14.5. Risk profile

UNIQA’s risk profile is very heavily influenced by the life and health insurance portfolios of UNIQA Österreich Versicherungen AG. This situation means that market risk plays a central role in the risk profile.

The Group companies in Central Europe operate in the property and casualty business lines as well as in the life and health insurance business lines. In the CEE region, the property and casualty sectors are the most dominant.

This structure is important because it offers a high level of diversification from the life and health business lines that dominate in the Austrian companies.

The distinctive risk features of the regions are also reflected in the risk profiles determined by using the internal measurement approach.

Market and credit risks

The strength of the market and credit risks depends on the structure of the capital investment and its allocation to the different asset categories.

The table below shows investments classified by asset category.

However, the market and credit risks not only have an impact on the value of investments, but also influence the level of technical liabilities. Thus, there is – particularly in life insurance – a dependence between the (price) growth of assets and liabilities from insurance contracts. The income expectations and risks of assets and liabilities arising from insurance contracts are managed as part of the asset liability management (ALM) process. The objective is to ensure sufficient liquidity while retaining the greatest possible security and balanced risk to achieve a return on capital that is sustainably higher than the guaranteed performance of the technical liabilities. To do this, assets and liabilities are allocated to different accounting groups.

The following two tables show the main accounting groups generated by the various product categories.

These values refer to the following items:

• Land and buildings for own use

• Investment property

• Investments accounted for using the equity method

• Other investments

• Unit-linked and index-linked life insurance investments

• Cash

These values refer to the following items:

• Liabilities arising from insurance contracts

• Assets arising from insurance contracts

• Liabilities arising from reinsurance contracts

• Assets arising from reinsurance contracts

Furthermore, the net liabilities from insurance and reinsurance contracts are shown in the following two tables, broken down by region and, for property and casualty insurance, by business line.

The market and credit risk is broken down into interest rate, credit spread, equity, currency and market concentration risk.

The interest rate risk arises on all asset and liability items of the statement of financial position whose value fluctuates as a result of changes in risk-free yield curves or associated volatility. Given the high proportion of interest-bearing securities in the assets, interest rate risk forms an important part of market risk. The interest rate risk is actively managed as part of the ALM-based investment strategy.

The following table shows the maturity structure of fixed-income securities.

Since the interest rate risk is particularly relevant in life insurance as a result of the long-term liabilities, the focus below is placed on this business line.

The difference between the change in assets and the change in technical provisions resulting from a change in interest rates is used as the basis for managing the interest rate risk and/or the duration gap. During the annual ALM process, it is determined from a strategic point of view which budgets for interest rate risk can be accepted at the operating company level.

The discount rate that may be used in the costing when new business is written in most UNIQA companies takes into account a maximum discount rate imposed by the relevant local supervisory authority. In all those countries where this is not the case, appropriate prudent, market-based assumptions are made by the actuaries responsible for the calculation. In our core market of Austria, the maximum interest rate since 1 July 2022 is 0.0 per cent per annum. However, the portfolio also includes older contracts with different discount rates. In the relevant markets these rates amount to as much as 4.0 per cent per annum. The following table provides an overview of the average technical discount rates by region and currency.

As these interest rates are guaranteed by the insurance company, the financial risk lies in not being able to generate these returns. Since classic life insurance business predominantly invests in interest-bearing securities, the unpredictability of long-term interest rate trends is the most significant financial risk for a life insurance company. The investment and reinvestment risk comes from the fact that premiums received in the future must be invested at an interest rate guaranteed at the time of conclusion. However, it is entirely possible that no appropriate securities will be available at the time that the premium is received. Future income must also be reinvested at the discount rate at a minimum. For this reason, UNIQA has already decided to only offer products in its key markets that are based on a low or zero discount rate. One example of this in Austria is the sale of deferred pension products with a discount rate of 0.0 per cent.

In life insurance, traditional life insurance products have been sold since 2015 with a discount rate of 0.0 per cent. The average discount rate at 31 December 2025 for the traditional life insurance portfolio was approximately 1.7 per cent.

In health insurance (similar to life technique), only tariffs with a discount rate of 0.5 per cent have been sold since 1 July 2021. Together with measures to reduce the assumed interest rate in the portfolio, an average discount rate of approx. 2.4 per cent was achieved as at 31 December 2023. A reduction in the capital earnings by 100 bp (based on 2025 investment results) would reduce the earnings before taxes by €4.2 million.

