01 Gothaer Konzern_E_09_Umschl - Gothaer Allgemeine ...

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01 Gothaer Konzern_E_09_Umschl - Gothaer Allgemeine ...

108141 – 03.2009

The Gothaer Group

Annual Report 2009


Financial Highlights

Five-Year Summary

(consolidated in accordance with IFRS)

The Gothaer Group

Financial Year

2009

€million

Gross premiums written* 4,248.6 4,039.4 3,945.1 3,856.6 3,809.4

Net premiums earned* 3,362.1 3,043.2 3,069.6 3,032.4 3,069.6

Policyholder benefits (net) 3,383.3 2,436.2 3,389.8 3,126.4 3,395.9

Underwriting expenses (net) 648.3 690.8 673.0 627.0 592.9

Consolidated profit for the year 74.6 62.1 131.2 120.3 103.1

Investments 22,585.1 21,451.2 21,885.9 21,380.9 20,808.9

Investment result 671.4 711.6 1,316.6 977.5 1,337.0

Underwriting reserves (net) 20,354.0 19,154.9 19,260.9 18,417.4 17,619.1

Group equity 1,067.0 942.2 1,046.9 1,070.7 949.6

Employees (average number) 5,350 5,466 5,610 5,730 6,014

* Including premiums from the reserve for premium refunds

2008 2007

2006 2005

With over 3.5 million members and premium income of over 4 billion Euro, the Gothaer Group ranks among

Germany’s largest insurance groups and is one of the country’s largest mutual insurance associations.

By offering high-quality risk-management and financial concepts, we give our customers comprehensive

solutions that go well beyond the usual scope of insurance and financial products. We attempt to make

dealing with insurance and financial matters as pleasant and as simple as possible for our customers. Our

employees make every effort to take the burden off of our customers and act in their best interests in all

respects. This, in combination with the quality of our service and support, distinguishes us from our competitors.

This approach results in noticeable added value for our customers and marketing partners.

Gothaer’s customers are for the most part private individuals and medium-sized companies. We offer a wide

variety of insurance products, not only in the personal area, but also for small and medium-sized companies,

the self-employed and freelancers.


Financial Highlights

The Business Units

The Business Units

Gothaer Versicherungsbank VVaG, a mutual insurance association, is the Group parent. The Group’s financial

activities are managed by Gothaer Finanzholding AG.

Operational activities are handled mainly by the companies listed below:

Gothaer Allgemeine Versicherung AG is the risk-bearing entity in the area of property and casualty insurance

within the Gothaer Group. This company has ranked among the largest German property insurance companies

ever since its foundation in the year 1820. Its focus is primarily on comprehensive insurance concepts

and multiple-risk products. Custom solutions that take into account the specific requirements of different

branches of business and industry make Gothaer a reliable partner, not only for private clients, but also for

commercial and corporate clients.

Gothaer Lebensversicherung AG can look back on 180 years as a partner offering insurance protection and

financial planning strategies. In the insurance cover area, Gothaer Leben positions itself with innovative

biometric products like Gothaer Perikon as dread disease product or the new Gothaer PflegeRent Invest, the

first unit-linked long-term care pension insurance on the German market. In private retirement planning,

product flexibility is the central feature, enabling the client, to adapt the product optimally to his personal

circumstances in every phase of life. With over four decades of experience, company pension plans are

an important growth field. Besides future-geared subjects like working time accounts, there are holistic

solutions available which, in addition to the appropriate products and comprehensive advice, also offer

support in launching and communicating solutions for enterprises and their workforces.

As the healthcare provider of the Gothaer Group, Gothaer Krankenversicherung AG provides policyholders

not only with customized insurance coverage and reimbursement of medical expenses, but also with extensive

advice in the area of healthcare and comprehensive support in the event of illness. Mainstay services

include preventive measures, active consultation for those with chronic medical problems and case

management for especially severe illnesses. In spite of a difficult market environment, owing to the healthcare

reform and the economic crisis, there is a growing market for comprehensive medical insurance. In

addition to classic business in comprehensive healthcare plans, the company is very well positioned in supplementary

insurance as well. In the years to come, efforts in this area will also focus on group insurance

and corporate healthcare management.

The Asstel Insurance Group complements the Gothaer Group’s portfolio with a direct insurer, which offers

standardized, economical products in the life, health and property insurance segments to private clients

throughout Germany since 1997. Asstel’s foucus is on direct business with a special emphasis on online

marketing. As customer totals grow, existing customer business, too, plays an ever-greater role. A further

mainstay at Asstel is cooperation business. Here, Asstel offers especially attractive insurance conditions for

whole workforces and customer groups in enterprises as well as members of associations. In recent years,

the company has quickly worked its way up to the top in many rankings of products, services and providers.

Janitos Versicherung AG, the youngest member of the Gothaer Group, was established as an independent

brand in 2005. This specialized broker insurer operates in the areas of accident and property insurance in

particular, offering a convincing combination of high-quality products and effective processes. With the

Janitos Multi-Rente for adults and children, the company has succeeded in creating a product with a new

scope of benefits that offers cover against financial burdens due to illness or accidents.


The Gothaer Group

Janitos Versicherung AG

Heidelberg

Gothaer

Risk-Management GmbH

Cologne

100 %

100 %

Gothaer Versicherungsbank VVaG

Cologne

100 %

Gothaer Finanzholding AG

Cologne

Gothaer

Allgemeine Versicherung AG

Cologne

74,9 %

Gothaer

Systems GmbH

Cologne

Gothaer

Lebensversicherung AG

Cologne

Gothaer

Pensionskasse AG

Cologne

Gothaer

Invest- und FinanzService GmbH

Cologne

Gothaer

Krankenversicherung AG

Cologne

ASSTEL

Lebensversicherung AG

Cologne

ASSTEL

Sachversicherung AG

Cologne

ASSTEL ProKunde

Versicherungskonzepte GmbH

Cologne

100 % 50 %*

25,1 %

25,1 %*

CG Car Garantie

Versicherungs-AG

Freiburg

ROLAND Rechtsschutz

Versicherungs-AG

Cologne

Aachener

Bausparkasse AG

Aachen

A.S.I.

Wirtschaftsberatung AG

Münster

Gothaer

Asset-Management AG

Cologne

Hamburg-Kölner-

Vermögensverwaltungs GmbH

Cologne

GKC Gothaer

Kunden-Service-Center GmbH

Cologne

GSC Gothaer

Schaden-Service-Center GmbH

Berlin

* Total Group interest Revised: May 2009

For purposes of clarity, some Group companiesare not shown or are not shown in their entirety.

