Risk management system

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 company.

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. At the end of 2007, all Group companies in which UNIQA holds in interest greater than 50% were integrated into this risk management process.

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 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
2007	4,489,647
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 observation of the business from a total customer perspective that was begun last year was further intensified this year, and now represents an additional controlling dimension of the company. This total customer perspective, which is obtained through actuarial calculations, is used in focused sales campaigns.

The amount of the discount granted for household/own home, casualty as well as motor vehicle liability and collision has been coupled with risk criteria and customer criteria since April 2007. The objective of this measure is for discounts offered outside of normal rates to be adapted to the risk situation and justified based on the risk level.

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 head, 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)	%
2007	68.1
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 non-proportional 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 quota agreements expired on 31 December 2007.

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

Claims ratio (retained earnings)	%
2007	67.6
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. 2007 € 000
AAA	4,199
AA	119,830
A	87,341
Not rated	791

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 subsidiaries abroad.
• Large policies, or policies with a complicated scope of coverage, are decided on and arranged centrally both in Austria and for the subsidiaries abroad. 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 factors as the calculation basis:

• 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: The costs are calculated in such a way that the costs incurred by the policy can be permanently covered by the premium.

Careful selection of the calculation basis 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 calculation basis proves 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. Shortterm 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 AG and CALL DIRECT Versicherung AG.

Number of insurance policies as at 31 Dec. 2007
Categorie1)	Capital insurance	Retirement annuity	Risk insurance
€0 to €20,000	871,108	79,447	157,914
€20,000 to €40,000	167,974	30,322	37,062
€40,000 to €100,000	67,247	17,011	128,641
€100,000 to €200,000	7,780	3,308	65,988
More than €200,000	1,787	1,130	9,043
1) 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, 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.

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 2.86%.

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 longterm 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 5 and 6 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 or, for classic life insurance, the value of the sum insured including profit participation) 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 to 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 calculation basis.

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). This 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.

In the last quarter of 2007, the EU directive concerning the equal treatment of men and women in insurance, which was implemented in Austria with the Insurance Changes Act of 2006 (VersRÄG 2006) was also taken into account in the premium calculation. Since the differences between men and women can be demonstrated, only the decoupling costs explicitly defined in the EU directive and the Insurance Changes Act as an exception to the risk-appropriate calculation had to be distributed between men and women. Since the consequences were not very significant and these changes apply to all companies, only minor negative consequences should result from this change to the legal situation, due to the fact that women of the younger age classes who are insured alone will wish to switch to the new rates.

Management of financial risks

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 company-related 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. 2007 € 000	31 Dec. 2006 € 000
Long-term life insurance policies with guaranteed interest and profit sharing	13,779,745	13,943,506
Long-term unit-linked and index-linked life insurance policies	2,470,340	1,952,897
Long-term health insurance policies	2,245,370	2,083,161
Short-term property and casualty insurance policies	3,695,766	3,438,782
Total	22,191,221	21,418,346

These values refer to the following balance sheet items:
A.I. Self-used land and buildings
B. Land and buildings held as financial investments
D. Shares in associated companies
E. Investments
F. Investments held on account and at risk of life insurance policyholders
L. Liquid funds

Technical provisions and liabilities (retained)	31 Dec. 2007 € 000	31 Dec. 2006 € 000
Long-term life insurance policies with guaranteed interest and profit sharing	13,463,170	13,713,127
Long-term unit-linked and index-linked life insurance policies	2,412,937	1,911,516
Long-term health insurance policies	2,347,571	2,224,055
Short-term property and casualty insurance policies	2,097,404	1,918,533
Total	20,321,082	19,767,231

These values refer to the following balance sheet items:
C. Technical provisions
D. Technical provisions for life insurance policies held on account and at risk of policyholders
G. I. Reinsurance liabilities (only deposits held under reinsurance business ceded)
G. Share of reinsurance in technical provisions (assets)
H. Share of reinsurance in technical provisions for life insurance policies where the investment risk is borne by policyholders (assets)

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 %	€		USD		Other
	2007	2006	2007	2006	2007	2006
Fixed interest securities
High-grade loans	4.05	4.05	5.22	4.95	5.31	5.06
Bank/company loans	4.74	4.75	7.75	7.50	3.80	3.97
Emerging markets loans	7.06	7.61	6.29	7.82	7.87	8.17
High-yield loans	6.68	6.30	8.71	8.07	7.92	6.51
Other investments	3.87	4.08	-	-	7.90	3.19
Fixed interest liabilities
Subordinated liabilities	5.34	5.34
Guaranteed interest life insurance	2.86	2.92
Debenture bonds	4.00	4.00

Long-term policies and life insurance policies with guaranteed interest and profit sharing

