We build business networks and relationships ... - skupina kd group

KD Holding Group
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2007
risk for the Group to which it is exposed during the
entire life cycle of the insurance product.
In the management's opinion, the important risks
faced by the Group in its operations are the following:
In the context of insurance risk the Group is
exposed to underwriting process risk, product
design risk, pricing risk, economic environment
risk, policyholder behaviour risk, reserving risk,
claims risk. Insurance risks are also managed with
reinsurance protection.
- Underwriting process risk, the danger of
misevaluation of accepted risk. This risk involves
mistaken decisions to underwrite a risk regardless
of the risk exposure of the insured, insurance on the
basis of inaccurate and incomplete information on the
insured, incorrect information about the amount of
maximum potential damage, or potential inappropriate
5.1.1. Description of risks
acquisition of reinsurance coverage by the reinsurer.
238
Insurance activities are based on managing insurance
risks. Insurance risks apply to risks accepted by
the insurer from the policyholder. Insurance risks
are random and unpredictable. At the signing of an
insurance contract the insurer accepts the risk to repay
the insured the agreed contractual amount if an insured
event occurs or if the contract expires, whereas when
the insured event will occur is uncertain.
Insurance cases are random, their number and
amounts vary from year to year and deviate from
statistical averages. The Group is therefore engaging
in diversifying and increasing its portfolio. This allows
it to disperse the risk and lower the variability of
expected events. An important instrument to lower
insurance risks is reinsurance, i.e. the transfer of
risks which exceed a predetermined amount, to a
reinsurer. The Group further manages insurance risks
through effective performance of internal controls,
internal audits and forming appropriate insurance
technical provisions to cover potential future liabilities
stemming from existing insurance contracts.
The Group manages the aforementioned risk through
providing guidelines for accepting insurance risks, using
software for accepting insurance risks, strict criteria and
procedures for accepting insurance risks, especially for
large insured sums and coverages. Also, the Group has
concluded an obligatory reinsurance contract with its
reinsurer, by which the reinsured risks over a certain
contractually agreed insured sum are automatically
reinsured. The Group also monitors damage results and
analyses any worsening thereof.
- The risk of inadequate assessment of liabilities
stemming from insurance contracts
(reserving risk) is the risk that these reserves will not be
adequate to cover the liabilities stemming from accepted
risks, or the risk that future damage payments will
exceed the evaluated amount of liabilities.
The Group regularly checks the adequacy of liability
calculations and the adequacy of used assumptions
in the calculation of higher liabilities stemming from
insurance contracts. The Group also carries out