Risk report

1. Management of actuarial risks

1 Actuarial and financial 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
2008	4,961,169
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 discount given for household/own home, accident, motor vehicle liability and comprehensive insurance has been linked to risk 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. The amount of the discount, linked to risk and customer criteria, is subject to an annual check.

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

Claims ratio (gross)	%
2008	61.6
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 contracts also considerably reduce the level at which any losses occur. 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 program and future developments. Detailed information regarding the future development of mass, major and catastrophic damages calculated based on 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 act as sole risk bearer for UNIQA companies abroad. One exception is the cover against losses due to natural disasters suffered by Austrian companies. In this case, the Austrian companies assign claims to UNIQA Re.

Between 50% and 60% of the entire portfolio are covered by these reinsurance policies. Ratio figures, which reach between 25% and 90% depending upon the volatility of the respective insurance branch, 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 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 effect of the reinsurance programme on the claim ratio in retained earnings can be seen in the following table:

Claims ratio (retained earnings)	%
2008	64.2
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. 2008 € 000
AAA	8,485
AA	105,188
A	78,917
BBB	72
Not rated	2,503

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. In the UNIQA Group, this is divided into three areas:

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

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

In the property segment, major risks are evaluated for risk prior to acceptance and subsequently at regular intervals and documented in survey reports. In the liability insurance line, the portfolio for risks with high hazards 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 paid by the policyholder. When calculating the premium, the actuary refers to the following carefully selected bases of calculation:

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

Carefully selecting the bases of calculation gives rise to scheduled profits, an appropriate amount of which is credited to the policyholders as part of profit sharing.

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

The following risks exist for a life insurance company:

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

The risks of the insurer can be roughly 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 sum categories; included here are the policies of the companies UNIQA Personenversicherung, Raiffeisen Versicherung, Salzburger Landes-Versicherung and CALL DIRECT Versicherung AG.

Number of insurance policies as at 31 Dec. 2008
Category¹⁾	Capital insurance	Retirement annuity	Risk insurance
€0 to €20,000	900,492	99,235	157,471
€20,000 to €40,000	175,680	39,779	38,244
€40,000 to €100,000	71,255	23,430	129,620
€100,000 to €200,000	8,127	4,749	67,917
More than €200,000	1,930	1,556	9,193
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 gradual 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, 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 Holding operates with a retained risk of €200,000 per insured life; the excesses are mostly reinsured with Swiss Re, Munich Re 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 the premiums in case of a (less probable) worsening of the mortality behaviour. However, this presents the danger of possible antiselection behaviour, meaning that 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 gradual 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 only exist for the Austrian population, and 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 who feel very healthy choose the annuity payment; all others choose partial or full capital payment. In this way, the pension portfolio tends to consist of mostly healthier people, i.e. worse risks 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 2.81%.

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

The interest risk functions in the following ways:

Investment and reinvestment risk
Premiums received in the future must be invested at an interest rate guaranteed at the time the policy was taken out. However, it is entirely possible that no corresponding titles are available at the time the premium is received. 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 the assets is 3.9 years, while for liabilities it is considerably longer. This creates a duration gap, which means that the ratio of assets to liabilities reduces as interest rates fall.

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 insured sum including profit-sharing) in accordance with a mortality table (the risk involved is not exclusively financial) and an interest rate set at the time the policy is taken out.

Besides these technical and financial risks, the cost risk must also be specified. The insurer guarantees that it will deduct only the calculated costs for the entire term of the policy. 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 loss insurance which is calculated under consideration of biometric risks and is operated in Austria “depending on the type of life insurance”. 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 the premiums are sufficient to cover the insurance benefits that generally increase with age, assuming probabilities that remain constant. The probabilities and cost structures can change frequently over time. For this reason, it is possible to adjust the premiums for health insurance as necessary to the changed bases of calculation.

When taking on risks, the existing risk of the individual 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 cover (“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, for instance, that 3% could no longer be obtained in future, this fact would have to be taken into account for future benefits and included in the premium adjustment.