100 %

100 %

100 %

100 %

100 %

100 %

100 %

25 %*

100 %

100 %

100 %

100 %

100 %


Gothaer Versicherungsbank VVaG

Group Annual Report for 2009 in accordance with

International Financial Reporting Standards

(IFRS)

Report for the Financial Year as of

1 January to 31 December 2009

Registered Office of the Company

Arnoldiplatz 1

50969 Cologne/Germany


Table of Contents

Table of Contents

Foreword

Letter from the Chairman of the Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Letter from the Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Target Group SMEs – Competence for small and medium sized enterprises . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Introduction of a variable remuneration system, extensive qualification measures

and the development of a new personnel strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Gothaer brand celebrating its 190th anniversary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Management Report

General Economic Situation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Situation of the Insurance Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Group Management Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Capital Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Segmental Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Risk Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87

Consolidated Financial Statements

Consolidated Statement of Financial Position . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Statement of Changes in Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97

Statement of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98

Segmental Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100

Notes to the Consolidated Financial Statements

Group Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107

Principles of Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

Scope of Consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110

Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115

Notes to the Consolidated Statement of Financial Position – Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134

Notes to the Consolidated Statement of Financial Position – Equity and Liabilities . . . . . . . . . . . . . . . . . . . . . . 149

Notes to the Consolidated Statement of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169

Corporate Governing Bodies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

– Representatives of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

– Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

– Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183

– Advisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184

– Social Policy Advisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 187

– Directorships of Members of the Supervisory Board and Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

Auditors’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198

Report of the Supervisory Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199

Addresses of Major Group Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201

Gothaer Group Annual Report 2009 3


Foreword

Rich in tradition, but forever young –

Gothaer brand celebrates its 190 th anniversary

Dr. Roland Schulz,

Chairman of the Supervisory Board

of the Gothaer Group

Gothaer’s milestone birthday, which we will be celebrating on 2 July 2010, offers a

splendid occasion to recall the Company’s founding idea. For although the foundation

date was 190 years ago, that idea is now more relevant than ever: Gothaer was set up

by merchants for merchants: in the event of loss, individuals were not simply to be left

to their own devices – the collective was to step in. And today, smaller and mediumsized

enterprises are still an important target group for the Company. Now, private cover,

too, is a vital business field. Combining tradition and innovation, long-term thinking and

the idea solidarity – that’s what Gothaer is all about the idea of.

Under the motto “Shaping change”, each and every year brings a new challenge – as

has been impressively proven by the financial crisis. And the Gothaer Group has coped

brilliantly with that crisis – like so many other challenges in its 190-year history. The

Company braced itself flexibly to face the new situation: as recently as March 2009, we

were dealing with the most difficult and far-reaching upheavals on capital markets. The

DAX was at a historic low and risk premiums for corporate bonds were surging once more.

The sector was confronted with a worrying scenario, yet one that improved again in some

major areas toward the end of 2009. All the same, the financial crisis will go on keeping

insurance companies busy in 2010.

What other consequences has the financial crisis had? Regulators now have stronger

teeth. The transparency requirements for entrepreneurial decisions have been tightened.

More than in the past, supervisory bodies are being forcibly reminded of their

duties and responsibilities. With its expertise and personal commitment, Gothaer’s

Supervisory Board is facing these challenges and supports the Management in defining

strategic goals, implementing policies, and further developing our business model.

Gothaer has come to grips with the crisis by adopting comprehensive cost discipline as

well as thorough and careful planning, which has created security for our customers.

Thanks to the further development of solution-geared processes, we have been able to

generate profitable growth in our core target groups.

The Supervisory Board thanks the Executive Board and employees for their committed

and professional work.

Sincerely yours,

Dr. Roland Schulz

4 Gothaer Group Annual Report 2009


Security and stability in turbulent times

Dr. Werner Görg,

Chief Executive Officer of the

Gothaer Group

Foreword

A review of the year 2009 shows just how well Gothaer evolved in what was not exactly

an easy year: Premiums were up 5% to 4.25 billion Euro. It was possible to further lower

the cost pressures in the Group, and this had a positive overall effect on our earning

power. In the investment area, we significantly dismantled hidden liabilities that had

still been shown in the 2008 annual financial statements of our personal insurers: by

approximately66%on31December2009,byover90%on28February2010.Thisisin

line with scheduled developments which we forecast in this form for the years

2009/2010 as well. The Group profit of 75 million Euro, relative to Group equity of

1,07 billion Euro, translates into a return of 7%.

This positive performance of the Gothaer Group is also reflected in the financial strength

ratings of Standard & Poor’s, Fitch and ASSEKURATA, confirming sound financial

stability with A- and A. The same is true of the large number of positive ratings for our

products and services. Hence, we note with some pride that the Gothaer Group in 2008

and 2009, pursuing a stable and continuous business policy, came off well in coping

with the problems of the financial crisis.

As for future developments, we can already predict that the only constant will be change.

Triggered by widespread misselling of banking products by bank staff, policymakers are

also discussing a restructuring of the remuneration for insurance intermediaries. Even if

politicians have now realized that advice geared solely to remuneration will lead to

undesirable trends, no final assessment can be given as yet to what amendments lawmakers

will opt for.

Investments have returned to slightly calmer waters. However, the aftermath of the financial

crisis is such that the state will – in all likelihood – hardly be able to repay its accumulated

debts, meaning that inflationary trends will become more and more probable.

This, in turn, has considerable implications for the structuring of investments overall,

and is likely to constitute the biggest challenge in the coming years. Finally, the muchdiscussed

subject of Solvency II is just around the corner. The Gothaer Group, too,

unreservedly welcomes the clear avowal of value-oriented corporate governance. Today

already, our Company is managed according to the principle of risk-adjusted capital

allocation and yield-oriented investment. In all risk models, the clear merits of our

Group structure and our balanced business mix are already there for all to see: In these

difficult times – for life insurers – with interest rates as they are, a high-yield non-life

insurer can generate result continuity.

It is good to be in a stable and future-oriented position. We look forward to what will

surely continue to be challenging times, which we will tackle together! The Management

wishes to thank all employees for their steady commitment. I am also indebted to our

marketing partners, customers, corporate governing bodies and friends for their support.

Sincerely yours,

Dr. Werner Görg

Gothaer Group Annual Report 2009 5


Competence for small and medium sized

enterprises.

6 Gothaer Group Annual Report 2009


“We are with SMEs, all the way, in all insurance issues.

Owners of firms should have as much time as possible for their business.”,

says André Kirsten, target-group manager for SMEs at Gothaer.

Gothaer Group Annual Report 2009 7


Target group SMEs

Target group SMEs – Competence for small and medium sized

enterprises.

SMEs are the backbone of the German economy. Whether garage, travel agency or

baker’s shop – these firms are of enormous importance. Gothaer, too, benefits from the

opportunities offered by this market segment.

The special significance of SMEs as a target group is also reflected in the figures: Well

over 90 % of all enterprises in Germany can be assigned to this group. SMEs account

for some 70 % of all employees in Germany, and their share in vocational training even

exceeds 80 %. In total, these undertakings earn more than 40 % of all taxable revenue.

At the start of its 190-year history, Gothaer was already aware of the special importance

of SMEs. Set up for the mutual protection of merchants and entrepreneurs, it has been

demonstrating its competence in this customer segment ever since 1820. All this time,

a holistic approach to advice has been to the fore. Without a proper understanding of

your corporate clients, you cannot advise and insure them successfully. Which is why

Gothaer has been further strengthening and extending its activities in this core target

group since 2005.

The alignment of Sales to SMEs as a core target group has made significant headway

since then. The measures taken comprise further improvements to the product solutions

offered, numerous events and new sales-promotion material.

Successful exam candidates after the second course for SME expert at Gothaer (IHK) are celebrating their certificates

8 Gothaer Group Annual Report 2009


SME expert

at Gothaer (IHK)

Concept-based advice

for corporate clients –

Gothaer’s risk analysis

Target group SMEs

Gothaer has also recognized the growing need of owner-operated firms to have personal

and competent advice. So, in this area, too, life-long learning – which Gothaer’s mission

statement calls for from all staff – is of particular importance. In purpose-built training

schemes, participants become specialized in advising this target group and sensitized

to its needs.

The flagship of the qualification measures for corporate-client business since 2007 has

been the “SME Specialist at Gothaer (IHK)” course (Fachmann/-frau der Gothaer für den

Mittelstand (IHK)). The title itself points to a special key feature: The further education

measure is offered in external cooperation with “Going Public!” and Cologne’s Chamber

of Industry and Commerce (IHK). With the certificate from the IHK – highly respected by

SMEs – the graduates are notifying their customers of the special quality of their training.

This is then reflected in the advice they provide.