Insurance policies with guaranteed interest 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. 2007 € 000	31 Dec. 2006 € 000
Annuities	9,931,822	10,213,018
Shares	1,170,286	1,164,251
Alternatives	867,749	810,089
Holdings	82,040	82,711
Loans	232,801	302,187
Real estate	686,939	642,796
Liquidity	701,803	635,751
Deposits receivable	106,306	92,702
Total	13,779,745	13,943,506
Difference between book value and market value of land and buildings	168,648	163,867
Provisions and liabilities from long-term life insurance policies with guaranteed interest and profit sharing	31 Dec. 2007 € 000	31 Dec. 2006 € 000
Actuarial provision	12,614,575	12,541,017
Provision for profit-unrelated premium refunds	75	13
Provision for profit-related premium refunds and profit sharing	323,478	687,165
Other technical provisions	18,004	15,239
Provision for outstanding claims	106,159	90,982
Deposits payable	400,879	378,712
Total	13,463,170	13,713,127

The following table shows the structure of the remaining terms of interestbearing securities and loans.

Remaining term	31 Dec. 2007 € 000	31 Dec. 2006 € 000
Up to 1 year	828,204	688,828
Of more than 1 year up to 3 years	1,226,330	1,546,677
Of more than 3 years up to 5 years	1,154,581	1,400,020
Of more than 5 years up to 7 years	1,629,882	1,923,959
Of more than 7 years up to 10 years	2,228,364	1,786,409
Of more than 10 years up to 15 years	1,063,760	1,392,811
More than 15 years	2,033,502	1,774,369
Total	10,164,623	10,513,073

The capital-weighted average remaining term of technical liabilities is
around 8.3 years (2006: 8.5 years).

Long-term unit-linked and index-linked life insurance policies
In the segment of unit-linked 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. 2007 € 000	31 Dec. 2006 € 000
Share-based funds	825,456	672,620
Bond funds	1,551,188	1,236,337
Liquidity	92,882	43,939
Other investments	814	1
Total	2,470,340	1,952,897

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. 2007 € 000	31 Dec. 2006 € 000
Annuities	1,130,606	1,154,135
Shares	191,601	133,201
Alternatives	111,703	96,335
Holdings	65,812	27,476
Loans	332,223	303,746
Real estate	193,687	195,770
Liquidity	219,737	172,499
Total	2,245,370	2,083,161
Difference between book value and market value of land and buildings	259,996	231,861
Provisions and liabilities from long-term health insurance policies	31 Dec. 2007 € 000	31 Dec. 2006 € 000
Actuarial provision	2,098,989	1,972,628
Provision for profit-unrelated premium refunds	22,199	20,793
Provision for profit-related premium refunds or profit sharing	58,904	57,191
Other technical provisions	694	5,916
Provision for unearned premiums	13,395	14,959
Provision for outstanding claims	151,683	150,725
Deposits payable	1,708	1,842
Total	2,347,571	2,224,055

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 interestbearing securities and loans invested to cover technical provisions is shown in the following table.

Remaining term	31 Dec. 2007 € 000	31 Dec. 2006 € 000
Up to 1 year	162,102	203,409
Of more than 1 year up to 3 years	276,714	261,545
Of more than 3 years up to 5 years	223,488	304,229
Of more than 5 years up to 7 years	521,462	509,274
Of more than 7 years up to 10 years	298,433	471,467
Of more than 10 years up to 15 years	128,853	163,883
More than 15 years	157,516	163,397
Total	1,768,569	2,077,205

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

Investments for short-term property and casualty insurance policies	31 Dec. 2007 € 000	31 Dec. 2006 € 000
Annuities	1,351,113	1,426,894
Shares	179,428	166,185
Alternatives	67,429	80,184
Holdings	866,147	624,072
Loans	417,456	428,111
Real estate	426,685	441,872
Liquidity	374,906	258,489
Deposits receivable	12,602	12,975
Total	3,695,766	3,438,782
Difference between book value and market value of land and buildings	180,553	150,996
Provisions and liabilities from long-term health insurance policies	31 Dec. 2007 € 000	31 Dec. 2006 € 000
Actuarial provision	408,688	343,997
Provision for profit-unrelated premium refunds	44,482	44,550
Provision for profit-related premium refunds or profit sharing	1,582,211	1,458,607
Other technical provisions	25,591	26,907
Provision for unearned premiums	7,315	8,191
Provision for outstanding claims	16,765	19,651
Deposits payable	12,351	16,630
Total	2,097,404	1,918,533

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, benchmark-oriented 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 derivative financial instruments. The following table shows the investment structure of the share portfolios by asset classes:

Share portfolio composition	31 Dec. 2007 € 000	31 Dec. 2006 € 000
Shares in Europe	623,775	649,588
Shares in America	65,374	85,456
Shares in Asia	187,428	128,591
Shares international1)	3,089	1,401
Shares in emerging markets	127,480	142,316
Shares total return2)	496,507	401,580
Other shares	37,662	56,200
Total	1,541,315	1,465,133
1) Share-based funds with globally diversified investments. 2) AShare-based funds with the management goal of achieving an absolute return by including less risky investments (liquidity, bonds) in difficult market phases.