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

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

The EU Directive on the equal treatment of men and women in insurance, which is implemented in Austria by the Insurance Amendment Act 2006 (VersRÄG 2006), was also taken into account in the calculation of premiums in the last quarter of 2007. As the differences between men and women can be proven, only the childbirth costs had to be shared between men and women; these costs were explicitly defined in the EU Directive and VersRÄG as an exception to the risk-based calculation. No negative effects have been observed on business results to date.

2. 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

Model risks also exist with regard to the valuation of ABS securities (“Asset- Backed Securities”) and the valuation of the participating interest in STRABAG SE; these are presented as an excursus to the risk report.

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 main accounting groups generated by the various product categories.

Investments	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Long-term life insurance policies with guaranteed interest and profit sharing	13,346,319	13,779,745
Long-term unit-linked and index-linked life insurance policies	2,642,462	2,470,340
Long-term health insurance policies	2,409,993	2,245,370
Short-term property and casualty insurance policies	3,511,571	3,695,766
Total	21,910,345	22,191,221

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 in unit-linked and index-linked life insurance policies
L. Liquid funds

Technical provisions and liabilities (retained)	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Long-term life insurance policies with guaranteed interest and profit sharing	13,377,737	13,463,170
Long-term unit-linked and index-linked life insurance policies	2,579,997	2,412,937
Long-term health insurance policies	2,463,975	2,347,571
Short-term property and casualty insurance policies	2,252,755	2,097,404
Total	20,674,464	20,321,082

These values refer to the following balance sheet items:
C. Technical provisions
D. Technical provisions in unit-linked and index-linked life insurance policies
G.I. Reinsurance liabilities (only deposit liabilities held under reinsurance business ceded)
G. Share of reinsurance in the technical provisions
H. Share of reinsurance in technical provisions in unit-linked and index-linked life insurance policies

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
Average interest coupon %	2008	2007	2008	2007	2008	2007
Fixed interest securities
High-grade loans	4.30	4.05	5.31	5.22	5.22	5.31
Bank/company loans	5.16	4.74	8.51	7.75	3.87	3.80
Emerging markets loans	6.82	7.06	13.33	6.29	13.59	7.87
High-yield loans	7.10	6.68	12.97	8.71	7.98	7.92
Other investments	3.27	3.87	-	-	3.40	7.90

Fixed interest liabilities
Subordinated liabilities	5.34	5.34
Guaranteed interest life insurance	2.81	2.86
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. 2008 € 000	31 Dec. 2007 € 000
Annuities	7,557,839	9,931,822
Shares	313,784	1,170,286
Alternatives	805,285	867,749
Holdings	577,484	82,040
Loans	2,129,470	232,801
Real estate	762,866	686,939
Liquidity	1,083,197	701,803
Deposits receivable	116,394	106,306
Total	13,346,319	13,779,745
Difference between book value and market value
Real estate	394,791	168,648
Loans	–193,171	822

Provisions and liabilities from long-term life insurance policies with guaranteed interest and profit sharing	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Actuarial provision	12,902,136	12,614,575
Provision for profit-unrelated premium refunds	86,899	75
Provision for profit-related premium refunds and profit sharing	731	323,478
Other technical provisions	59,558	18,004
Provision for outstanding claims	24,532	106,159
Deposits payable	422,997	400,879
Total	13,377,737	13,463,170

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

Remaining term	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Up to 1 year	832,864	828,204
Of more than 1 year up to 3 years	1,809,756	1,226,330
Of more than 3 years up to 5 years	1,100,915	1,154,581
Of more than 5 years up to 7 years	1,273,377	1,629,882
Of more than 7 years up to 10 years	2,013,252	2,228,364
Of more than 10 years up to 15 years	1,089,007	1,063,760
More than 15 years	1,568,138	2,033,502
Total	9,687,309	10,164,623

The capital-weighted average remaining term of technical liabilities is around 8.2 years (2007: 8.3 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 liabilities arising from unit-linked and index-linked life insurance policies.