In this way, Gothaer’s self-employed fieldforce, who already have experience in advising

corporate clients, can – within the scope of the 18-month further-education scheme in

parallel to their professional work – acquire insights into all fields of special relevance

for advising SMEs and can further extend their advisory and sales competence. Again,

in addition to the indispensable, theoretical foundations, participants quickly and

dependably learn to identify any insurance deficits and gaps, and work out solutions in

talks with customers.

In addition to the broad-based further training options, Gothaer advisors with a focus on

SME clients deploy Gothaer’s risk analysis. Like Gothaer’s concept-based advice for

private clients, this tool offers structured and complete advice for entrepreneurs in all

insurance lines. Gothaer advisors are given support in the systematic analysis of a firm’s

underwriting risks. When analysing risks, they keep an eye on the business’s specific

circumstances and take account of existing insurance cover. Risk analysis reveals gaps

and duplications in the cover. The result of the analysis is a manageable and readily

understandable document that is handed over to the customer, who receives – besides

a detailed overview of his firm’s risk and financial planning situation – direct and specific

recommendations for action to optimize his present protection.

Over Overview

iew

Security Security

Gothaer

Risik analysis

Optimization

Optimization

Continuity ontinuity

Gothaer’s risk analysis helps

intermediaries provide SME clients

with comprehensive advice

Gothaer Group Annual Report 2009 9


Target group SMEs

Healthy staff –

thanks to MediExpert

This makes giving advice easy in coming years, too. On the basis of data once evaluated,

any changes in a firm and their implications for its cover can be clarified quickly and

simply in annual discussions.

By pros, for pros: Gothaer advisors can only make risk analyses after attending a training

event. They also have to furnish evidence of experience in corporate client business and

broad expertise: this assures the client that he is being given competent and comprehensive

support.

“The risk analysis has convinced me completely. We now have a very good overview of

our insurances cover and of our risk and financial planning situation,”

says a delighted Petra Oberwalleney-Kille, Institute for Flooring and Interior Decorating,

Cologne.

In addition to advisory competence and special product solutions, Gothaer also offers

its SME clients a broad range of options in company health management. The healthcare

service provider MediExpert, a Gothaer subsidiary, develops and organizes individual

programs for health promotion on the basis of many years of experience. Corporate

clients and their employees have access to an interdisciplinary team of physicians,

nutritionists, sports scientists, psychologists and educators.

“Since December 2007, Gothaer staff have been organizing a bespoke program for

promoting health in our company. The prevention options, like yoga, Pilates, tai chi

and other courses, are mounted professionally and meet with great staff acclaim,”

says Martin Wollziefer of Koelnmesse GmbH.

MediExpert is Gothaer’s competent service provider

for company health management

10 Gothaer Group Annual Report 2009


Target group SMEs

Together with those responsible in the firm concerned, e.g. Health and Safety Officers

and company doctors, MediExpert designs, implements and evaluates prevention

measures in three steps: systematic medical checks like back screening, stress tests,

body fat and treadmill analysis are used to establish employees’ health status on

“MediDay”. Based on anonymized results, MediExpert then produces a tailormade multicomponent

program consisting of modules for raising awareness and promoting health.

These include measures like prevention courses for the back, relaxation and the cardiovascular

system, but also ergonomic coaching, seminars to improve stress competence,

stop-smoking courses and canteen schemes to encourage healthier eating. After implementation,

the results are scrutinized using participant polls, re-checks and absentee

analyses, and the benefit is quantified. The customer receives a detailed final report.

Of course, Gothaer also uses its expertise in company health management for its own

staff. These are investments that pay off in many ways: besides demonstrably healthier

employees and a measurable fall in sick notes in the Group, Gothaer was delighted to

receive several awards last year.

“Deutsche Gasrußwerke has been a satisfied MediExpert customer since 2005.

With the measures taken, we have succeeded in boosting staff motivation and obtaining

a measurable fall in sickness figures,”

says Dr. Hans Dieter Kahleyß, Managing Director of Deutsche Gasrußwerke in Dortmund.

SME clients benefit from this commitment, since the entire know-how finds its way into

Gothaer’s offers and steadily helps to improve the health promotion measures.

Gothaer Group Annual Report 2009 11


Employees: our most important resource

12 Gothaer Group Annual Report 2009


“Challenging tasks, much personal responsibility and sound team structures –

Gothaer keeps its promises,”

says Talin Demir, lawyer for labour law and HR advisor in the Gothaer Group.

Gothaer Group Annual Report 2009 13


Passion for

performance

Employees

Introduction of a variable remuneration system, extensive qualification

measures and the development of a new personnel strategy.

GoMax – Introduction

and evaluation of

variable remuneration

for staff covered by

collective-wage

agreements

Responsibility Targets

Create clarity!

Women in Management

– a central factor for

demographic fitness

Development of new

personnel strategy

As per 1 January 2009, Gothaer launched GoMax as a new, variable remuneration system.

Since then, collective-wage employees of Gothaer’s core companies – Gothaer

Allgemeine, Gothaer Lebensversicherung, Gothaer Krankenversicherung and Gothaer

Finanzholding – can convert their special payments over and above the agreed rate into

a performance-related bonus. The focus here is on the agreement of maximal three

targets between employee and executive. An individual bonus is guaranteed if these

targets are met.

In this respect, GoMax is more than a straight remuneration system. Besides the opportunity

for participants to obtain higher income, GoMax fosters the dialogue between executive

and employee and, hence, the transparency of corporate and divisional targets.

The system also offers the option of recognizing performance on an individual basis and

of specifying corporate targets.

Executives and staff are very happy with GoMax, as was shown by an online poll held in

autumn 2009. In particular, GoMax participants and executives stressed the trust-based

and fair target-agreement talks. Most of the executives found it easy to agree on good

and challenging targets. Likewise, staff stated that they view the targets agreed with

them as achievable. Some 70 % of the respondents made it clear that their targets were

recognizably derived from the corporate targets, so that they make a definite contribution

to corporate success.

At 50 %, the share of women at Gothaer is gratifyingly high. In the context of demographic

change, increasing the share of women in executive positions is becoming a

critical success factor. Career advancement for women is therefore an important module

in our wide-ranging demographic management. With this in mind, the “Women in

management” project is pursuing the goal of achieving a perceptible rise in the share

of women at all structural levels by 2016.

Attaining this goal is being supported by piloting a mentoring program for female highpotentials

and by further improving the work/life balance. In close cooperation with a

local childcare facility, for example, Gothaer staff receive easier access to scarce nursery

places for U3s. Moreover, the newly implemented concept for employee retention during

maternity protection and parental leave contains various measures, e.g., information

material, enhanced communication as well as a godparent concept. All measures are

designed to signal appreciation to mothers and fathers, to maintain contact with the

Company during the family break and to facilitate re-entry.

In 2009, a new personnel strategy was developed that does justice to changing underlying

conditions. Externally, demographic developments, changes in society’s values,

but also the economic crisis, in particular, are now posing serious challenges. Another

main issue last year was the need to adapt the personnel strategy to meet current and

planned strategic and organizational changes in the Group.

14 Gothaer Group Annual Report 2009


GoFit – Exemplary

commitment in company

health management

Certificate Move Europe Partner

Excellence 2009

Centralization of HR

work

Personnel marketing

[Seite 16]

Employees

Another building block in personnel management is company health promotion for all

generations. GoFit activities promote long-term employee productivity, enhance work

satisfaction and reduce sick leave periods. These are crucial elements in our corporate

culture and central points of departure for tackling demographic challenges. What is

more, Gothaer is scoring success in actively inputting this program into the communication

activities of the Gothaer employer brand.

