Risk management

The nature of an insurance company is to take on risks in return for premium payments. However, these risks arising from the insurance business are only part of the risks which can arise within an insurance company. In addition, to general technical risks, there are also financial, operational and management risks. The term external risks refers to those risks that cannot be influenced by the insurance business.

In order to identify, measure, aggregate and control all risks, a UNIQA risk management system was created which is in use in all operating companies in Austria. This system is also used in Germany, Slovakia, the Czech Republic, Italy and Hungary. The remaining countries of the UNIQA Group will introduce this system during the course of 2007.

The risk management process is centrally controlled and operated by the respective actuary departments. These are responsible for the documentation of all risks that could significantly jeopardise the continued existence of the company or the insurance business. They also report quarterly to the Management Board regarding the risk situation of the company. Ad-hoc information is also provided where necessary. Asset liability management is performed annually in the life insurance segment, and the analyses of stress tests are included in the report on a quarterly basis.

Promoters, who can be described as responsible for an area, are tasked with documenting all risks that concern their segment. The actual assessment of the risks is performed by assessors. The assessment is followed by a check by both the promoter and risk management.

Amongst other aspects, the level of risk and probability of occurrence are documented for each risk. Multiplying these two values together gives the risk potential. Each scenario that corresponds to the highest risk potential is used when assessing the risk.

The risk potential is also a figure that allows for comparing risks. This guarantees that risks with a high probability of occurrence and risks with a high level of risk are considered to be major risks.

Management of actuarial and financial risks

1. Actuarial risks

The risk of an insurance contract is the occurrence of the insured event. By definition the occurrence of this risk takes place by chance and is, therefore, unpredictable. Using the law of large numbers, the risk can be calculated for a sufficiently large insurance portfolio. The larger the portfolio consisting of similar insurance policies, the more accurately the result (loss) can be estimated. For this reason, insurance companies strive for growth.

Premiums earned (gross)	€ 000
2006	4,500,985
2005	4,354,341
2004	3,613,794
2003	3,016,185
2002	2,636,938
2001	2,636,777

The principle of insurance is built on the law of large numbers: only a few of those at risk will actually suffer a loss. For the individual, the occurrence of loss is uncertain; for the collective, however, it is largely determined. The loss-bearing and loss-free risks theoretically cancel each other out. The actuarial risk now exists in the danger that the actual claims for a certain period deviate from those expected. This risk can be divided into the chance risk, the change risk and the error risk.

The chance risk means that higher than expected losses can occur by pure chance. Amongst other things, the change risk means that unforeseen changes to the risk factors have an impact on the actual loss payments. The error risk comes about >from deviations arising through incorrect assessment of the risk factors.

1.1. Property insurance

The total customer perspective already introduced should be further strengthened within the UNIQA Group in the future. When implementing sales campaigns, actuarial calculations that include the associated risks are utilised.

For reasons of turnover, the discounting capacity of Sales is generally entirely exhausted. A risk could also arise through further relocation of discounting competence to Sales. Constant analyses of the use of discounts and the exhausting of the discount capacity are performed to counteract this risk. The total discounting capacity is determined centrally by using various key figures and is then divided amongst the individual regional offices. Because revenue components are also built into the various compensation systems, any use of discounts that reduces revenue would have a direct impact on income. There are also discount limits that are based on the risk and customer criteria.

Reinsurance policies reduce the retained earnings of the initial insurer and lead to a smoothing of results. On the one hand, they can lead to a reduction of the claim ratio in retained earnings in the event of extraordinary events; on the other, a good level of claims can worsen the claim ratio in retained earnings. The aim of an optimal reinsurance strategy is to find a structure that takes both of these points into consideration.

Claims ratio (gross)	€ 000
2006	64.3
2005	66.7
2004	64.1
2003	68.9
2002	77.3
2001	73.7

With regard to unexpected claims, risk management makes assessments on elemental, major and cumulative losses in the areas of storms, floods and earthquakes that are based on accepted scenarios. Reinsurance policies considerably reduce the levels of possible losses. Due to the possibility of the failure of reinsurers, the reinsurance structure of the UNIQA Group is described below.