Investments in unit-linked and index-linked life insurance policies	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Share-based funds	555,066	825,456
Bond funds	1,970,756	1,551,188
Liquidity	101,294	92,882
Other investments	15,347	814
Total	2,642,462	2,470,340

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. 2008 € 000	31 Dec. 2007 € 000
Annuities	1,055,277	1,130,606
Shares	58,456	191,601
Alternatives	109,241	111,703
Holdings	110,545	65,812
Loans	555,465	332,223
Real estate	199,048	193,687
Liquidity	321,961	219,737
Total	2,409,993	2,245,370
Difference between book value and market value
Real estate	111,941	259,996
Loans	–19,156	–2,376

Provisions and liabilities from long-term health insurance policies	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Actuarial provision	13,614	2,098,989
Provision for profit-unrelated premium refunds	2,225,819	22,199
Provision for profit-related premium refunds or profit sharing	156,396	58,904
Other technical provisions	19,477	694
Provision for unearned premiums	46,529	13,395
Provision for outstanding claims	564	151,683
Deposits payable	1,576	1,708
Total	2,463,975	2,347,571

Property and casualty insurance policies
Most property/casualty insurance policies are short-term. The technical provisions are not discounted, meaning that no interest is calculated for the short-term investment. The average terms of interest bearing securities and loans invested to cover technical provisions are shown in the following table:

Remaining term	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Up to 1 year	184,216	162,102
More than 1 year up to 3 years	299,698	276,714
More than 3 years up to 5 years	373,621	223,488
More than 5 years up to 7 years	334,836	521,462
More than 7 years up to 10 years	367,359	298,433
More than 10 years up to 15 years	111,648	128,853
More than 15 years	162,944	157,516
Total	1,834,322	1,768,569

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

Investments for short-term property and casualty insurance policies	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Annuities	1,317,379	1,351,113
Shares	237,170	179,428
Alternatives	60,720	67,429
Holdings	289,335	866,147
Loans	516,882	417,456
Real estate	457,081	426,685
Liquidity	619,993	374,906
Deposits receivable	13,011	12,602
Total	3,511,571	3,695,766
Difference between book value and market value
Real estate	214,617	180,553
Loans	–604	–5,695

Provisions and liabilities from short-term property and casualty insurance policies	31 Dec. 2008 € 000	31 Dec. 2007 € 000
Provision for unearned premiums	481,171	408,688
Actuarial provision	42,283	44,482
Provision for outstanding claims	1,666,703	1,582,211
Provision for profit-unrelated premium refunds	25,702	25,591
Provision for profit-related premium refunds or profit sharing	7,800	7,315
Other technical provisions	18,827	16,765
Deposits payable	10,270	12,351
Total	2,252,755	2,097,404

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, benchmark-oriented or value growth approach, fundamental or industry-/region-specific 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. 2008 € 000	31 Dec. 2007 € 000
Shares in Europe	186,693	623,775
Shares in America	9,049	65,374
Shares in Asia	3,890	187,428
Shares international¹⁾	1,457	3,089
Shares in emerging markets	6,708	127,480
Shares total return²⁾	171,959	496,507
Other shares	229,592	37,662
Total	609,348	1,541,315
¹⁾ Share-based funds with globally diversified investments. ²⁾ Share-based funds with the management goal of achieving an absolute return by including less risky investments (liquidity, bonds) in difficult market phases.

2.3 Credit risk
When investing in securities, we invest in debt securities of varying quality, taking into consideration the yield prospects and risks. The following table shows the quality structure of fixed-interest investments.

Rating	31 Dec. 2008 € 000	31 Dec. 2007 € 000
AAA	3,447,058	3,345,244
AA	2,942,667	3,600,801
A	2,908,069	2,852,518
BBB	1,762,681	975,652
BB	793,953	976,920
B	76,110	424,227
CCC	20,645	30,366
Not rated	82,077	207,813
Total	12,033,260	12,413,541

The values as at 31 December 2008 also include the securities reclassified to the category of loans in the 3rd quarter with a value of €2,102,704,000.