After 2007 and 2008, Gothaer’s company health-management system was awarded the

certificate “Move Europe Partner Excellence” in 2009 for the third time in a row. The EU

Commission and the Federal Association of Company Health Insurance Funds (BKK) paid

tribute to Gothaer’s commitment in maintaining mental health and in stress management

within the scope of the “Move Europe” campaign. Employees have access to an extensive

range of prevention options, which are being heavily used. With the award under

its belt, Gothaer intends to extend its market position as competent provider of company

health promotion via its subsidiary MediExpert.

A step toward a further increase in the efficiency of HR work has been taken by centralizing

these efforts in the Group. As per 1 April 2009, the central Human Resources unit

assumed personnel management support for ASSTEL Lebensversicherung AG, ASSTEL

Sachversicherung AG, ASSTEL ProKunde Versicherungskonzepte GmbH and Gothaer

Kunden-Service-Center GmbH. The bundling of similar tasks, with more in-depth swaps

of experience and the use of centrally available know-how, has created synergies. Standardization

is leading to greater uniformity and transparency in HR work in the Group

without losing sight of special requirements and market facts in direct distribution.

Against the backdrop of demographic developments, Gothaer in 2009 continued the

measures taken in 2008 for a systematic strengthening of the employer brand.

The measures are aimed, on the one hand, at internal top performers with a view to tying

them to the Company in the long term, and, on the other, at the external core target

groups university graduates, high potentials with professional experience and school

leavers, who are to be won over for training at Gothaer. Attractive tasks, high levels of

personal responsibility from the outset, professional qualification options and interesting

development programs form the basis for this approach. Gothaer is going to market

with the core message:

“From the very first day, Gothaer offers motivated staff a range of fulfilling,

responsible tasks – and, if performance is right, a fast-track career,”

says Thomas Barann, head of HR.

Media campaigns targeting apprentices and university graduates, e.g., editorial contributions,

image and job ads, the distribution of advertising and information material at

schools and during events at training venues as well as a tradefair presence are some

Gothaer Group Annual Report 2009 15


Employees

Personnel and management development

Entry and development

programs

components in the marketing mix. The high number of spontaneous applications for the

Student Program, in particular, confirms the attractiveness of the advertising messages.

One focal subject in the year 2009 was the fundamental re-design of Gothaer’s career

pages on www.gothaer.de. The aim of the re-design is the systematic alignment of the

career pages, in content and graphics, to the Gothaer employer brand and to the

aspirations of the target group concerned.

At the end of 2009, Gothaer had a total of 136 training places in “insurance and finance”.

In Cologne, Gothaer also trains students in the frame work of the the integrated course

of studies called the “Cologne Model”. Thanks to the demand and the huge success of

previous courses, seven training places for integrated students were offered in 2009,

all of them being filled.

The development programs “Student Program” and “Management Start-up” address

students and university graduates. The “Student Program” complements students’

academic training with practical experience. Even before completion of their course of

studies, students are given an impression of the Company and its culture. The certification

of Gothaer as “Fair Company” proves that students receive sound training and fair

pay while with Gothaer.

In the “Management Start-up Program”, university graduates are given a two-year customized

training within “job families”, supplemented by special development measures.

All participants in the first relay of the 2006 “Management Start-up Program” have now

switched to regular established posts and are successfully performing their first longterm

functions there – impressive evidence of the positive response of the technical

departments. The first management start-up candidates have also qualified for inclusion

in the advanced “Management Program”. For the 14 participants in the second relay

that started in 2008, a switch to their first established posts is imminent in the course

of 2010. The “Management Start-up Program” has proved to be a very successful route

to win over very well trained high potentials for Gothaer. In 2009, recruitment of 13 new

university graduates commenced for the third relay of the program due to begin at

the start of 2010. Incidentally, five of these 13 posts were filled with former “Student

Program” participants – visible proof of the program’s success. What is more, in all three

relays over 50% of the participants were women – an important lever for the mediumterm

increase in the share of women in management positions at Gothaer.

16 Gothaer Group Annual Report 2009


Employees

“Participating in the ‘Management Start-up Program’ was exactly the right decision.

Fast entry into practical operations, an opportunity to get to know different units,

coupled with solid, assisted training – a well-rounded package,”

says Serkan Pektas, now Key Account Officer in Sales.

The advancement programs launched in 2002 for middle and upper management are

being continued. The “Management Program” addresses junior managers with professional

experience as well as executives with fewer years of service. Altogether, there

were 19 employees in this program in 2009. From this group, candidates are regularly

selected to fill vacant management positions, or managers are supported in performing

their first executive functions.

Executives at the second structural level are addressed by the “Senior Management

Program”. Individual qualification modules on value-, employee- and market-driven

management are the core elements in this program.

Special strategic subjects are taken up by the “Executive Program” for Management

members and managers at the first structural level.

Qualification management further professionalized

Life-long qualification processes continue to rank high at Gothaer. Despite the need to

cut costs, our willingness to invest in qualifying our staff is unbroken.

The integrated training system, for which Gothaer received the “InnoWard” prize, the

training award of the German insurance sector (3rd prize in the Personnel Development/

Qualification category), is the basis for the continuous professionalization of our qualification-management

system. The integrated education system compiles all education

information and processes in the intranet, thus bringing personal further education

closer to employees’ day-to-day work. Gothaer’s training report, which appeared for the

fourth time in 2009, is being systematically turned into a steering tool for Group-wide

qualification.

We thank all employees and executives for their commitment and performance in 2009.

Gothaer Group Annual Report 2009 17


190 Years Gothaer brand

18 Gothaer Group Annual Report 2009


“You live for yourself when you live for others”,

said Ernst Wilhelm Arnoldi, founder of Gothaer.

Gothaer Group Annual Report 2009 19


Topical Subject

190 Years Gothaer brand

Tradition and innovation are the Company’s cornerstones

2 July 1820

Adoption of the Articles of

Feuerversicherungsbank für

den deutschen Handelsstand,

Gotha.

The 190-year corporate history testifies to Gothaer’s strength in optimally combining

tradition and innovation. Today, the Gothaer Group, with its 3.5 million members and

premium income topping the four billion Euro mark, ranks among Germany’s major

insurance groups and is one of its largest mutual insurance associations. The Company

can look back on a long history, for it was in 1820 that Ernst Wilhelm Arnoldi set up the

“Feuerversicherungsbank des Deutschen Handelsstandes” to provide fire insurance by

merchants for merchants in Gotha, Thuringia, thus implementing the idea of mutual

assistance, with all acting together to bear the load of the individual. This liberal idea of

reciprocal aid has proven its worth down to the present day.

“Promote conjugal harmony, diligence, order and economy in the individual,

and the whole will benefit from well-being and wealth,”

said Erst Wilhelm Arnoldi, founder of Gothaer.

Gothaer was one of the first supra-regional mutual insurance companies on the European

continent. The special feature: The insured are also the owners of the enterprise.

As in the case of cooperative banks, there are no owners here who simply provide

capital. This guarantees a sustainable business policy that is independent of owner

interests and geared solely to the interests of the members. Necessary entrepreneurial

decisions are made and implemented quickly, ensuring market proximity and innovative

strength.

Arnoldi’s founding idea was so successful that the Lebensversicherungsbank für

Deutschland was set up to provide life insurance only seven years later. Further undertakings,

like the Gothaer Transport-Versicherungbank and the Gothaer Allgemeine of

those days, followed in the early 20th century and led to a significant expansion of

Gothaer’s insurance operations.

It was not until 1997 that Gothaer got together with the predecessor company of the later

Berlin-Kölnische Versicherung to found the Parion Group.

