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 5.1.6. Risk management in the area of reinsurance protection General description of the purpose and goals of reinsurance protection Reinsurance enables the Group to underwrite also insurance contracts that exceed Group's own capacities, i.e. to take over risks above the Groups own retention and provide for solvency and liquidity of operations. Thus it represents a key element of risk management in insurance industry / business. The Group pursues the objective to achieve the optimum protection both against individual large claims and against the aggregate exposure of the Group's insurance portfolio to natural and other insurance hazards. The Group decides on the form and structure of the reinsurance based on the level of retention of the insurer and the profiles of insurance portfolio. Contractual reinsurance ensures automatic cover of the vast majority of underwritten risks, even in the event of potential risk assessment errors. For exceptional risks which exceed the contractual reinsurance protection by scale or content of the cover provisions, the Group ensures additional special facultative reinsurance protection. The program of planed reinsurance is composed of traditional proportional and non-proportional types of reinsurance protection, and is by structure and by extent of covers practically the same as in business year 2008. Through operational risks management the Group carefully monitors the frequency and the scale of the risks reinsured either under ordinary contractual provisions or under special facultative reinsurance provisions. Basic assumptions used in sensitivity tests We assume two types of reinsurance protection risks. The first risk is whether the structure and scale of protection have been adequately chosen, which can be checked by simulation of whether decreasing reinsurance protection would significantly decrease net profit or loss, which would consequently jeopardise the Group’s capital adequacy. The second risk is whether the profit or loss would worsen significantly if an above-average number of large-scale and mass losses (which would also involve above-average amounts) occurred in a given period. Two income sensitivity tests have been designed to assess reinsurance protection risk: first, the test of sensitivity to a decrease in reinsurance protection, and second, the test of sensitivity to above-average incidence of loss (for large-scale and mass losses). Analysis of the group portfolio from the aspect of reinsurance risk In the largest group of other property insurance contracts, we analysed the sensitivity of individual portfolios of insurance categories/groups of insurance categories to large-scale and mass losses, with the aim of focusing the reinsurance risk management analysis on the most exposed insurance categories. This analysis showed that the reinsurance risk is most significantly affected, both in terms of the amount and number of potentially large-scale and mass losses, by the portfolio of auto liability insurance and the portfolio of fire and other damage insurance. These portfolios also significantly affect the profit or loss; therefore the sensitivity analysis was made on the basis of these reinsurance contracts. 120
The Group KD Group Annual Report 2009 Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009 Concentration of reinsurance for 2009 Contract year 2009 Type of reinsurance Own share/ priority in EUR Reinsurance premium Structure of the reinsurance premium Reinsurance commission Accrued reins. losses Reserved reins. losses (in EUR thousand) Effect of the reins. outcome on the profit Surplus reinsurance of fires 1,000,000 2,068 18.97% 310 2,045 5,104 5,391 Quota share reinsurance of fires 900,000 833 7.64% 167 202 198 (266) Surplus reinsurance of technical reserves 400,000 643 5.90% 96 176 28 (343) Quota share reinsurance of technical reserves 360,000 713 6.54% 143 250 168 (152) Quota share reinsurance of earthquakes - 1,430 13.11% 357 - 1 (1,072) Risk XL reinsurance of fires 600,000 128 1.17% - - - (128) Risk XL technical reinsurance 120,000 63 0.58% - - - (63) Cat XL property reinsurance excl. vehicle insurance 1,000,000 845 7.75% - 318 48 (479) Cat XL reinsurance annual aggregate excl. vehicle insurance 2,000,000 149 1.37% - - 325 176 Total fire and technical insurance 6,872 63.02% 1,073 2,991 5,872 3,064 XL reinsurance of auto liability and green card 300,000 926 8.49% - - 769 (157) XL reinsurance of comprehensive auto insurance 150,000 52 0.48% - - - (52) Cat XL property reinsurance - vehicle insurance 1,000,000 930 8.53% - 331 431 (168) Cat XL property reinsurance excl. vehicle insurance 2,000,000 358 3.28% - - 338 (20) Total auto insurance 2,266 20.78% - 331 1,538 (397) Other property insurance 1,085 9.95% 49 - - (1,036) Health insurance policies - 0,00% - - - - Life insurance 681 6.25% 103 186 54 (338) TOTAL CONTRACT YEAR 2009 10,904 100,00% 1,225 3,508 7,464 1,293 121
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The Group KD Group and KD Group dd

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