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. 2008 € 000	€	USD	Other	Total
Assets
Investments	19,862,084	442,885	1,605,376	21,910,345
Other tangible assets	97,421		15,991	113,412
Intangible assets	1,326,277		81,119	1,407,396
Share of reinsurance in the technical provisions	1,043,733		99,717	1,143,450
Other assets	806,685		248,781	1,055,466
Total assets	23,136,200	442,885	2,050,984	25,630,069


Provisions and liabilities
Subordinated liabilities	575,000		5,544	580,544
Technical provisions	19,627,159		1,373,432	21,000,591
Other provisions	608,255		36,142	644,397
Liabilities	1,773,051		172,709	1,945,760
Total liabilities	22,583,464		1,587,828	24,171,292

31 Dec. 2007 € 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

The fair value of securities investments in USD amounted to €1,347 million as at 31 December 2008. The exchange rate risk was reduced using derivative financial instruments to €443 million, while the safeguard ratio was 67.1%. The safeguard was maintained in a range of between 63% 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 exchanges and can be sold quickly in the case of liquidity burdens.

Additional underwriting obligations exist for private equity investments in the amount of €206.7 million. Obligations of €30.0 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 level of the strategic asset allocation with tactical weighting of the individual asset classes based 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; the information is presented as available on the reporting date, meaning that only rough figures can be offered 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. 2008		31 Dec. 2007
€ 000		+100 basis points	–100 basis points	+100 basis points	+100 basis points
High-grade loans		–253,473	266,813	-235,989	248,409
Bank/company loans		–78,404	82,531	-120,139	126,462
Emerging markets loans		–22,902	24,108	–42,859	45,114
High-yield loans		–1,174	1,236	–2,862	3,013
Total		–355,953	374,688	–401,849	422,998

Share risk		31 Dec. 2008		31 Dec. 2007
€ 000		+10 %	–10 %	+10 %	–10 %
Shares in Europe		17,607	–17,607	57,295	–57,295
Shares in America		651	–651	8,717	–8,717
Shares in Asia		1,518	–1,518	19,770	–19,770
International shares		1,117	–1,117	3,579	–3,579
Shares in emerging markets		920	–920	12,848	–12,848
Shares total return		15,897	–15,897	47,879	–47,879
Derivative financial instruments and other shares		4,386	–4,581	2,729	–2,084
Total		42,096	–42,291	152,817	–152,172

Currency risk		31 Dec. 2008		31 Dec. 2007
€ 000		+10 %	–10 %	+10 %	–10 %
EUR		0	0	0	0
USD		46,670	–46,670	23,837	–23,837
Other		138,833	–138,833	153,465	–153,465
Total		185,503	–185,503	177,302	–177,302

Quality risk		31 Dec. 2008		31 Dec. 2007
€ 000	Change to spread	+	–	+	–
AAA	0 basis points	0	0	0	0
AA	25 basis points	–21,193	21,193	–38,845	38,845
A	50 basis points	–64,090	64,090	–68,413	68,413
BBB	75 basis points	–54,524	54,524	–45,329	45,329
BB	100 basis points	–37,323	37,323	–46,665	46,665
B	125 basis points	–2,102	2,102	–24,830	24,830
CCC	150 basis points	–805	805	–1,376	1,376
Not rated	100 basis points	–4,331	4,331	–15,243	15,243
Total		–184,368	184,368	–240,701	240,701

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 with a balancing of the individual values (decay factor of 1).

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

Value at Risk	Total value at risk € 000	Share risk € 000	Currency risk € 000	Interest risk € 000	Diversification € 000
31 Dec. 2008	799,466	408,289	110,635	802,303	–521,760
31 Dec. 2007	522,197	311,935	97,538	470,240	–357,516
Lowest	477,435	242,436	65,550	495,363	–334,325
Average	576,302	302,386	93,945	609,306	–396,431
Highest	799,466	411,813	149,332	802,303	–539,782

Evaluation of the stock of Asset-Backed Securities

The UNIQA Group has placed a portion of its investments in Asset-Backed Securities (ABS).

