(11) Fair value hierarchy

Fair value hierarchy

For the purposes of the disclosure requirements pursuant to IFRS 7 “Financial Instruments: Disclosures”, the financial instruments to be recognized at fair value in the balance sheet are to be assigned to a three-level fair value hierarchy. The purpose of this new requirement, inter alia, is to set out the market proximity of the data included in the determination of fair values. The following classes of financial instruments are affected: financial assets available for sale, financial assets at fair value through profit or loss, other financial assets – insofar as they are recognized at fair value, negative fair values from derivative financial instruments (included in the balance sheet item “Other liabilities”) as well as hedging instruments (derivatives in the context of hedge accounting).

Breakdown of financial assets measured at fair value

The financial assets recognized at fair value were allocated as follows as at the balance sheet date in accordance with the three levels of the fair value hierarchy:

  • Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities. This includes first and foremost listed equities, futures and options, investment funds and highly liquid bonds traded on regulated markets. As at the balance sheet date the proportion of financial instruments in the total portfolio of financial assets measured at fair value allocated to level 1 was 45 (50)%.
  • Level 2: Inputs used for measurement that are based on observable market data and are not included in level 1. This level includes, for example, assets measured on the basis of interest rate curves, such as borrower’s note loans and registered debentures. Market prices of bonds of limited liquidity, such as corporate bonds, are also allocated to level 2. Altogether, 52 (46)% of the financial instruments recognized at fair value were allocated to this level as at the balance sheet date.
  • Level 3: Inputs used for measurement that are not based on observable market data (unobservable inputs). This level includes primarily unlisted equity securities. As at the balance sheet date the Group allocated 3 (4)% of the financial assets recognized at fair value to this category.

The following table shows the carrying amounts of the financial assets recognized at fair value broken down according to the three levels of the fair value hierarchy:

Carrying amounts of financial instruments
recognized at fair value

Level 1

Level 2

Level 3 1)

Balance at
31.12.2010

Figures in EUR million

       

Assets measured at fair value

       

Financial assets available for sale

       

Fixed-income securities

11,054

17,216

60

28,330

Variable-yield securities

1,706

314

285

2,305

Financial assets at fair value through profit or loss

       

Financial assets classified at fair value  through profit or loss

130

836

23

989

Financial assets held for trading

153

79

232

Other invested assets

3,016

158

897

4,071

Total amount of financial assets measured at fair value

16,059

18,603

1,265

35,927

         

Financial liabilities measured at fair value

       

Other liabilities (negative fair values from derivative financial instruments)

       

Negative fair values from derivatives (trading portfolio)

2

83

85

Negative fair value from hedging instruments

109

40

149

Total amount of financial liabilities measured at fair value

111

123

234


1) Categorization in level 3 has no quality implications; no conclusions may be drawn as to the credit rating of the issuers.

Carrying amounts of financial instruments
recognized at fair value

Level 1

Level 2

Level 3 1)

Balance at
31.12.2009

Figures in EUR million

       

Assets measured at fair value

       

Financial assets available for sale

       

Fixed-income securities

10,522

13,570

134

24,226

Variable-yield securities

1,610

89

552

2,251

Financial assets at fair value through profit or loss

       

Financial assets classified at fair value through profit or loss

188

641

32

861

Financial assets held for trading

150

88

238

Other invested assets

3,237

64

713

4,014

Total amount of financial assets measured at fair value

15,707

14,452

1,431

31,590

         

Financial liabilities measured at fair value

       

Other liabilities (negative fair values from derivative financial instruments)

       

Negative fair values from derivatives
(trading portfolio)

30

30

Negative fair value from hedging instruments

2

40

42

Total amount of financial liabilities measured at fair value

2

70

72


1) Categorization in level 3 has no quality implications; no conclusions may be drawn as to the credit rating of the issuers.

In the financial year just-ended securities with a fair value of EUR 614 million were no longer classified as level 1 financial assets – as in the previous year – but were instead allocated to level 2. The reclassification was carried out above all as a consequence of the reduced liquidity of the instruments. We reclassified securities with a fair value of EUR 74 million, which in the previous year were recognized as level 2 financial assets, to level 1 in 2010. Overall, the reclassifications for the most part affect fixed-income securities allocated to the category “financial assets available for sale”.