Gothaer Allgemeine Versicherung AG Group Annual Report for ...

Management Report
Investment risks
The investment portfolio is designed to meet all of the Gothaer Allgemeine Group's current
and future payment obligations. The risks associated with it are limited by systematic
compliance with regulatory requirements (e.g. BaFin stress tests), which are seen
only as minimum risk management requirements, and with the use of modern controlling
systems. All major investment risks are identified, measured, monitored, reported
and managed within the context of risk management. To improve our risk/earnings ratio,
we attach a great deal of importance to diversification of investment in terms of mix and
spread.
The prime focus of this investment management is risk-bearing capacity, which is established
on the basis of internal models and asset liability management (ALM). The wide
range of ALM concepts employed at Gothaer includes stochastic risk models such as
ALM projections, asset-only analyses as a module of the early-warning system within
the Group as well as stochastic support for net target yield planning. These analyses
from different perspectives form the basis for the regular verification and adjustment of
strategic asset allocation.
In addition, key business ratios are analyzed with the help of empirical distributions and
shortfall probabilities. These ratios show, among other things, net and market value
yield, hidden asset-side net reserves and the own funds ratio. Regularly defined individual
scenarios are also examined. The basis is formed by a scenario that is deemed
highly likely to occur. Furthermore, analysis is extended to critical scenarios that are
identified in the course of the stochastic evaluation of results.
Stochastic indicator-based risk measurements are also used to establish probabilities
of failure to achieve investment result targets at the end of the year. The probabilities are
the result of a simulation of market value development and earnings generated by the
major investment classes based on the Group's own performance expectations for the
year ahead. Other models such as our own capital requirement model or the QIS study
models for Solvency II are also used.
Systematic further development of the risk models used also promotes a sustainable
increase in risk-bearing capacity. In addition to risk restrictions required by the supervisory
authority, special investment guidelines (compliance) are applied to monitor internal
risk limits.
Gothaer Allgemeine Group Annual Report 2011 29