had no significant impact on their measurement,
  • corporate and municipal bonds were reclassified from Level II to Level III for which the impact exerted by the estimated credit parameters on the measurement was material and capital market derivatives for which the estimated parameter (correlation) exerted a significant impact on the measurement.

In 2018, the following transfers of assets between fair value levels were made:

  • treasury bonds for which active market quotations were available were reclassified from Level II to Level I;
  • reclassification from level III to level II was applied to municipal and corporate bonds measured using market information about prices of comparable financial instruments, corporate bonds for which the estimated credit parameters had no significant impact on their measurement, treasury bonds denominated in Polish zloty for which the estimated spread to benchmark bond had no significant impact on their measurement and a derivative equity market transaction because the unobservable factor (correlation) had no significant impact on their measurement;
  • corporate and municipal bonds for which the impact of the estimated parameter (correlation) exerted a significant impact on their measurement were reclassified from Level II to Level III.