Scope of consolidation

Scope of consolidation
In addition to the annual financial statement of UNIQA Versicherungen AG, the Group financial statements include the financial statements of all subsidiaries at home and abroad. Thirty-eight affiliated companies did not form part of the consolidated Group. They were only of minor significance, even if taken together, for the presentation of a true and fair view of the Group’s assets, financial position and income. Therefore the scope of consolidation contains – in addition to UNIQA Versicherungen AG – 37 domestic and 77 foreign subsidiaries in which UNIQA Versicherungen AG held the majority of voting rights.

The scope of consolidation was extended in the reporting period by the following companies:

In the 1st quarter of 2008, the UNIQA Group acquired an additional 36.0% in the Albanian insurance holding SIGAL Holding sH.A. bringing the Group’s share in the SIGAL Group up to 45.6%. This is recorded on the balance sheet under shares in associates. The holding in the Ukrainian company Credo-Classic was expanded from 35.5% to 61.0%. The company has been fully consolidated since 31 March 2008.

In the 4th quarter of 2008, the Group took over 100% of the share capital of the Romanian property insurer UNITA S.A., which also owns 92.3% of AGRAS S.A. Since the balance sheet of UNITA S.A. for the 2008 financial year has not yet been certified, it was not possible to perform a final apportioning of the acquisition costs to the purchased assets and debt items as at the reporting date. The final apportioning to assets, debt items and goodwill – i.e. purchase price allocation – will take place within twelve months of acquisition.

In December, the holding in Leipnik-Lundenburger Invest Beteiligungs AG was expanded to 24.9%; this is shown on the balance sheet as shares in associated companies.

The effects of the change to the scope of consolidation on the main asset and debt positions can be seen under No. 5 of the notes to the consolidated financial statements.

The associated companies refer to 15 domestic and two foreign companies consolidated at equity; of these, ten companies were of minor significance and were listed at current market value.

In applying IAS 39 and in terms of the present interpretation of this statement by the IASB (SIC 12), fully controlled investment funds will be included in the consolidation insofar as their fund volumes were not of minor importance when viewed singularly and in total.

Changes in the 1st quarter of 2009

Lebensversicherung Raiffeisen Life IC LLC is currently being founded with headquarters in Moscow.

Consolidation principles

Capital consolidation follows the acquisition method. The costs of acquiring shares in the subsidiaries are written as the proportional equity of the subsidiary that was first revalued. The conditions at the time of acquiring the shares in the consolidated subsidiary are taken into consideration for the initial consolidation. To the extent other (non-Group) shareholders hold shares in the subsidiary’s equity at the reporting date, these are dealt with under minority interests.

If the shareholding was acquired before 1 January 1995, the differences are set off against profits carried forward in line with the applicable transitional provisions.

Negative differences from mergers consummated after 31 March 2004 must be credited with an effect on income immediately after re-appraisal.

In compliance with IFRS 3, the goodwill is not subject to any scheduled depreciation. The value of existing goodwill resultant from the acquisition of holdings is appraised in an annual impairment test. A fall in value is written off where necessary.

Impairment Test

Goodwill arises from company mergers and acquisitions. It represents the difference between the acquisition costs and the proportional current market value of identifiable assets, debts and specific contingent liabilities. In accordance with IAS 36, the goodwill is not subject to scheduled depreciation but listed as the acquisition costs less any accrued impairments.

For the purpose of the impairment test, the UNIQA Group has apportioned the goodwill into “cash generating units” (CGU). These CGUs represent the lowest possible level of the company at which goodwill is observed for internal management purposes and in accordance with the strategy.

The impairment test implies a comparison between the realisable value of each CGU and its book valuation, consisting of goodwill and the proportional share capital. If this book valuation of the CGU exceeds the realisable value of the unit based on the earning power method, an impairment is performed.

The UNIQA Group has apportioned the goodwill into the following CGUs:

• Austria
• Bosnia
• Bulgaria
• Croatia
• Czech Republic
• Germany as sub-group
• Hungary
• Italy as sub-group
• Liechtenstein
• Poland
• Romania
• Serbia/Montenegro as sub-group
• Slovakia
• Switzerland
• Ukraine

The utility value is determined by the UNIQA Group through application of generally accepted valuation principles. The value of all CGUs is determined according to the earning power method. The budget projections (detailed planning phase) of the CGUs, the estimate of the long-term results achievable by the CGUs (perpetuity) as well as the internal growth rates are used as the starting point for determination of the earning power.

The earning power is determined through discounting of the future profits with a suitable capitalisation interest rate. No differentiation of the valuation method according to balance sheet segment takes place here because the company is considered as a unit (CGU). As a basis for the valuation, the earning power of each individual CGU is calculated using a discounted cash flow model based on the planned future results.

The company plans used for the calculation are the result of a structured and standardised management dialogue between the UNIQA headquarters in Vienna and the operational units in combination with the reporting and documentation process integrated into this dialogue. The company planning generally encompasses a period of five years. If necessary for determination of the perpetuity, the planned results are adapted to correspond to the sustainably achievable long-term results.

Taxes on profit were assumed for the years 2009–2013 at the effective tax rate of the last three years.

The capitalisation interest rate is based on the capital asset pricing model (CAPM) and reasonable growth rates. The assumptions with regard to risk-free interest rate, market risk premium and segment betas made for determination of the capitalisation interest rate are consistent with the parameters used in the UNIQA planning and controlling process.

Various studies and statistical analyses were used as sources to provide a basis for determining the growth rates in order to consistently and realistically reflect the market situation and macroeconomic development.