For the exact determination of the reserve risk and premium risk, an internal model is implemented that indicates the risk based on the fundamental portfolio structure, the current reinsurance programme and future developments. Detailed information regarding the future development of mass, major and catastrophic damages, calculated on the basis of historic data, are used as the basis for this. This makes it possible to identify developments at an early point and take direct measures (structuring of premiums and scopes of coverage, adaptation of reinsurance structures) to minimise the risk and control financial results.

Excursus: reinsurance

The total obligatory reinsurance requirement of operating UNIQA companies is covered with reinsurance policies at UNIQA Versicherungen AG or UNIQA Re. UNIQA Versicherungen AG in Vienna is the sole reinsurer of Austrian UNIQA companies, while UNIQA Re in Zurich acts as sole risk bearer for international UNIQA companies.

Between 50% and 60% of the entire portfolio are covered by these reinsurance policies. Ratio figures, which, depending upon the volatility of the respective insurance branch, reach between 25% and 90%, are supplemented with excess loss policies. Two cumulative excess loss policies also exist which should cover major losses across the insurance branch (“umbrella”) incurred through natural disasters (earthquakes, flooding, high water, storm, etc.)

In 2004, we also created our own reinsurance line on a nonproportional basis for the large industrial business of all Group companies. This includes major risks in various branches of industrial insurance according to precise earnings limits and includes general liability insurance.

UNIQA Insurer AG and UNIQA Re pool the business acquired by the Group companies according to insurance branches and pass gross excess loss policies, which are supplemented by net ratios, on to international reinsurers as a “bouquet”. The reinsurance structure, the conditions, the shares and all reinsurance partners in this bouquet are identical for both companies. The reinsurance policy is fully placed.

The effect of the reinsurance programme on the claims ratio in retained earnings can be seen in the following table:

Claims ratio (retained earnings)	%
2006	66.0
2005	68.0
2004	65.6
2003	69.8
2002	76.0
2001	73.0

The table below shows the reinsurance requirements for outstanding claims and incurred but not reported claims arranged according to ratings. This concerns the reinsurance business ceded by domestic subsidiaries and UNIQA Re from the property insurance lines to companies outside the Group. The cessions of international subsidiaries and the IWD portion of co-insurance are not included.

Rating	31 Dec. 2006 € 000
AAA	4,813
AA	110,857
A	98,323
BBB*	13,609
Not rated	3,705
*“Long Tail” reserves are secured with security deposits.

The creditworthiness of reinsurers is also very important, not least because of the long duration of claim settlement in the area of general liability insurance and motor vehicle liability insurance.

The problem of duration in reinsurance (initial insurance policies are often multi-year, while reinsurance policies are taken out for only one year) is primarily held in check by the reinsurance team, which controls this risk. Systematic analyses, supported by actuarial methods, are used to assess the appropriateness of the actuarial provisions.

In addition to the elemental lines, the commercial property business also includes liability and technical insurance. The UNIQA Group divides this into three areas:

• Standardised bundled policies for small commercial businesses.
  
• Customised policies for medium-sized companies; however, the scope of coverage and exposure of these policies are such that they can be accepted decentrally in the Austrian regions and international subsidiaries.
  
• Large policies, or policies with a complicated scope of coverage, are decided on and arranged centrally both in Austria and for the international subsidiaries. These policies are selected according to quantitative criteria (e.g. €2 million insured sum in property insurance) as well as by content-based, qualitative criteria, such as asset damage coverage in the liability insurance.

Since 2004, the top risks (e.g. over €10.9 million probable maximum loss in property insurance) have been covered by our own, non-proportional reinsurance policy outside of the obligatory reinsurance. A team of experts at the International Desk in Vienna decides on the contribution to this policy for the entire Group.

In the property segment, major risks are evaluated for risk prior to acceptance and subsequently at regular intervals, and documented in survey reports. In the liability insurance line, the portfolio for high-level risks is subject to permanent monitoring (e.g. planning risks and liability insurance in the medical segment).

The industry holdings of the international companies are regularly analysed for their exposure and composition (risk mix), and survey reports on the exposed risks are prepared.

