The Group KD Group and KD Group dd

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The Group KD Group Annual Report 2009 Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009 5.1.4. Long-term life insurance – assumptions, changes in assumptions and sensitivity a.) Procedure of establishing assumptions Liabilities from life insurance contracts with DPF were calculated using assumptions on future mortality from statistical tables. The portfolio of insurance contracts was too small in the past, so for the purpose of estimating mortality the following statistical tables are used: - for life insurance contracts with DPF, Slovenian morality tables from 1992 were used; - for annuity products, German mortality tables from 1987 were used - cancellations, - returns on investments (rate 2.6%-4%). These assumptions are set at the time of concluding the contract and remain the same throughout the term of insurance, or safer assumptions are used in the calculation of liability to provide for the possibility of unfavourable deviation from expectations. An additional adjustment is applied to these assumptions to account for risk and uncertainty. New estimates are made for each subsequent financial year for the purpose of checking the adequacy of liabilities determined in this manner. If it is determined that the established liabilities are adequate, assumptions remain unchanged. If the established liabilities prove to be inadequate, assumptions are revised to reflect new expectations. Consequently, the provisions are measured according to appropriate level. The assumptions used for insurance contracts described hereunder are as follows: • mortality Depending on the type of contract, the appropriate mortality table is chosen and adjusted to reflect actual mortality of the insurance portfolio in past years and the current period. • cancellations An analysis of the Group’s experience of the past three years is carried out by application of statistical methods, and the appropriate cancellation percentage is determined. Cancellation percentages vary by type of product and term of the insurance period. The analysis is carried out in order to determine the best estimate of the policyholders’ behaviour. • returns on investments The Group established assumptions for returns on investments by taking into account present returns on government-issued securities and other financial instruments on the market. In addition to this, the structure of assets which are used to cover liabilities stemming from life insurance contracts (long-term business fund) is taken into consideration by determining weighted average returns. • costs Future costs are determined on the basis of current costs. The future inflation assumption was also applied. b.) Changes in assumptions In 2009 the Group made no changes in the assumptions used in the calculation of insurance contracts. 118
The Group KD Group Annual Report 2009 Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009 5.1.5. Sensitivity analysis The Group made a sensitivity analysis of net profits before taxes on the last day of the financial year, with consideration to various parameters. Sensitivity test – parameters Sensitivity factor Factor description Technical interest rate (insurance contracts only) Effect of a change of the technical interest rate by ±1% Effect on the increase/decrease of all costs except the costs of Costs and expenses acquisition by ±5% Mortality (life insurance only) Effect of a 5% increase in mortality Mortality in annuity insurance (pension and annuity insurance) Effect of a 5% decrease in mortality Claims ratio (property and health insurance only) Effect of a 5% increase in the claims ratio The above factors were used in actuarial and statistical models for calculating the changes of net profits of the Group. The table below shows the effect of changes of key factors on the net earnings of the Group before taxes. Effect on the Group’s net profit before tax for 2009 (in EUR) Life insurance policies with DPF Unit-linked life insurance policies Property insurance excluding health insurance policies Health insurance policies Financial contracts with DPF Factor Costs +5% (116,964) (58,598) (2,237,029) (820,820) (10,290) (3,243,701) Costs -5% 116,964 58,598 2,237,029 820,820 10,290 3,243,701 Technical interest rate +1% 6,829,864 - - - 1,114,120 7,943,984 Technical interest rate -1% (8,421,135) - - - (1,394,990) (9,816,125) Mortality +5% (198,153) - - - - (198,153) Mortality in annuity insurance - 5% (166,036) - - - - (166,036) Claims ratio +5% (344,948) (315,484) (6,935,286) (5,006,688) (79,898) (12,682,304) Claims ratio -5% 344,948 315,484 6,935,286 5,006,688 79,898 12,682,304 Effect on the Group’s net profit before tax for 2008 (in EUR) Life insurance policies with DPF Unit-linked life insurance policies Property insurance excluding health insurance policies Health insurance policies Financial contracts with DPF Factor Costs +5% (131,030) (76,000) (2,156,000) (778,000) (10,000) (3,151,030) Costs -5% 131,030 76,000 2,156,000 778,000 10,000 3,151,030 Technical interest rate +1% 7,712,010 - - - 1,213,000 8,925,010 Technical interest rate -1% (9,439,010) - - - (1,528,000) (10,967,010) Mortality +5% (216,395) - - - - (216,395) Mortality in annuity insurance - 5% 158,711 - - - - 158,711 Claims ratio +5% (357,408) (357,000) (6,851,000) (4,755,000) (87,000) (12,407,408) Claims ratio -5% 357,408 357,000 6,851,000 4,755,000 87,000 12,407,408 Total Total 119
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