The credit spread risk refers to the risk of changes in the price of asset or liability items in the statement of financial position, as a consequence of changes in credit risk premiums or associated volatility, and is ascertained for individual securities in accordance with their rating and duration. When investing in securities, UNIQA chooses securities with a wide variety of ratings, taking into consideration the potential risks and returns.

The following table shows the credit quality of those fixed-income securities that are neither overdue nor written down, based on their ratings.

Equity risk arises from movements in the value of equities and similar investments as a result of fluctuations in international stock markets and therefore stems in particular from the asset categories “Equity investments and other stocks” and “Equities”. The effective equity weighting is controlled by hedging with the selective use of derivative financial instruments.

Foreign currency risk is caused by fluctuations in exchange rates and associated volatility. Given the international nature of the insurance business, UNIQA invests in securities denominated in different currencies, thus following the principle of ensuring matching liabilities with assets in the same currency to cover liabilities at the coverage fund or company level. Despite the selective use of derivative financial instruments for hedging purposes, it is not always possible on cost grounds or from an investment point of view to achieve complete and targeted currency matching between the assets and liabilities. The following tables show a breakdown of assets and liabilities by currency.

In addition to figures from the established market and credit risk models (MCEV, SCR, etc.), stress tests and sensitivity analyses are used to measure and manage market and credit risk and their components.

The following tables show the most important market risks in the form of key sensitivity figures, along with their impact on equity and profit/(loss) for the period. Depending on the measurement principle to be applied, any future losses from the measurement at fair value may result in different fluctuations in profit/(loss) for the period or in other comprehensive income. 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 countermeasures taken in the various market scenarios.

Sensitivities for other investments are determined by simulating each scenario for each individual item, keeping all other parameters constant in each case.

Swaption volatilities are a measure of the volatility of interest rate movements that are relevant for the measurement of non-current liabilities and are shown in the table below.

In non-life insurance, the liability for incurred claims is formed based on reported claims and applying accepted statistical methods. One crucial assumption here is that the pattern of claims observed from the past can be sensibly extrapolated for the future. Additional adjustments need to be made in cases where this assumption is not possible.

The calculation of claim provisions is associated with uncertainty based on the time required to process claims. In addition to the normal chance risk, there are also other factors that may influence the future processing of the claims that have already occurred. The reserving process for court damages in property and casualty insurance deserves particular mention. A reserve estimate is prepared here for these damages based on expert assessment, although this estimate can be exposed to high levels of volatility specifically with major damage at the start of the process for collecting court costs.

The partial internal model in property and casualty insurance is a suitable instrument for quantifying the volatility involved in processing. Following analysis of these model results, the determination was made that a deviation of 5 per cent from the basic provision calculated could represent a realistic scenario. Based on the current liability for incurred claims of €4,684.0 million (excluding additional provisions such as provisions for unsettled claims) in the Group on a gross basis, this would mean an increase in loss expenses by €234.0 million.

Liquidity risk

Ongoing liquidity planning takes place in order to ensure that UNIQA is able to meet its payment obligations over the next twelve months.

Obligations with a term of more than twelve months are covered by investments with matching maturities as far as possible within the framework of the ALM process and the strategic guidelines. In addition, a majority of the securities portfolio is listed in liquid markets and can be sold quickly and without significant markdowns if cash is required.

Concentration risks

A concentration risk could arise, for example, from the transfer of insurance business to individual reinsurance companies to an inappropriate extent. This can have a material impact on results if an individual reinsurance company is in arrears (or in default). This risk is controlled with an internal reinsurance company that is responsible for selecting external reinsurance parties, taking into account strict guidelines for avoiding material concentration risks.

However, concentration risk can also arise among other things from the composition of balance sheet items reported in the assets. Throughout the investment period, the company continuously checks to ensure that the investment volumes in securities of individual issuers do not exceed certain limits in relation to the total investment volume, defined according to the respective credit rating.

Underwriting risks

The underwriting risks are subdivided into non-life insurance, health insurance and life insurance.

The underwriting risk in non-life insurance is broken down into the three risk categories of premium, reserve and catastrophe risk.