1.2. Life insurance

The risk of an individual insurance contract lies in the occurrence of the insured event. The occurrence is considered random and, therefore, unpredictable. The insurance company takes on this risk for a corresponding premium. When calculating the premium, the actuary refers to the following carefully selected bases of calculation:

• Interest: The actuarial interest is set so low that it can be produced with certainty in each year.
  
• Mortality: The probabilities of dying are deliberately and carefully calculated for each type of insurance.
  
• Costs: These are calculated in such a way that the costs incurred by the policy can be permanently covered by the premium.

Careful selection of the bases of calculation gives rise to scheduled profits, an appropriate amount of which is credited to the policyholders as part of profit sharing in accordance with the profit plan.

The calculation of the premium is also based on the acceptance of a large, homogenous inventory of independent risks, so that the randomness inherent in an individual insurance policy is balanced out by the law of large numbers.

The following risks exist for a life insurance company:

• The bases of calculation prove to be insufficient despite careful selection.
  
• Random fluctuations prove disadvantageous for the insurer.
  
• The policyholder exercises certain implicit options to his advantage.

The risks of the insurer can be divided into actuarial and financial risks.

Capital and risk insurance

UNIQA’s portfolio consists primarily of long-term insurance policies. Short-term assurances payable at death play a minor role.

In the following table, the number of insurance policies is divided by rate groups and insured sums, and takes into consideration the companies of UNIQA Personenversicherung AG, Raiffeisen Versicherung AG, Salzburger Landes-Versicherung and CALL DIRECT Versicherung AG.

Number of insurance policies as at 31 Dec. 2006 Category*	Capital insurance	Deferred retirement annuity	Liquid retirement annuity	Risk insurance
€0 to €20,000	1,272,818	86,818	14,260	174,619
€20,000 to €40,000	282,672	40,181	229	37,284
€40,000 to €100,000	111,480	22,549	50	123,879
€100,000 to €200,000	12,486	3,740	1	61,922
> €200,000	2,836	1,169	0	8,545
* Capital and risk insurance policies are based on the insured sum, for deferred pension annuities the redemption capital is included at maturity, for liquid pension annuities the category refers to the annuity.

Mortality
Insurance policies with an assurance character implicitly include a safety surcharge on the risk premium, in that the premium calculation is based on an accounting table (the Austrian Mortality Table for 1990/92 or for 2000/02).

Using risk selection (health examinations) means that the mortality probabilities of the portfolio are consistently smaller than those of the overall population; in addition, the advancement of mortality means that the real mortality probabilities are consistently smaller than the values shown in the accounting table.

Homogeneity and independence of insurance risks
An insurance company takes great pains to compose a portfolio of the most homogenous, independent risks possible, in accordance with the classic, deterministic approach to calculating premiums. Because this is virtually impossible in practice, a considerable risk arises for the insurer due to random fluctuations, in particular, from the outbreak of epidemic illnesses (AIDS, SARS, bird flu, etc.), as not only could the calculated mortality probabilities prove to be too low, but the independence of the risks can also no longer be assumed.

Cumulative risks contained in the portfolio can be reduced by using reinsurance contracts. As the first reinsurer, UNIQA Versicherungen AG operates with a retained risk of €200,000 per insured life; the excesses are mostly reinsured with Swiss Re, Münchener Rück and Gen Re. A catastrophic excess (CAT-XL) contract is also held with Swiss Re, although it excludes losses resulting from epidemics.

Antiselection
The portfolios of Raiffeisen Versicherung AG and UNIQA Personenversicherung AG contain large inventories of risk insurance policies with a premium adjustment clause. This allows the insurer to raise premiums in the event of a (less probable) worsening of the mortality profile. However, this presents the danger of possible antiselection behaviour: policies for good risks tend to be terminated while worse ones remain in the portfolio.

Retirement annuities

Mortality
The reduction of mortality probabilities represents a large uncertainty for retirement annuities. The advancement of mortality as a result of medical progress and changed lifestyles is virtually impossible to extrapolate.