The following studies and materials served as reference sources:

• SwissRe – Insurance density CEE
• Sigma – 3/2008 Insurance density CEE
• Raiffeisen Research – Inflation rate trends
• Eurostat – GDP growth, interest rate trends
• WIIW (Wiener Institut für internationale Wirtschaftsvergleiche) – Purchasing power parities, GDP growth CEE
• Damodaran – Country risks, growth rate estimates, multiples

The capitalisation interest rate and the internal growth rates are listed below for all significant CGUs:

Sensitivity analyses with regard to the capitalisation interest rate and the main value drivers are performed in order to verify the results of the appraisal of the utility value.

These analyses show that sustained surpluses on the part of the individual CGUs are highly dependent on the actual development of these assumptions within the individual conomies (GDP, insurance density, purchasing power parities), particularly in the CEE markets, as well as the associated implementation of the individual profit goals. These forecasts and the associated actual future market situation in the currently retrocessive markets and the impact of the continued economic crisis are the largest uncertainties in connection with the valuation results. The statistically demonstrable development scenario according to which every crisis gives rise to a subsequent, sustained upward trend after two to three years is taken into account in the calculations in that an approximation of a weighted average level was applied in derivation of the perpetuity. Exchange rate risks were valued conservatively in that the rates as at 31 December 2008 were carried forward into the long term. For the event that the intensity and duration of the economic crisis turn out to be much greater than assumed in the business plans and fundamental forecasts, unscheduled depreciations may result for the individual CGUs.

A history of GDP development in our markets since 2006 exhibits a development as shown in the table below. This forecast for 2010 and the following years supports the prediction of a renewed, consistent upward trend in the CEE markets and characterises the crisis of 2008 and 2009 as a real but temporary slowdown in economic growth such that no long term decline in these core markets for UNIQA is expected at this time.

In consideration of the data and statistics upon which these calculations are based (see above) and the trend scenarios such as GDP forecasts per CGU or the development of the insurance density per CGU upon which the budget projections and planning of the individual CGUs are based, no shortfalls were identified in the impairment test in the year 2008.

The economic outlook, particularly in the markets of the Ukraine, Serbia and Romania, but also in view of the general economic and financial market developments, provides justification for regular performance of impairment tests in 2009.

The purchase price allocation of the acquisition price for UNITA Vienna InsuranceGroup S.A. according to IFRS 3 was not yet completed at the time this Group annual report was created.

As a general rule, shares in associated companies are valued according to the equity method using the equity held by the Group. Differences are determined according to the principles of capital consolidation, and the amounts are recorded under shares in associated companies. The updating of the development of the associated companies is based on the most recent financial statements available.

In establishing the value of shares in associated companies, an IFRS report is generally required. Where no IFRS reports are presented, the adjustment of the entries for these companies to the uniform Group valuation benchmarks must be dispensed with due to a lack of available documentation; however, this does not have any significant impact on the present Group consolidated financial statements.

For debt consolidation, the receivables from Group companies are set off against the payables to Group companies. As a rule, any differences have an effect on income. Group-internal results from supplies and services are eliminated if they are of minor significance for giving a true and fair view of the Group’s assets, financial position and income. Proceeds and other income from supplies and services within the Group are set off against the corresponding expenditures.

Presentation of balance sheet and income statement

The International Financial Reporting Standards (IFRS) allow a shortened version of the balance sheet and income statement. Summarising many individual items into units enhances the informative quality of the financial statements. Explanatory notes to these items are contained in the notes to the consolidated financial statements. Rounding differences may result from the formatting to euro thousands.

Segment reports

The primary segment reports depict the main business segments of property and casualty insurance, life insurance and health insurance. The consolidation principles are applied here to transactions within a segment. In addition, the main items of the income statement are also broken down by regional perspectives.

Foreign currency translation

The reporting currency of UNIQA Versicherungen AG is the euro. All annual financial statements of foreign subsidiaries which are not reported in euro are converted at the rate on the balance sheet closing date according to the following guidelines:

• Assets, liabilities and transition of the annual net profit/deficit at the middle rate on the balance sheet closing date
• Income statement at the average exchange rate for the year
• Equity capital (except for annual net profit/deficit) at the historic exchange rate

Resulting exchange rate differences are set off against the shareholders’ equity without affecting income.

The most important exchange rates are summarised in the following table:

Closing date rate in €	2008	2007
Swiss franc CHF	1.4850	1.6547
Slovakian koruna SKK	30.1260	33.5830
Czech koruna CZK	26.8750	26.6280
Hungarian forint HUF	266.7000	253.7300
Croatian kuna HRK	7.3555	7.3308
Polish zloty PLN	4.1535	3.5935
Bosnia and Herzegovina convertible mark BAM	1.9687	1.9517
Romanian leu (new) RON	4.0230	3.6080
Bulgarian lev (new) BGN	1.9558	1.9558
Ukranian hryvnia UAH	10.9199	7.3633
Serbian dinar RSD	89.7909	78.7950

Estimates

For creation of the Group consolidated financial statements according to IFRS, it is necessary to make assumptions for the future within various items. These estimates can have a considerable influence on the valuation of assets and debts on the balance sheet closing date as well as the amount of expenses and income in the financial year. The items below carry a not insignificant level of risk that considerable adjustments to asset or debt values may be necessary in the following year:

• Deferred acquisition costs
• Goodwill
• Shares in associated companies / investments – insofar as the valuation does not take place based on stock exchange prices or other market prices
• Technical provisions
• Pensions and similar provisions