The securities held in the direct portfolio and in the fund portfolio have been valued using a mark-to-model method. The proportion of investments valued under this model corresponds to 5.93% of total investments.

Within each of these variants, the individual transactions vary with regard to structure, risk profile, interest claims, rating and other parameters.

UNIQA is of the view that it will not be possible to ascertain a fair value for these securities on the basis of market prices or market transactions for the second half of 2008 due to the sharp fall in liquidity and the crisis on the financial markets. So-called market prices, insofar as these can even be identified in individual cases, pertain only in the rarest of cases to securities that are held directly in the portfolio, or even to securities from the same issuer, but rather generally to another paper that is similar in terms of rating and securitisation category. Direct transfer of such prices does not appropriately take into account either the complexity or the heterogeneity of the different structures. Moreover, the available prices regularly originate from distress sales, in which an investor is forced to sell larger quantities of similar securities under time pressure, mostly due to tight liquidity. For both reasons, UNIQA has decided to set the fair value of the specified papers by means of a model approach.

ABS papers are noted for being highly complex and are therefore extensively documented. Due to its longstanding activity in the area of securitisation, UNIQA has developed various models on its own or with others that permit analyses of high quality at acceptable expense.

The main parameters of the model for assessing the estimate of the future development of the (financial) economic environment are the speed of repayment, the failure frequency, the failure severity and the discount rate.

All parameters refer to the assets used to collateralise the transaction, i.e. to the corporate credits, bonds, preferential shares, etc.

UNIQA uses two objectively defined parameters to portray the failure risk when ascertaining the fair value. The future payments are calculated using the long-term average failure rates and severities.

The modelling system of Intex Solutions, Inc., which represents a widely accepted market standard, serves as the basis for the analysis. With regard to the choice of scenario, especially for the frequency of failure, information on corporate failures published by the rating agency Moody’s Investors Service and extending back to 1920 is used. In addition, reference is made to the publicly accessible data of the Federal Deposit Insurance Corporation (“FDIC”).

To this extent, the losses expected by a rational investor in a transaction over a longer period of holding are already taken into consideration when generating the payment streams. In order to take account of the current economic crisis, a risk premium was additionally added to the applied discount rate. This premium corresponds to the surcharge originally applied on execution of the individual transaction.

The sensitivity analysis of the ABS portfolio with regard to a rise in the failure rates in the investments underlying the ABS structures shows the following effects on the valuation of the ABS portfolio:

Scenario 1: A 50% rise in the failure rates compared to the model leads to a drop of the model value by 8.03%.
Scenario 2: A 100% rise in the failure rates compared to the model leads to a drop of the model value by 15.63%.

Valuation of STRABAG SE
UNIQA had a 13.74% share in STRABAG SE as at the reporting date of 31 December 2008 (31 Dec. 2007: 12.50%). Even following the entry of a new major investor, UNIQA retains a significant influence over the business activity of STRABAG SE. UNIQA is therefore continuing the participating interest in STRABAG SE as an associated share. The book value of the shareholding amounted to €531.7 million as at 31 December 2008. Following examination and valuation of the entire STRABAG SE group, UNIQA is convinced that the valuation of the investment is covered by the proportional value of STRAGAB SE and therefore no depreciation to the stock market price of the reporting date is required. The development of the group equity of STRAGAB SE anticipated by UNIQA also supports a similar conclusion.

It must be noted here that UNIQA assumes that STRABAG will benefit particularly well from the comprehensive stimulus packages due to a good equity base and broad diversification and will therefore survive the current economic crisis largely unscathed. Should this not turn out to be the case, depreciations will be required, which could lead to a reduction in the proportional equity of STRABAG SE.