Attempts to predict this effect were made when producing the generation tables; however, such tables exist only for the Austrian population. This data cannot be applied to other countries. Moreover, the past shows that the effect of these changes was seriously underestimated, so that subsequent reservations had to be made for retirement annuity contracts. For retirement annuity contracts in the qualifying period, a lump sum provision was formed; for liquid pensions, a subsequent reservation was made corresponding to the altered conditions of the long lifetime risk.

Antiselection
The right to choose annuity pensions for deferred retirement annuities also results in antiselection. Only those policyholders that feel very healthy opt for annuity payment, while all others choose partial or full capital payment; in this way, the retirement portfolio tends to consist mostly of healthier people, i.e. worse risks, overall, than the population average.

This phenomenon is countered by corresponding modifications to the retirement mortality tables. A further possibility exists in the requirement that the intention to exercise the right to choose annuity payments must be announced no later than one year in advance of the expiration.

Financial risks

The actuarial interest that may be used in the calculation for writing new business is based on the maximum interest rate ordinance, and currently amounts to 1.75% per annum (“Lebensaktie“, “Zukunftsplan“) or 2.25% per annum (other life insurance policies). However, the portfolio also contains older contracts with actuarial interest of up to 4.0% per annum, while the average rate for the portfolio is 2.92 %.

As these interest rates are guaranteed by the insurance company, the financial risk lies in not being able to generate these returns. As classic life insurance predominantly invests in interest bearing titles (loans, credits, etc.), the unpredictability of long-term interest rate trends is the most significant financial risk for a life insurance company. The interest risk weighs especially heavily on retirement annuities, as these concern extremely long-term policies.

The interest risk functions in the following ways:

Investment and reinvestment risk
Premiums that are paid in the future must be invested at an interest rate guaranteed at the time the policy is taken out; however, it is entirely possible that no corresponding securities are available at the time the premium is paid. In the same way, future income must be reinvested at the actuarial interest rate.

Ratio of assets to liabilities
For practical reasons, the goal of duration matching cannot be fully achieved on the assets and liability side. The duration of assets is between five and six years, while that of liabilities is considerably larger. This creates a duration gap that reduces the ratio of assets to liabilities in the event of falling interest rates.

Value of implicit options
Life insurance policies contain implicit options that can be exercised by the policyholder. While the possibilities of partial or full buy-back, or the partial or full release of premiums, in fact, represent financing options; these options are not necessarily exercised as a consequence of correct, financially rational decisions. However, in the case of a mass buy-back (e.g. due to an economic crisis), this represents a considerable risk to the insurance company.

The question of whether a capital or annuity option should be exercised is, in addition to subjective motives of the policyholder, also characterised by financially rational considerations; depending on the final interest level, a policyholder will opt for the capital or the annuity, so that these options represent a considerable (cash) value for the policyholder, and therefore, a corresponding risk for the insurer.

The guarantee of an annuitising factor represents another financial risk. Here, the insurance company guarantees to annuitise a sum unknown in advance (namely the value of the fund shares at maturity) in accordance with an interest rate and a mortality table set at the time the policy is taken out (the latter risk is not only financial).

Besides these technical and financial risks, the cost risk must also be mentioned. For the term of the policy, the insurer guarantees only to withdraw the calculated costs. The business risk here is that the cost premiums are insufficient (e.g. due cost increases resulting from inflation).

1.3. Health insurance

Health insurance is a type of insurance that takes biometric risks into account within its calculations and which must be operated according to the “type of life insurance” in Austria. Terminations by the insurer are not possible except in the case of obligation violations by the insured. Premiums must therefore be calculated in such a way that they are sufficient to cover the insurance benefits that generally increase with age, assuming probabilities that remain constant. The probabilities and cost structures can change frequently over time. For this reason, it is possible to adjust the premiums for health insurance as necessary to the changed bases of calculation.

When taking on the risks, the existing risk of the persons is also evaluated. If it is established that an illness already exists for which the cost risk is expected to be higher than for the calculated portfolio, then either this illness is excluded from the policy, an adequate risk surcharge is demanded or the risk is not underwritten.

In health insurance, assurance coverage (“ageing provision”) is built up through calculation according to the “type of life insurance” and reduced again in later years because this is used to finance an ever larger part of the benefits that increase with age.

