The Group KD Group and KD Group dd

The KD Group Annual Report 2009
Risk management
In times of deepened financial and economic crisis, the Management Board of KD Group is regularly adopting measures that
will to the largest possible extent impact risk management and contribute to the achievement of set goals.
Conditions in the internal and international business environment deteriorated significantly in 2009. Thus the deepening of
the financial turmoil has already been felt in the real sector of the economy. In this situation, risk management at the
company and the Group KD Group was immediately adapted to new conditions. Since the situation does not permit us to
exert excessive influence on the revenue side, we are focused on the more efficient handling of resources, increasing
effectiveness and searching for additional opportunities to exploit synergies.
Strategic risks
KD Banka, which designed the overall risk management strategy, began operating in 2009. It defines, forecasts and
summaries for each individual type of risks the strategies applicable to risk assumption and management, as well as policies
relating to risk assumption and management in conjunction with the internal control system organisation that ensures the
implementation of the strategies. This lays down clearly and transparently the responsibilities, competences, systems and
processes from the Management Board, executive officers up to the senior management and all those involved in the risk
management system.
Strategic risks that affect the long-term development of the Group include the risk of a loss due to incorrect and/or untimely
business decisions made by the Group companies, inappropriate implementation of the adopted decisions, and insufficient
response of the Group companies to changes in the business environment. This is of exceptional importance particularly in
such major changes in business environment as has been witnessed recently by the majority of global economy. In these
conditions risks should be managed by implementing and regular monitoring of the appropriateness of the Group's
strategies, their implementation and timely response to changed business circumstances.
Due to highly diversified activities of the companies owned by KD Group, investment decisions taken in individual segments
continue to be of key importance. Therefore, the managing and governing system is continually adjusting to the external
changes and the development of individual segments, as well as to the achievement of target returns.
General business risk
Our activities and decisions have no impact of the wider economic environment or relevant legislation. Thus risks are more
difficult to measure and model. We manage these risks by regularly monitoring legislation, capital markets and
macroeconomic parameters. Amendments to legal regulations that significantly affect our business environment are quite
frequent and complex. A series of legislative changes have occurred in Slovenia and the countries of South Eastern Europe
in the past year that have affected our key areas of operations and required numerous activities to adapt them.
Financial risk
The primary purpose of financial risk management is to achieve stable operations and reduce exposure to specific risks to an
acceptable level. The Group is highly exposed to financial risks through its financial assets and liabilities, reinsurance
receivables and insurance liabilities. The possibility that inflows from financial investments will not be sufficient to cover
outflows from insurance contracts represents the main risk, as well as the risk that, at a given moment, other companies will
not have sufficient funds to settle their current liabilities or to maintain current operations. Given that most companies in the
Group are involved in regulated activities, this area is already controlled to a large extent by observing legislative provisions.
The most significant components of financial risk are changing interest rates and securities prices, and currency and credit
risk. It became clear in the most recent period that financial risk and its management are of key importance for the
achievement of set objectives. Therefore, we continuously plan and monitor cash flows and attempt to proactively ensure the
stability of our operations.
The risks related to market risk management are managed independently by Group companies using methods linked
primarily to the legal aspects of specific industries and may vary significantly by individual divisions. Group companies
monitor and manage market risks from investments in financial instruments by carefully selecting the sector and
geographical composition of investments. In the segment of asset management, market risks are monitored, assessed, and
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