Premium risk is defined as the risk that future benefits and expenses in connection with insurance operations will exceed the premiums collected for the insurance concerned. Such a loss may also be caused in insurance operations by exceptionally significant, but rare loss events, known as major claims or shock losses. Natural disasters represent another threat from events with low frequency but high losses. This risk includes financial losses caused by natural hazards, such as floods, storms, hail or earthquakes. In contrast to major individual claims, insurance companies in this case refer to cumulative losses.

The reserve risk describes the risk that the technical provisions recognised for claims that have already occurred are insufficient. This is referred to as a run-off loss. The claim reserve is calculated using actuarial methods. External factors, such as changes in the amount or frequency of claims, legal decisions, repair and/or handling costs, can lead to differences compared with the estimate.

To counter and actively manage these risks, a number of processes are integrated into the insurance operations. For example, a Group policy specifies that new products may only be launched if they satisfy certain profitability criteria. Major claims and losses from natural catastrophes are appropriately managed by means of special risk management in the underwriting process (primarily in corporate activities) and by the provision of suitable reinsurance capacity.

In connection with claim reserves, guidelines also specify the procedures to be followed by local units when recognising such reserves in accordance with IFRSs. A quarterly monitoring system and an internal review process safeguard the quality of the reserves recognised.

An essential element in risk assessment and subsequently risk management is the use of the non-life partial model. This risk model uses stochastic simulations to quantify the risk capital requirement per risk category at company and Group level.

The health insurance business is operated primarily in Austria. As a result, risk management in this line focuses mainly on Austria.

Health insurance is a loss insurance which is calculated under consideration of biometric risks and is operated in Austria similar to life technique.

The main techniques for risk mitigation in health insurance are the adjustment of future profit participations and the premium adjustment, which is carried out in compliance with legal and contractual framework conditions. These measures are crucial for the underlying risk models and contain detailed information and regulations, particularly with regard to profit participation. In practice, conventional risk-mitigation techniques are also relevant here.

For health insurance they include:

• prudent setting of the discount rate at a level that is expected to be earned in the long term;

• risk selection and thereby targeted pre-selection of prospective customers for insurance products, for example through health checks;

• careful selection of the termination rate probabilities (death and lapse) in order to calculate adequate premiums for the benefits to be expected;

• the consideration of premium adjustment clauses in various health insurance products in order to be able to adjust premiums in line with changes in the calculation principles in case of changes in the expected values; and

• reinsurance solutions are applied to partial portfolios where necessary.

In addition to these conventional risk mitigation techniques, an ongoing process for managing portfolios has been established. This process is carried out annually by determining and evaluating the need for rate adjustments. The effectiveness of the risk mitigation techniques described for the health business is assessed by comparing invoices and actual benefits as well as by calculating contribution margin calculations.

In life insurance, the underwriting risk is generally defined as the risk of loss or adverse developments affecting the value of insurance liabilities. It is divided into the categories of mortality, longevity, disability-morbidity, lapse, expense, revision and catastrophe risk.

The mortality risk depends on possible fluctuations in mortality rates due to an increase in deaths which would have an adverse effect on the expected benefits to pay on risk insurance policies.

Longevity risk refers to the adverse effects of random fluctuations in mortality rates that are attributable to a decline in the mortality rate. The insurer is thereby exposed to the risk that the anticipated life expectancy in the calculation of the premium will be exceeded in real terms and that the expenditure for pension payments will be higher than planned.

The disability-morbidity risk is caused by possible adverse fluctuations in disability, sickness and morbidity rates compared to what they were at the time the premium was calculated.

The lapse risk arises from the fluctuations in policy cancellation, termination, renewal, capital selection and surrender rates of insurance policies. Overall, it represents the uncertainty regarding customer behaviour.

The expense risk refers to adverse effects due to fluctuations in the administrative costs of insurance and reinsurance contracts.

The revision risk results from fluctuations in the revision rates for annuities due to changes in the legal environment.

The catastrophe risk results from significant uncertainty in relation to pricing and the assumptions made in the creation of provisions for extreme/exceptional events. The most relevant risk in this context is an immediate drastic increase in mortality rates: in this case, death benefits in the risk portfolio could not be fully financed by the risk premium collected.

In the context of life insurance, the main techniques for risk mitigation are the adjustment of future profit participations or a corresponding premium adjustment as well as additional reinsurance policies, which are carried out in compliance with legal and contractual framework conditions. These measures are crucial for the underlying risk models and contain detailed information and regulations, particularly with regard to profit participation. In practice, profitable new business supports the risk-bearing capacity of the existing portfolio, whereby careful risk selection (e.g. health checks) and cautiously chosen calculation principles for premiums are essential cornerstones when designing products. By including premium adjustment clauses, the potential to reduce risk can be improved, especially in the risk and occupational disability portfolio.