For extensive parts of the 2007 financial year, the share items were secured in the amount of 10% below the market level at the start of the year. The majority of this safeguarding item expired in December 2007.

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 fixed interest investments.

Rating	31 Dec. 2007 € 000	31 Dec. 2006 € 000
AAA	3,345,244	3,603,331
AA	3,600,801	3,603,847
A	2,852,518	3,110,333
BBB	975,652	1,029,342
BB	976,920	1,082,315
B	424,227	381,519
CCC	30,366	51,308
Not rates	207,813	150,871
Total	12,413,541	13,012,867

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.

31 Dec. 2007 in € 000	€	USD	Other	Total
Assets
Investments	20,133,079	233,523	1,824,619	22,191,221
Other tangible assets	125,686		12,345	138,030
Intangible assets	1,123,946		82,246	1,206,193
Share of reinsurance in the technical provisions	1,044,013		74,521	1,118,534
Other assets	771,964		162,721	934,685
Total assets	23,198,688	233,523	2,156,452	25,588,664
Provisions and liabilities
Subordinated liabilities	575,000			575,000
Technical provisions	19,552,675		1,125,136	20,677,811
Other provisions	679,162		24,651	703,813
Liabilities	1,966,855		132,962	2,099,817
Total liabilities	22,773,693		1,282,748	24,056,441

31 Dec. 2007 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

The fair value of securities investments in USD amounted to €2,048 million as at 31 December 2007. The exchange rate risk was reduced using derivative financial instruments to €234 million, while the safeguard ratio was 88.6%. The safeguard was maintained in a range of between 83% and 93% during the financial year.

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. In addition, a majority of the securities portfolio is listed on liquid stock exchange markets and can be sold at short notice in event of liquidity shortages.

Additional underwriting obligations exist for private equity investments in the amount of €229.3 million. Obligations of €60.0 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, and the tactical weighting of the individual asset classes is controlled 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. 2007		31 Dec. 2006
€ 000		+100 basis points	–100 basis points	+100 basis points	–100 basis points
High-grade loans		-235,989	248,409	–244,381	244,381
Bank/company loans		-120,139	126,462	–159,067	159,067
Emerging markets loans		–42,859	45,114	–41,857	41,857
High-yield loans		–2,862	3,013	–2,027	2,027
Total		–401,849	422,998	–447,332	447,332
Share risk		31 Dec. 2007		31 Dec. 2006
€ 000		+10 %	–10 %	+10 %	–10 %
Shares in Europe		57,295	–57,295	60,895	–60,895
Shares in America		8,717	–8,717	8,509	–8,509
Shares in Asia		19,770	–19,770	12,468	–12,468
International shares		3,579	–3,579	27	–27
Shares in emerging markets		12,848	–12,848	13,875	–13,875
Shares total return		47,879	–47,879	39,967	–39,967
Derivative financial instruments and other shares		2,729	–2,084	–18,851	34,151
Total		152,817	–152,172	116,890	–101,590
Currency risk		31 Dec. 2007		31 Dec. 2006
€ 000		+10 %	–10 %	+10 %	–10 %
€		0	0	0	0
USD		23,837	–23,837	9,569	–9,569
Other		153,465	–153,465	141,597	–141,597
Total		177,302	–177,302	151,166	–151,166
Quality risk		31 Dec. 2007		31 Dec. 2006
€ 000	Change to spread	+	–	+	–
AAA	0 basis points	0	0	0	0
AA	25 basis points	–38,845	38,845	–41,493	41,493
A	50 basis points	–68,413	68,413	–64,780	64,780
BBB	75 basis points	–45,329	45,329	–65,987	65,987
BB	100 basis points	–46,665	46,665	–67,275	67,275
B	125 basis points	–24,830	24,830	–21,536	21,536
CCC	150 basis points	–1,376	1,376	–5,156	5,156
Not rated	100 basis points	–15,243	15,243	–7,222	7,222
Total		–240,701	240,701	–273,448	273,448

2.7. 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	Diversifi cation € 000
31 Dec. 2007	522,197	311,935	97,538	470,240	–357,516
31 Dec. 2006	514,686	194,216	61,579	432,430	–173,539
Lowest	485,879	175,006	50,325	409,177	–164,519
Average	521,393	230,136	79,765	452,085	–240,593
Highest	546,148	311,935	97,538	477,235	–357,516