The actuarial interest rate for this actuarial provision is a prudent 3%, so that the investment risk of health insurance in Austria is relatively low. If it were expected that 3% could no longer be obtained in future, this fact would have to be taken into account for future benefits and included in the premium adjustment.

The operational risks are extensively determined by the IT architecture and by errors that can arise from the business processes (policy formulation, risk assessment and benefit calculation). These risks should be kept to a minimum by using risk management.

The legal risks arise primarily from the effects that changes to legislation have on the existing private health insurance business model. This includes, in particular, changes to the legal framework that make it harder or impossible to adapt to changed circumstances or sharply reduce the income opportunities. Developments in this area will be observed by the insurance association, and, where necessary, an attempt will be made to react to negative developments from the perspective of the private health insurer.

2. Financial risks

For numerous insurance products, a calculatory interest rate is taken into consideration for the investment period between expected deposit and expected payout. The risk, therefore, lies in a deviation between the expected or calculated interest and the return on capital actually achieved on the capital market. The main components of these capital market risks are:

• Interest rate change risk: possible losses caused by a change in the level and term-based structure of interest rates.
  
• The share risk: possible losses due to price performance on the stock markets caused by macroeconomic and companyrelated changes.
  
• The credit risk: possible losses caused by the inability to pay or the worsening creditworthiness of debtors or contractual partners.
  
• The currency risk: possible losses caused by changes in exchange rates.
  
• The liquidity risk: the danger of not having sufficient liquid funds on the date of scheduled payout.

The financial risks have different weightings and various degrees of seriousness, depending on the investment structure. However, the effects of the financial risks on the value of the investments also influence the level of technical liabilities to some extent.

There is, therefore, a partial dependence between the growth of assets and debts from insurance policies. UNIQA monitors the income expectations and risks of assets and liabilities arising >from insurance policies as part of an Asset-Liability Management (ALM) process. The aim is to achieve a return on capital that is sustainably higher than the updating of the technical liabilities while retaining the greatest possible security. Here, assets and debts are allocated to different accounting groups. The following table shows the most important accounting groups that arise >from the different product categories.

Investments	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Long-term life insurance policies with guaranteed interest and profit sharing	13,943,506	12,988,283
Long-term unit-linked and index-linked life insurance policies	1,952,897	1,492,241
Long-term health insurance policies	2,083,161	2,042,431
Short-term property and casualty insurance policies	3,438,782	3,036,411
Total	21,418,346	19,559,365
Technical provisions and liabilities (retained)	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Long-term life insurance policies with guaranteed interest and profit sharing	13,713,127	12,958,338
Long-term unit-linked and index-linked life insurance policies	1,911,516	1,457,692
Long-term health insurance policies	2,224,055	2,085,526
Short-term property and casualty insurance policies	1,918,533	1,798,359
Total	19,767,231	18,299,915

2.1. Interest rate change risk

Due to the investment structure and the high proportion of interest bearing titles, the interest rate risk forms a very important component of the financial risks. The following table shows the interest-bearing securities and the average interest coupons arranged by the most important investment categories and their average coupon interest rate on the reporting date.

Average interest coupon in %	€		USD		Other
	2006	2005	2006	2005	2006	2005
Fixed interest securities
High-grade loans	4.05	4.31	4.95	4.39	5.06	4.90
Bank/company loans	4.75	4.55	7.50	5.76	3.97	4.04
Emerging markets loans	7.61	6.86	7.82	7.98	8.17	7.02
High-yield loans	6.30	6.50	8.07	8.10	6.51	8.59
Other investments	4.08	3.80			3.19	3.19
Fixed interest liabilities
Subordinated liabilities	5.34	5.49
Guaranteed interest life insurance	2.92	3.00
Debenture bonds	4.00	4.00

Long-term policies and life insurance policies with guaranteed interest and profit sharing
Insurance policies with guaranteed interested and additional profit sharing contain the risk that the guaranteed interest rate will not be achieved over a sustained period of time. Capital income produced over and above the guaranteed interest rate will be shared between the policyholder and the insurance company, with the policyholder receiving an appropriate share of the profit. The following table shows the comparison of assets and debts for such insurance policies.