Operational risk

Operational risk includes losses that are caused by insufficient or failed internal processes, as well as losses caused by systems, human resources or external events.

The operational risk includes legal risk, but not reputation or strategic risk. Legal risk is the risk of uncertainty due to lawsuits or uncertainty in the applicability or interpretation of contracts, laws or other legal requirements. Legal risks are monitored on an ongoing basis, and reports are made to the Group Management Board. The risk management process has also defined the risk process for operational risks in terms of methodology, workflow and responsibilities. A risk manager is responsible for compliance in all Group companies.

A distinctive feature of operational risk is that it can surface in all processes and departments. This is why operational risk is identified and evaluated in every operational company at a very broad level. Risks are identified with the help of a standardised risk catalogue that is regularly checked for completeness.

According to international standards, UNIQA – as a financial service provider – forms part of the critical infrastructure of key importance to the national community. If this infrastructure were to fail or become impaired, it would cause considerable disruption to public safety and security or lead to other drastic consequences.

Appropriate procedures and processes for handling emergencies, crises and disasters have been put in place, ensuring professional and efficient processing.

The implementation of a business continuity management system covers the issues of crisis prevention, crisis management and business recovery (including business emergency plans). The BCM model is based on international rules and standards and is developed on a continuous basis.

Emerging risk

Emerging risk refers to newly arising or changing risks that are difficult to quantify and can have a significant impact on an organisation. Among the main drivers of the changing risk landscape are new economic, technological, socio-political and ecological developments and the increasing interdependencies between them, which may lead to a growing concentration of risk. In addition, a changing business environment – the further development of regulatory rules, the increased expectations of stakeholders and the shift in risk perception – must be taken into account.

Reputational risk

Reputational risk describes the risk of loss that arises because of possible damage to the company’s reputation, because of a deterioration in prestige, or because of a negative overall impression caused by negative perception by customers, business partners, shareholders or supervisory agencies. Reputational risks that occur in the course of core processes such as claim processing or advising and service quality are identified, evaluated and managed as operational risks in the Group companies.

Strategic risk

Strategic risk refers to the risk that results from management decisions or insufficient implementation of management decisions that may influence current or future income or solvency. This includes the risk that arises from management decisions that are inadequate because they ignore a changed business environment. Like operational and reputational risks, strategic risks are evaluated on an ongoing basis.

The following table shows a sensitivity analysis of changes in the most significant underwriting risks and market risks with their impact on assets and technical provisions in accordance with Solvency II. UNIQA has aligned its management processes with the requirements under Solvency II and uses these for control purposes.

The differences between the calculations of insurance contracts under Solvency II and IFRS 17 are primarily due to differences in the scope of the costs taken into account, different contractual limits and the different discount rates applied.

• In accordance with IFRS 17, only costs that can be directly allocated to an insurance contract can be recognised. Under Solvency II on the other hand, the full cost approach is used for the measurement of technical obligations.

• Both sets of rules include contract boundaries in the modelling of future cash flows. Solvency II is primarily based around the risk perspective, whereas IFRS 17 focuses on the insurance contract itself. These different approaches also have an impact on supplementary insurance policies: in accordance with IFRS 17, these are based on the main insurance cover, while Solvency II sets different standards in this regard. A further difference can be seen in outward reinsurance contracts. Under Solvency II, the term of the contract is based on the primary insurance contract, while IFRS 17 takes into account the contract terms under the reinsurance contract.

• Strict regulatory definitions apply under Solvency II with regard to the discounting of the cash flows calculated for the term. By contrast, the derivation of the interest rate and the determination of the risk margin in accordance with IFRS 17 is based on principle and is at the company’s discretion.

Despite these differences, UNIQA considers the risk sensitivities determined in accordance with Solvency II to be a suitable basis for the measurements in accordance with IFRS 17.

The technical provisions in accordance with Solvency II amount to €4,424 thousand (2024: 4,188 thousand) in property and casualty insurance and to €13,906 thousand (2024: €14,358 thousand) in life insurance.

The changes in the base value shown must be considered in isolation in each case. This means that different sensitivities cannot be added together to derive a cumulative change in the base value.