9 July 1827

Approval of Lebensversicherungsbank für

Deutschland. The burning and dying torches

symbolizing life and death were used like a

logo.

1820 1827 1841

27 May 1841

Ernst Wilhelm Arnoldi dies.

Gustav Hopf takes over the

management of the firm.

20 Gothaer Group Annual Report 2009


The administration building of Gothaer Lebensversicherungsbank in Gotha,

on today’s Bahnhofstrasse, was completed in 1894.

An important milestone:

The restructuring to a vertically integrated group

1842

Conflagration in Hamburg.

20,000 people made homeless.

Acid test for the mutuality idea:

Gothaer, most seriously affected,

pays 1.5 million thalers.

View of Gotha with Schloss Friedenstein in the background

Topical Subject

In the year 2001, the four legally independent insurance operators – Gothaer Versicherungsbank

VVaG, Gothaer Lebensversicherung a. G., Berlin-Kölnische Krankenversicherung

a.G. und ASSTEL Lebensversicherung a.G. – were merged to form one enterprise.

This converted a horizontally integrated group into a vertically integrated group headed

by the mutual insurance association Gothaer Versicherungsbank VVaG. This step reduced

the complexity of the organization and created considerable competitive advantages for

the enterprise. The new Group model made it easier for rating agencies to assess the

individual companies and eased access to capital markets, thus allowing the Group to

exploit the financing options open to a stock corporation. With the insurance association

at the top of the enterprise, it was easier to convince members of the advantages of

membership. There is – at no cost – a Mitgliederschutzbrief, for example, offering

additional benefits for members. In the course of the restructuring, those in charge opted

deliberately for a name that is not specific to any one line of business: “Gothaer

Versicherungsbank” has high brand recognition and stands for the Company’s inclusive

approach to its product lines.

5 December 1845

Approval of Central-Sterbekasse Leo

(later Berlin-Kölnische Leben, today

Asstel Leben).

Agency sign of

Feuerversicherungsbank, c. 1840

1842 1845 1902

1 December 1902

Change of name to

Gothaer Feuerversicherungsbank

auf Gegenseitigkeit.

Gothaer Group Annual Report 2009 21


Topical Subject

Why a strong brand is so important, especially for an insurer.

1906

Central-Sterbekasse

recognized as small mutual

insurance association.

A strong brand is a crucial success factor for any company: It is the brand that creates

customer relationships and customer loyalty and provides orientation. It conveys an

attitude to life and a sense of community. The brand is the anchor of confidence in a sea

of media diversity with a plethora of information and products. This is especially so in

the insurance sector. In fact, it is the very complexity of insurance as a subject that gives

the brand its decisive function for clients. After all, insurance cover, being an intangible

good, is not something you can lay your hands on. The customer’s decision to buy is

based on confidence. The promise given by the brand must be unequivocal and credible

and must address the target group. An excellent image plus customer confidence

are now growing in importance. A good name, along with the respect of customers and

general public, is a company’s calling card. This is a view not universally shared in the

industry: Traditional names like Colonia, Nordstern, Hamburg-Mannheimer, Victoria and

Volksfürsorge have now vanished from the market.

“We are sticking to the traditional Gothaer brand. This brand has successfully held

its own for 190 years now a and enjoys the great confidence of our clients,”

says Dr. Hartmut Nickel-Waninger, Gothaer Chief Sales Officer.

Fire insurance signs, 1860.

Fire insurance signs originally marked buildings for a company’s own fire-fighting units.

Later, house-owners used them to show that they had insured house and home against fire with a respected company.

One of the finest signs is from the year 1850.

1914

• Outbreak of the Great War

• Introduction of disability and pension insurance

• The Central-Sterbekasse Leo becomes the large

mutual insurance association LEO Volks- und

Lebensversicherungsbank a.G.

1918

• End of the Great War

• War claims give rise to insurance

benefits in an amount of 45 million

marks.

1906 1914 1918 1923

1923

Gothaer Transport-

Versicherungsbank AG

set up.

22 Gothaer Group Annual Report 2009


How the Gothaer brand further evolved.

19th century advertising

Positioning since 2003:

Fairness

1924

Gothaer Allgemeine Versicherungs-

Aktiengesellschaft set up in Gotha.

1924 1926

1926

Amalgamation of Neue

and Alte Gothaer Leben

as Gothaer Lebensversicherungsbank

a.G.

Advertising in the 1950s

1936

Barmer Verein Krankenversicherung auf

Gegenseitigkeit zu Berlin commences

operations.

1937 renamed to Berliner Verein, Krankenversicherung

auf Gegenseitigkeit.

Topical Subject

In spring 2003, Gothaer launched a new brand campaign. Powered by the message

Gothaer. We’ll do it.” and the four core values “personal, fair, innovative and dependable”,

a wide-ranging campaign got off the ground, backed by television advertising.

Since both existing and prospective customers make their decisions to buy primarily on

the basis of a personal contact with a field force representative, his presence and approach

are of special importance to the brand image. A Gothaer advisor not only offers

advice from a single source: Besides his function as a professionally competent port of

call, he is also an ambassador for the entire Group. Fair products and benefits create

the basis for confidence-based cooperation. The promise to offer innovative solutions,

coupled with the aspiration to go on improving services and benefits, ensures a positive

Advertising in the 1990s

Gothaer Group Annual Report 2009 23

1936


Topical Subject

Positioning since 2007:

Solution orientation

• 1939 Start of World War II

• 1945 Bomb attack on the Gothaer Feuer

building

• 7/8 May 1945 The Gothaer Leben building

occupied by the Americans.

brand impact and a greater willingness to buy. Customers may rest assured that in

Gothaer they have a reliable partner who will act in their interest and support them

dependably in every situation. With its repositioning, Gothaer is focusing even more

closely on the specific needs of its clients.

One vital cornerstone of the repositioning effort was the integration of all staff. If the

repositioning is to be a living experience externally, it must be lived by staff internally as

well. In this way, the core values have become crucial elements in the corporate culture.

Etching of Gotha, 2nd half of 19th century

In the year 2006, “Fairness” was re-examined and a revision resolved. The basis for this

was an in-depth analysis of data and facts as well as workshops on business strategy

dealing with “future business fields” and “target groups and customer-relevant competitive

advantages”. Comprehensive analyses of available brand, target-group and

market data created a sound factual basis. They revealed customers’ outstanding need

to be relieved of annoyance and bother. This is because, although everybody knows how

important insurance and financial planning are, there is often a lack of time and interest

to go into detail. The reason: Insurance is perceived to be complex and complicated. The

upshot for marketing experts: If we succeed in giving insurance and financial planning

an agreeable and simple shape via a solution orientation, this will meet customer expectations

and needs. And, in the process, those values – fair, dependable, personal

and innovative – also went into the new positioning.

1946

Seat of Gothaer Leben and Gothaer

Allgemeine relocated to Göttingen.

Cologne becomes the new seat of

Gothaer Feuer.

1939 1946 1953

1953

Kölnische Sachversicherung

V.V.a.G. set up.

24 Gothaer Group Annual Report 2009


1968

Formation of Gothaer

Versicherungsgruppe.

1968

1980

Gothaer Krankenversicherung

AG

set up in Cologne.

1980

1 January 1989

Formation of the horizontally

integrated group Berlin-Kölnische.

1989

Topical Subject

The core message: Offering flexible products and services that go beyond straight insurance,

Gothaer is a particularly service-oriented company, providing individual solutions,

and an efficient operator capable of swift responses.

On request, Gothaer assumes its customers’ burdens of bother and vexation, and deals

quickly and competently with outstanding issues and problems. When interviewed,

Gothaer’s consumers, advisors and brokers are enthusiastic in their reactions to the

brand promise: “For customers an ideal state of affairs” – “Fantastic, give it here!” –

“… Here is someone who cares.”

