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KD Holding Group
Notes to Consolidated Financial Statements as at and for the year ended 31 December 2007
Future costs are determined on the basis of current
costs. Additionally, the assumption of future inflation
is also used, which is based on the EU's long-term
projections for the EUR currency.
product, amount of the commission to insurance
agents and other potential costs. The Group also
measures and monitors the profitability of individual
products
- Pricing risk applies to the risk that the amount
of the insurance premium is not adequate for
covering the insurance liabilities stemming
from damage claims and operating costs. The
reasons can vary, e.g. unsuitable statistical
data, inadequate assessment of damage events,
- Product design risk is the risk that, when calculating
the insurance premium, the Group will be exposed to
the danger of non-consideration of the potential for the
occurrence of new diseases and accidents which could
significantly affect the movement of future damage
claim cases. This risk is important for life insurance.
low premium due to competition, unsuitable
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premium for new products, unsuitable mortality,
annuity, morbidity tables, inadequate amount of
expenses calculated into the price of the product.
Furthermore we can speak about the adequacy of
the used probability tables, which further expose
the Group to risks of natural death, longevity,
critical illness and accident.
Already at the new product planning stage,
the Group diligently checks and acquires the
necessary statistics which confirm the suitability
of the assumptions used. In the case of high-risk
products such as additional coverage for critical
illness, the Group's general terms and conditions
allow the possibility of subsequent change in the
amount of the insurance premium if new statistics
or damage events indicate that the premium is too
low. Similarly, the Group diligently monitors the
amount of actual costs and, after analysing these
costs, calculates the amount of costs to include in
the price of individual products, which depends on
the type of product, special costs involved in the
As already mentioned under pricing risk, in certain
higher-risk insurance products the Group does not
guarantee the amount of the insurance premium
during the insurance coverage period. In addition
certain increases are used in the mortality and
morbidity tables. The Group also follows mortality
and morbidity trends. Certain modern illnesses are
excluded from the insurance terms and conditions.
In this context the Group has established cooperation
with a reinsurer, which transfers certain knowledge
and findings to the Group.
- Cost risk is the risk for potential losses which
could occur as a result of misevaluation of costs
when setting prices and misevaluation of changed
circumstances in the macroeconomic environment
which could cause excess growth in the Group's
operating costs.
The procedures for managing risk related to
unsuitable cost assessment are based on an
established system of recording and allocating