Investments for long-term life insurance policies with guaranteed interest and profit sharing	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Annuities	10,213,018	9,226,366
Shares	1,164,251	1,289,589
Alternatives	810,089	747,333
Holdings	82,711	80,807
Loans	302,187	459,568
Real estate	642,796	418,435
Liquidity	635,751	682,481
Deposits receivable	92,702	83,704
Total	13,943,506	12,988,283
Difference between book value and market value of land and buildings	163,867	144,589
Provisions and liabilities from long-term life insurance policies with guaranteed interest and profit sharing	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Actuarial provision	12,541,017	11,710,531
Provision for profit-unrelated premium refunds	13	0
Provision for profit-related premium refunds and profit sharing	687,165	798,463
Other technical provisions	15,239	17,383
Provision for outstanding claims	90,982	80,914
Deposits payable	378,712	351,046
Total	13,713,127	12,958,338

The following table shows the structure of the remaining terms of interest-bearing securities and loans.

Remaining term	31 Dec. 2006 € 000	31 Dec. 2005 € 000
<= year	688,828	295,986
> 1 year to <= years	1,546,677	1,137,819
> 3 years bis <= years	1,400,020	1,415,906
> 5 years bis <= years	1,923,959	2,596,612
> 7 years bis <= years	1,786,409	1,768,978
> 10 years bis <= years	1,392,811	1,179,110
> 15 years	1,774,369	1,291,522
Total	10,513,073	9,685,934

The capital-weighted average remaining term of technical liabilities is around 8.5 years (2005: 8.4 years).

Long-term unit-linked and index-linked life insurance policies
In the segment of unit- and index-linked life insurance, the interest income and all fluctuations in value of the dedicated investments are reflected in the technical provisions. There is, therefore, no financial risk from the point of view of the insurer. The following table shows the investment structure of financial investments that are used to cover the technical provisions arising >from unit-linked and index-linked life insurance policies.

Investments in unit-linked and index-linked life insurance policies	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Share-based funds	672,620	493,872
Bond funds	1,236,337	959,076
Liquidity	43,939	38,916
Other investments	1	377
Total	1,952,897	1,492,241

Long-term health insurance policies
The actuarial interest rate for the actuarial provision in health insurance lines, which is selected depending on the type of life insurance, is 3%. However, this interest rate is not guaranteed and can, upon presentation of proof to the Insurance Supervisory Authority, be reduced to a lower capital income that may be expected. The following table shows the investment structure available to cover insurance liabilities.

Investments for long-term health insurance policies	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Annuities	1,154,135	1,017,857
Shares	133,201	186,545
Alternatives	96,335	66,203
Holdings	27,476	36,450
Loans	303,746	354,320
Real estate	195,770	203,327
Liquidity	172,499	177,728
Total	2,083,161	2,042,431
Difference between book value and market value of land and buildings	231,861	228,118
Provisions and liabilities from long-term health insurance policies	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Actuarial provision	1,972,628	1,839,393
Provision for profit-unrelated premium refunds	20,793	18,546
Provision for profit-related premium refunds or profit sharing	57,191	56,612
Other technical provisions	5,916	1,070
Provision for unearned premiums	14,959	13,918
Provision for outstanding claims	150,725	154,010
Deposits payable	1,842	1,976
Total	2,224,055	2,085,526

Property and casualty insurance policies
Most property and casualty insurance policies are short-term. Due to the short investment term, there is naturally a lower risk arising from financial risks. The technical provisions are not discounted, so that no interest is calculated for the short-term investment. The average terms of interest-bearing securities and loans invested to cover technical provisions is shown in the following table.

Remaining term	31 Dec. 2006 € 000	31 Dec. 2005 € 000
<= year	203,409	248,346
> 1 year to <= years	261,545	233,004
> 3 years bis <= years	304,229	263,930
> 5 years bis <= years	509,274	262,948
> 7 years bis <= years	471,467	394,218
> 10 years bis <= years	163,883	335,564
> 15 years	163,397	132,542
Total	2,077,205	1,870,551

The investment structure in the property and casualty insurance is as follows.