So Gothaer has a formulated brand promise and is projecting a coherent, cogent picture.

We are pressing ahead with the implementation of our positioning, this being the basis

for long-term corporate success.

The Gothaer brand has systematically further evolved in recent years and gained in name

recognition and appeal. The following diagram illustrates this:

Gothaer Data

+3 %

87,0 89,5

Supported

brand awareness

16,8

+40 %

23,5

Appeal Purchase

last 12 months

Source: Icon Added Value, communication tracking, insurances

Basis: Gothaer target group, men only

1 January 1990

Gothaer Finanzholding AG

set up as instrument of a joint

investment policy.

Gothaer Group Annual Report 2009 25

+60 %

1,0 1,6

1990

100 %

80 %

60 %

40 %

20 %

0 %

2004

2008

1991

Gothaer Allgemeine

relocates to Cologne.

1991


Topical Subject

ASSTEL – the direct insurer in the Group – innovative and inexpensive.

1996

Amalgamation of

Berlin-Kölnische and Gothaer to

form a horizontally integrated

group.

ASSTEL was set up in 1998 and focused initially and entirely on personnel business. The

“insurance option for more satisfied staff” was based on the idea that employees could

take out insurance privately and directly with ASSTEL and conclude ASSTEL life, health

and property policies on particularly favourable conditions.

This type of insurance business was an innovative idea at the time and pointed to a new

form of service company. The personnel concept was already successfully established in

the rest of Europe. Two main issues concerned ASSTEL in those days: the staffs of partner

firms served by ASSTEL, and customer support by telephone. In fact, it was these

two points that gave rise to the name ASSTEL – ASS = assistance and TEL = telephone –

and triggered the further development of the brand. The lettering ASSTEL and the colour

of the logo, green, have been further developed under the motto “Protecting is our

concept”. As a visualization of this approach there is a stylized archer and this, at that

point in time, was a component of the ASSTEL logo.

In the year 2009, the “Brand barometer Insurance 2009” study by Psychonomics indicated

that the ASSTEL brand is assessed positively in many respects: Among ASSTEL’s

existing customers, the brand strength is very positively marked, the brand having

gained in conciseness, appeal and buying incentive. Customers perceive ASSTEL as

being modern, creative, and tolerant, but also conscientious.

All the same, the ASSTEL brand is capable of expansion in many ways. A market research

study in October 2009 also identified weaknesses in the brand – especially for new

business. ASSTEL has only slight unsupported brand recognition, and the colour scheme

and stylized archer of the logo remind interviewees of an expensive provider, which has

a counterproductive effect for a direct insurer. What is more, the stylized archer in the

logo is, in fact, hardly remembered, no more than the claim “Directly well insured”.

However, the study respondents described the brand, among other things, as competent,

trustworthy and reputable. The link between ASSTEL and the parent company

Gothaer is perceived throughout as a positive factor.

7 July 1997

Horizontally integrated group Parion formed.

7 July 1998

Launch of ASSTEL-Versicherungsgruppe.

1996 1997 1998 2001

2001

Restructuring of the Group:

The vertically integrated group

Gothaer Versicherungsbank VVaG

formed.

26 Gothaer Group Annual Report 2009


Outlook

15 April 2002

First pension fund after the

pension reform set up

as solution for company

pension schemes.

2002

“ASSTEL is becoming more innovative, authentic and modern,”

says Dr. Mathias Bühring-Uhle, ASSTEL Management member.

Topical Subject

As a direct insurer, it is difficult to be approachable and accessible without sinking in the

World Wide Web. That is why ASSTEL has set itself new goals: In future, it intends to be

even quicker and more Web-oriented, modern and human – like a second skin that

protects and gives its clients the freedom and security they need to shape their lives

according to their own rules. It is for this reason that ASSTEL will be changing its image

in May 2012. Both Website and logo are being revised as part of a repositioning effort.

The new ASSTEL logo stresses the goal of “being optimally and directly insured”: the

logo colour remains green, but the tone is fresher and more modern. Of the archer, the

target remains. This means that every shot, however different, will hit the mark. The focus

is on the freedom to decide which way to take, since the common aim is to address the

insured’s life situation individually and flexibly. Also, the additional tag “Direct insurer

of Gothaer” refers to the strong partner in the background. This creates confidence,

reliability and competence.

The Gothaer Group will strengthen and further develop its brands systematically in the

years to come. The satisfaction of staff, customers and selling partners is regularly

monitored by surveys. For the Gothaer brand, the 2010 agenda brings both a strong

communications campaign with television and an online campaign. To ensure that

positioning and mission statement are not forgotten internally either, numerous measures

have been developed to root them in the corporate culture.

In the year 2009, we again analyzed our target groups, viz. high net-worth private clients

and small and medium-sized enterprises, and their needs. Our agencies are currently

realigning to cope with the changes we established and with new requirements. In order

the meet our clients’ high service expectations, we are investing in the quality of our

field service and are stepping up our efforts to form larger agency units.

1 March 2003

Berlin-Kölnische Krankenversicherung AG

renamed Gothaer Krankenversicherung AG.

2003

2005

Purchase of MLP Sachversicherung AG,

renamed Janitos AG.

Gothaer Group Annual Report 2009 27

2005

2010

190 years of the Gothaer brand.

2010


Management Report

28 Gothaer Group Annual Report 2009


Gothaer Group Annual Report 2009 29


Management Report

General Economic Situation

General economic developments in 2009

Capital market developments in 2009

In the early months of the year under review, activity in the capital markets was still overshadowed

by financial crisis and recession. Despite extensive support in the form of

government economic packages and expansive monetary policy measures by central

banks, industrial production initially slumped worldwide. In the United States, manufacturing

output decreased by around 13 % against the prior year. In the euro zone, the

fall was as much as around 20 %. As a result, unemployment rose on both sides of the

Atlantic to around 10%.

Economic performance also showed a sharp decline in Germany in 2009. Due to the

extension of short-time working and other factors, however, it was possible to limit the

impacts of the recession on the labour market. In December 2009, 40.2 million persons

were in employment, which is only 129,000 fewer than at the end of 2008. As a result,

there was no fall in private consumption in Germany. Demand for goods and services

for private consumption increased by 0.2 % in real terms against the prior year.

Largely due to significantly lower prices on global commodity markets, the worldwide

economic slowdown was accompanied by an appreciable easing of inflationary pressure.

For a while, there was even an absolute downturn in the general price level, fuelling fears

of the possibility of sustained deflation.

In the middle of the year, however, economic indicators swung in the opposite direction.

Starting in Asia and helped by the economic packages introduced by governments,

economies around the globe returned to growth. At the same time, commodity prices

pickedupagain–especiallycrudeoilprices–andmadeforafurtherincreaseinthe

year-end price level.

Against the backdrop of a massive economic slump and energy price-driven disinflation,

benchmark bond yields started the year at an all-time low. US Treasuries with a residual

maturity of 10 years traded at 2.2 % at the beginning of January. The yield of European

10-year government bonds was only 2.9 %.

During the course of 2009, however, yields increased again. In view of the incipient

economic rally and an anticipated strengthening of inflationary pressure, 10-year US

Treasuries climbed to 3.8 %, which put them around 160 basis points up on their trading

value at the beginning of the year. Their European counterparts, however, rose by only

around 45 basis points to 3.4 %.

The stock markets continued to slide at the beginning of the year, still on the downward

path that started with the outbreak of the financial market crisis in 2008. In March,

however, dividend-bearing securities hit bottom and recovered vigorously thereafter.

