The Group KD Group and KD Group dd

The Group KD Group Annual Report 2009
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2009
As already mentioned, in 2009 we increased our own shares for motor insurance and insurance against the risk of natural
disasters, which directly affects the reduced volume of reinsurance coverage compared to the contract year 2008. Loss
events in the two years are comparable since in both years we recorded more loss events due to storms and an equal
number of major automobile liability claims. In contract year 2008, the above claims would cause decrease in the Group’s
profit of EUR 3,679 thousand, and in 2009, EUR 4,003 thousand.
5.2 Financial risks
The Group is exposed to financial risks through its financial assets and liabilities, reinsurance receivables and insurance
liabilities. Financial risks are risks that, due to changes in the capital markets and ratings of the Group’s clients, the inflows will
not be sufficient to cover the outflows. The most significant components of this financial risk are liquidity risk, credit risk and
market risk; the Group is exposed to the risks of changes in interest rates, securities market prices and currency rates.
Liquidity risk is the risk that the Group may be unable to repay all its liabilities, including potential liabilities, without threat to its
normal activities. The Group maintains capital adequacy with an adequate amount of capital in order to be able to ensure
liquidity at any moment and so that it is sustainably able to meet its obligations (solvency).
The main source of credit risk for the Group stems from the insurance segment and involves investments and reinsurance
risks. This involves the risk that the counterparty will be unable to pay the amounts due at maturity.
Market risks arise particularly in the investment of assets, where there is the potential that expectations regarding the value of
investments are not met or are not met entirely. The risk of unfavourable changes in investment values can be the
consequence of foreign exchange rate changes, as well as changes in interest rates or securities prices.
The Group manages and controls the risks to which it is exposed by constantly monitoring cash flows and ensuring that it
always has enough liquid assets at its disposal to settle its liabilities, by investing its assets in a manner which ensures stable
long-term returns which exceed the amount of returns on insurance liabilities, by matching the terms of financial assets
against financial liabilities, and by ensuring the adequacy of financial assets.
Currency risk is less important for the Group because of ERM2 and adoption of the euro in 2007.
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