Investments for short-term property and casualty insurance policies	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Annuities	1,426,894	1,511,366
Shares	166,185	156,721
Alternatives	80,184	36,955
Holdings	624,072	364,501
Loans	428,111	359,187
Real estate	441,872	457,345
Liquidity	258,489	136,414
Deposits receivable	12,975	13,922
Total	3,438,782	3,036,411
Difference between book value and market value of land and buildings	150,996	143,320
Provisions and liabilities from short-term property and casualty insurance policies	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Provision for unearned premiums	343,997	308,686
Actuarial provision	44,550	50,231
Provision for outstanding claims	1,458,607	1,370,935
Provision for profit-unrelated premium refunds	26,907	23,220
Provision for profit-related premium refunds or profit sharing	8,191	8,443
Other technical provisions	19,651	19,350
Deposits payable	16,630	17,493
Total	1,918,533	1,798,359

The average policy term in property and casualty insurance is between three and five years.

2.2. Share risk

When investing in stock markets, the risk is diversified by using various management styles (total-return approach, benchmarkoriented approach, value growth approach and industry- and region-specific and fundamental title selection). For the purpose of securing the investment, the effective investment ratio is controlled through the use of derivate financial instruments. The following table shows the investment structure of the share portfolios by asset classes:

Share portfolio composition	31 Dec. 2006 € 000	31 Dec. 2005 € 000
Shares in Europe	649,588	781,476
Shares in America	85,456	113,936
Shares in Asia	128,591	193,380
Shares international1)	1,401	69,582
Shares in emerging markets	142,316	195,232
Shares total return2)	401,580	263,194
Other shares	56,200	16,057
Total	1,465,133	1,632,855
1) Share-based funds with globally diversified investments. 2) Share-based funds with the management goal of achieving an absolute return by including less risky investments (liquidity, bonds) in difficult market phases.

2.3. Credit risk

When investing in securities, we invest in debt securities of varying quality, taking into consideration the yield prospects and risks. The following table shows the quality structure of fixedinterest investments.

Rating	31 Dec. 2006 € 000	31 Dec. 2005 € 000
AAA	3,603,331	3,441,215
AA	3,603,847	2,896,111
A	3,110,333	2,438,287
BBB	1,029,342	906,437
BB	1,082,315	1,095,305
B	381,519	94,578
CCC	51,308	76,352
Not rated	150,871	807,304
Total	13,012,867	11,755,589

2.4. Currency risk

The UNIQA Group invests in securities in a wide range of currencies. Although the insurance business is operated in different countries, the foreign currency risks of the investments do not always correspond to the currency risks of the technical provisions and liabilities. The most significant currency risk is in USD. The following table shows a breakdown of assets and debts by currency.

The fair value of securities investments in USD amounted to €2.532 million as at 31 December 2006. The exchange rate risk was reduced using derivative financial instruments to €101 million, while the safeguard ratio was 96.0%. The safeguard was maintained in a range of between 66% and 98% during the financial year.

31 Dec. 2006 in € 000	€	USD	Other	Total
Assets
Investments	19,622,362	101,067	1,694,917	21,418,346
Other tangible assets	100,264		10,849	111,113
Intangible assets	1,097,655		66,006	1,163,661
Share of reinsurance in the technical provisions	953,174		93,353	1,046,527
Other assets	733,552		113,931	847,483
Total assets	22,507,007	101,067	1,979,056	24,587,131
Provisions and liabilities
Subordinated liabilities	475,000			475,000
Technical provisions	19,176,359		934,634	20,110,993
Other provisions	708,052		14,267	722,319
Liabilities	1,831,926		117,108	1,949,035
Total liabilities	22,191,337		1,066,009	23,257,347

31 Dec. 2005 in € 000	€	USD	Other	Total
Assets
Investments	17,637,935	431,797	1,489,633	19,559,365
Other tangible assets	126,285		9,014	135,299
Intangible assets	1,028,736		51,008	1,079,744
Share of reinsurance in the technical provisions	893,737		99,637	993,374
Other assets	718,912		81,698	800,610
Total assets	20,405,605	431,797	1,730,990	22,568,392
Provisions and liabilities
Subordinated liabilities	325,000			325,000
Technical provisions	17,939,377		727,644	18,667,021
Other provisions	691,091		7,866	698,957
Liabilities	1,641,124		102,615	1,743,739
Total liabilities	20,596,592		838,125	21,434,718

2.5. Liquidity risk

The UNIQA Group must satisfy its payment obligations on a daily basis. For this reason, a precise liquidity schedule for the immediately following months is used, and a minimum liquidity holding is defined by the Management Board and is available as a cash reserve on a daily basis. Additional underwriting obligations exist for private equity investments in the amount of €202.0 million. Obligations of €90.0 million result from multitranche loans.