As a result, benchmark indexes on both sides of the Atlantic ended 2009 around 24 %

higher than at year-end 2008.

30 Gothaer Group Annual Report 2009


Outlook in 2010

Management Report

The global economy will probably stay on its present growth path through 2010. In the

euro zone especially and in Germany, however, economic recovery is not likely to be very

dynamic. Owing to increased unemployment and greater inclination to save, the recovery

process is not expected to receive any appreciable support in 2010 from private household

demand. Nevertheless, government spending programmes in the US and the euro

zone should provide continued support in 2010 and thus make up for any slackness of

private demand.

Against this backdrop and in the light of sustained low inflation, the central banks are

not expected to raise key lending rates until the second half of the year at the earliest.

Having said that, the central banks are likely to make early moves to reduce the liquidity

that has flowed into national economies by unconventional measures.

The act of rolling back the most expansive monetary policy measures, on the one hand,

and the continuing economic recovery, on the other, should put pressure on the bond

markets and lead to higher interest rates during the course of the year. In view of the

broadly cautious approach adopted by the central banks, the anticipated rise in interest

rates will probably be smaller at the short end of the maturity spectrum than at the

long end.

In the stock markets, volatility is expected to stay relatively high until well into the second

quarter of 2010 and not to fall to a lower level until after an economic recovery starts

gathering speed. Overall, however, the stock markets should profit in 2010 from an

improving economic environment.

Gothaer Group Annual Report 2009 31


Management Report

Situation of the Insurance Industry

Developments in the insurance industry

The international financial crisis presented the German insurance industry with a range

of challenges beyond comparison with any crisis situation in the past. Volatile capital

markets, low interest rates, regulatory environments and a weak economy are examples

of the factors currently influencing the economic situation of insurers.

According to the German Insurance Association (GDV), the business climate trend for

the German insurance industry improved significantly during the course of 2009 after

a slowdown at the turn of the year. In Q4 2009, the trend line was just below zero.

So against the backdrop of the financial and economic crisis, the business climate is

more favourable in the insurance sector than in many other parts of the economy. This

is shown by the results of a quarterly business survey of the insurance sector performed

for the GDV by the Ifo Institute for Economic Research.

Despite the weak economic situation, demand for insurance in Germany as well as

German insurers’ premium revenues remain largely stable. GDV calculations indicate

that premium income rose by 3.1 % in 2009, building on 1 % growth in the prior year.

According to the GDV, the primary contributors to this positive result are life and private

health insurers. The prognosis for property/casualty insurers, however, is not so

optimistic for 2009; the figures for the year here point to a modest premium increase

of 0.2 %. For 2010 as a whole, the GDV anticipates a downturn in premium revenues

of 0.5 %.

Developments in property/casualty insurance

Business in property/casualty insurance was conducted in the shadow of economic and

financial crisis in 2009. In credit, marine and legal expenses insurance, in particular,

moderately rising premium revenues (+0.2 % to €54.7 billion) were set against significantly

increased claims expenses. This is expected to result in a two percentage point

deterioration of the combined ratio to 97 % and a consequent halving of underwriting

profit against the prior year to €1.4 billion.

Premium income from automotive insurance decreased for the fifth year in succession

to €20.1 billion (PY: €20.4 billion). This line of insurance continues to register rising numbers

of policies (+1 % to 103.3 million) and remains characterized by sustained ruinous

price competition. Overall, losses incurred decreased against the prior year, falling by

0.8 % to €19.4 billion. Within the line of insurance, increased claims expenses in automotive

liability (+ 0.5 %) were set against significantly lower expenses in the own

damage lines (15 % in partial own damage and 0.5 % in comprehensive and collision).

An appreciably lower volume of hail losses than in the prior year had a positive impact

here. The loss ratio for the financial year moved up from 96.0 % to 97.0 % and the

combined ratio after run-off rose from 101.6 % to 103.0 %. In the financial year 2009,

automotive insurance thus faces the prospect of producing a negative underwriting

result for the second year in succession.

32 Gothaer Group Annual Report 2009


Management Report

In the property insurance lines, the earnings situation as a whole continued to improve.

Premium income increased by 2.2 % (PY: 4 %) to €14.9 billion and losses incurred – after

a marked decrease in the prior year (–9.5 %) – fell by another 1.3 % to €10.2 million.

Accordingly, the combined ratio after run-off moved down to 93 % (PY: 95.4 %). In the

private property lines in particular, the premium adjustment clause had a positive

impact, boosting premium income from householder’s and homeowner’s insurance by

3 % to a total of €7.8 billion. The main driver was homeowner’s insurance, where losses

incurred decreased by 4 % to €3.6 billion in the financial year 2009. Because premium

revenues rose at the same time – up 5 % at €4.7 billion – the loss ratio for the financial

year fell from 85 % to 78 %. Nevertheless, with the combined ratio at 102.0 % (PY:

109.5 %), the underwriting account showed a loss of around €100 million.

In general, liability insurance, premium income has stagnated at around €6.8 billion

since 2007. However, losses incurred in the financial year increased by 1.5 % to around

€4.6 billion, pushing up the loss ratio for the financial year to 68 % (PY: 67 %).

With a combined ratio of 90 % (PY: 89.1 %), an underwriting profit of approximately

€700 million is anticipated.

In personal accident insurance, a moderate rise in premium volume (+ 1 % to €6.4 billion)

is expected alongside a marked increase in losses incurred in the financial year (+ 6 %

to €3 billion). The combined ratio is forecast to move up from 77.4 % to 84.0 %.

Apart from finding themselves exposed to sustained high pressure of competition,

marine insurers also felt the impacts of the financial crisis in the year under review.

Set against a further fall in premium revenues (–2 % to €1.7 billion) was a sharp rise in

losses incurred in the financial year, which increased by 10.0 % (PY: 7.6 %) to €1.3 billion.

Consequently, the loss ratio for the financial year is expected to move up to 76.0 %

(PY: 68.1 %) and the combined ratio after run-off to 104 % (PY: 95.7 %).

In the wake of the economic and financial crisis, credit, surety and fidelity insurance

registered another steep increase in the volume of losses incurred, which grew by 25.0 %

(PY: 37.2 %) to €1.2 billion in the financial year 2009. Combined with a –2.0 % fall in premium

income to €1.4 billion, this pushed up the loss ratio for the financial year from

70.9 % to 90.0 %. With the combined ratio after run-off at 104.0 % (PY: 95.7 %), these

lines of insurance produced a negative underwriting result for the first time since 2002.

Given the considerable uncertainties facing the economy as a whole, growth prospects

for 2010 remain hard to assess. In industrial and commercial insurance in particular –

where the premiums of many policies are based on turnover and payroll – the consequences

of the economic and financial crisis are expected to have a continued negative

impact. On balance, property/casualty insurers anticipate a moderate premium downturn

of 0.5 % in the financial year 2010.

Gothaer Group Annual Report 2009 33


Management Report

Developments in life insurance

For quite some time, the development of German life insurance business has been

shaped by radical structural change – not only as a result of special political factors.

New forms of risk-sharing between customer and company and new products designed

to cover biometric risks are just two examples. One particularly prominent development

is the trend from mixed endowment to annuity insurance – which started long before

the Retirement Income Act (AltEinG) entered into force – as well as the ever-growing

importance of single premiums. Against the backdrop of the current financial and

economic crisis, the trend towards a steady further expansion of single-premium business

has gathered even more considerable momentum. However, the shift away from

classical life insurance to unit-linked life products, which has also been in evidence for

many years, has petered out, at least for the moment.

