Risk management systemThe 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 risks1. 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.
| 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.
| 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:
| 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.
| 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.
| €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 |
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 risks2. 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.
| 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
| 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.
| 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.
| 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.
| 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.
| 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.
| 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.
| 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.
| 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:
| 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 |
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.
| 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.
| 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 |
| 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.
| € 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 |
| € 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 |
| € 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 |
| € 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.
| 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 |
|
Group Financial Statements
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