2.6. Sensitivities

The risk management for investments is done in a structured investment process, in which the various market risks are controlled at the levels of the selection of a strategic asset allocation, the tactical weighting of the individual asset classes depending on market opinion and in the form of timing and selection decisions. In particular, stress tests and sensitivity analyses are used as key figures for measuring, observing and actively controlling the risk.

The table below shows the most important market risks in the form of key sensitivity figures; these are details available on the reporting date and, therefore, represent rough figures for future losses of fair value. The key figures are calculated theoretically on the basis of actuarial principles and do not take into consideration any diversification effects between the individual market risks or counter-controlled measures taken in the various market scenarios.

Interest rate change risk		31 Dec. 2006		31 Dec. 2005
in € 000		+100 base points	–100 base points	+100 base points	–100 base points
High grade loans		–244,381	244,381	–232,091	232,091
Bank/company loans		–159,067	159,067	–150,101	150,101
Emerging markets loans		–41,857	41,857	–13,116	13,116
High-yield loans		–2,027	2,027	–1,728	1,728
Total		–447,332	447,332	–397,037	397,037
Share risk		31 Dec. 2006		31 Dec. 2005
in € 000		+10 %	–10 %	+10 %	–10 %
Shares in Europe		60,895	–60,895	78,265	–78,265
Shares in America		8,509	–8,509	11,391	–11,391
Shares in Asia		12,468	–12,468	19,450	–19,450
International shares		27	–27	5,855	–5,855
Shares in emerging markets		13,875	–13,875	19,536	–19,536
Shares total return		39,967	–39,967	26,319	–26,319
Derivative financial instruments and other shares		–18,851	34,151	–4,849	4,849
Total		116,890	–101,590	155,968	–155,968
Currency risk		31 Dec. 2006		31 Dec. 2005
in € 000		+10 %	–10 %	+10 %	–10 %
EUR		0	0	0	0
USD		9,569	–9,569	43,180	–43,180
Other		141,597	–141,597	144,333	–144,333
Total		151,166	–151,166	187,512	–187,512
Quality risk		31 Dec. 2006		31 Dec. 2005
in € 000	Change to spread	+	–	+	–
AAA	0 base points	0	0	0	0
AA	25 base points	–41,493	41,493	–42,490	42,490
A	50 base points	–64,780	64,780	–63,536	63,536
BBB	75 base points	–65,987	65,987	–69,130	69,130
BB	100 base points	–67,275	67,275	–53,275	53,275
B	125 base points	–21,536	21,536	–7,017	7,017
CCC	150 base points	–5,156	5,156	–2,613	2,613
Not rated	100 base points	–7,222	7,222	–2,183	2,183
Total		–273,448	273,448	–240,244	240,244

Value at risk

The overall market risk of the investment portfolio is determined on the basis of the value-at-risk approach. The key figure is calculated for a confidence interval of 95% and a holding term of one year. The basic data is in the form of historical figures from the last calendar year and a balancing of the individual values (decay factor of 1).

The following table shows the key value at risk figures for the last financial year as reporting date values, annual average and maxima/minima for the year.

Value at risk	Total value at risk € 000	Share risk € 000	Currency risk € 000	Interest risk € 000	Diversification € 000
31 Dec. 2006	514,686	194,216	61,579	432,430	–173,539
31 Dec. 2005	746,000	131,000	102,000	741,000	–229,000
Lowest	480,245	194,216	59,086	392,192	–173,539
Average	523,467	221,224	64,737	439,755	–202,249
Highest	594,831	248,796	72,350	528,187	–248,406