In general terms, the sharp ascendency of single premiums in new business indicates

confidence in life insurers’ ability to meet their commitments, especially in a crisis. What

is more, changes in the fiscal environment mean that regular premium payments are no

longer an absolute requirement for tax concessions. Other factors such as full funding of

company pensions, use of capitalization products to hedge working time accounts and

flexible additional payment options for long-term pension products also have positive

impacts on single-premium business. Above all, however, single-premium business is an

area where life insurers currently offer extremely competitive interest terms, which leads

to a high level of acquisitions in investment and reinvestment business.

With new regular premiums down 15.4 % at €5.81 billion and single premiums up by

59.3 % at €19.74 billion, premium revenues from new business increased by 32.7 % to

€25.55 billion. Single-premium policies thus accounted for nearly 80 % of all new business.

Year-on-year comparison shows that without the prior-year increase in “Riester”

premiums, new regular premium income would have been 6.1 % lower than in 2008.

Individual annuity policies retained their large share of new business. The number of

policies concluded rose by 1.1 % and single premiums increased by 83.9 % in 2009.

A very different development was seen in unit-linked annuity policies, which decreased

in number by 28.3 % and in terms of new regular premium volume by 31.2 %. Endowment

insurance, especially in its unit-linked form, continued to account for waning shares of

new business (25.9 % by number and 25.5 % in terms of new regular premium income).

As for “Riester” policies, the negative trend seen in prior-year take-up figures continued

undiminished. The number of policies decreased by 26.1 % and regular premium income

fell by 25.0 %. Basic pensions again registered downturns in terms of both the number

of new policies concluded (17.7 %) and the new regular premium income they generated

(17.6%).

A positive development was seen in the new business transacted in standalone occupational

disability policies, which increased in number by 15.4 % and in terms of aggregate

insured sum by 19.4 %. They thus reached a share of 22.2 % of all new business by

insured sum.

34 Gothaer Group Annual Report 2009


Management Report

The principal drivers of new single-premium business – after individual annuity policies –

were capitalization contracts. Increasing their volume to €4.75 billion, they account for

24.1 % of all new single-premium business. 2009 again showed the importance of

annuity insurance as a source of new business for life insurers. It accounted for nearly

50 % of all new policies concluded and nearly 65 % of the total premium income they

produced. Premature terminations showed a year-on-year increase of 10.5 % in terms of

regular premium income and made for a lapse rate of 6.2 %.

The volume of insurance benefits paid underscores the undiminished high capacity of

the German life insurance industry. At €70.78 billion, benefit payments to life insurance

policyholders very nearly matched the record level reached in 2008, equalling 34.1 % of

the total benefits paid under statutory pension schemes. Future benefits payable to

policyholders increased by €33.38 billion. This upturn was due to a rise in policy reserves

for conventional and unit-linked policies. The percentage of all new unit linked policy

business relating to unit-linked life and annuity policies with maturity guarantee –

a statistic identified by the GDV for the first time in 2008 – rose to 70.9 %.

The still-increasing number of maturing policies and a marked rise in surrenders and

contracts transformed into non-contributory policies were compensated by increased

new single-premium business. As a result, gross premiums written by life insurers grew

by 6.6 %, as against 1.1 % in the prior year. Single premiums accounted for 24.1 %, up

from 16.0 % in 2008. The gross premiums written by pension trusts affiliated to the GDV,

however, decreased by 0.2 %, while those of pension funds increased by 129.9 %.

It should be noted here that pension funds account for only around 1 % of the total

premium income generated in life insurance. Furthermore, the development of business

in this area was shaped by instances of outsourcing an internal company pension

scheme to a pension fund.

Overall, premium income for life insurers, pension trusts and pensions funds increased

by 7.1 % (PY: 0.8 %).

In 2010, classical life insurance business will continue to be defined by the impacts of

financial and economic crisis on the real economy and the resulting sustained reluctance

of broad sections of the population to engage in long-term investments. Provided the

volume of single-premium business is unchanged, the GDV estimates that premium

revenues will decrease by 3% in 2010.

The forecast for 2010 is similar for pension trusts and pension funds, which are classed

as a form of life insurance. They are not expected to be affected by any special developments

that might cause the premium income they generate to develop along substantially

different lines from the rest of life insurance. After years of vigorous expansion,

pension trusts, in particular, started the decade on a significantly slower growth path and

are thus no longer a source of additional growth stimuli. Although the possibility of a

considerable volume of individual transactions cannot be ruled out for pension funds,

the GDV believes that life insurance as a whole (including pension trusts and pension

funds) will generate 3 % less premium income than in the year under review.

Gothaer Group Annual Report 2009 35


Management Report

Developments in private health insurance

At the beginning of 2007, within the framework of the “Act to Enhance Competition in

Statutory Health Insurance” (GKV-WSG), access to private comprehensive health insurance

was appreciably impeded by the introduction of a rule that allowed employees to

switch to private insurance only after their earnings exceed the ceiling for compulsory

state health insurance in three consecutive years. Despite the resulting market

contraction, the private health insurance industry registered a sharp increase in the number

of comprehensive policies in force in 2009. One contributory factor here was the

negative reporting on the financial position of the statutory health insurance system and

the impending introduction of supplementary contributions. Few people took advantage

of the “window of opportunity” opened by the legislature in the first half of 2009 to allow

private health insurers’ present customers to transfer part of their ageing reserve that has

accrued for them to a different insurer. There have also been no significant numbers of

takers for the newly introduced basic tariff.

In a ruling on 10 June 2009, the Federal Constitutional Court dismissed the complaint

lodged by many private health insurers that the healthcare reform was unconstitutional.

At the same time, however, it endorsed the private health insurance industry’s business

model and imposed a duty of observation on the legislature.

The new federal government elected in September agreed in the coalition contract to

proposals that would appreciably improve the environment for private health and long

term care insurance. Prominent among those proposals is the promised repeal of the

3 year moratorium on the earnings ceiling for statutory health insurance as well as the

introduction of obligatory, funded supplementary long-term care insurance.

Positive impacts on the economic development of the private health insurance sector

stem from the continuing high level of interest in supplementary private insurance

among those compulsorily insured under state health insurance schemes. Accordingly,

supplementary insurance business increased sharply for private health insurers in 2009.

Against this backdrop, the premium income of all private health insurers is forecast to

rise by 3.8 % in 2009.

More growth stimuli for the private health insurance sector are expected from the

Citizens Relief Act (BEG) promulgated in 2009. Because the ceilings for provident expenses

have been significantly raised in 2010, it improves the tax deductibility of health

and long-term care insurance premiums. Premiums for basic health and long-term care

insurance are fully deductible. As a result, premium revenues are expected to rise by

around 5 % in 2010.

36 Gothaer Group Annual Report 2009


Group Management Report

Business developments and position of the group

Premiums

Management Report

Like other insurers, Gothaer profited from the slowly improving economic situation in

Germany. Because of a significantly increased volume of business in life insurance, the

Gothaer Group registered the highest premium income figures in its history and sur-passed

the premium volume of the prior year by more than €200 million.

On the profit front, we achieved a turnaround in 2009. After a sharply recessive prior-year

result due to the financial and economic crisis, consolidated profit for the year was

considerably higher.

Group profit was favourably influenced by sharply reduced underwriting expenses and

an improved tax situation.

Higher investment result also contributed to the satisfactory development of business.

Boosted particularly by the income obtained from investments held for unit-linked life

insurance policies, which produced negative results in 2008, total investment result more

than doubled in comparison to the prior year. We were thus able to credit significantly

higher policyholder benefits to insureds than in 2008.

Premiums written by our insurance companies increased by 5.2% to €4.25 billion in 2009.

We thus again exceeded the average premium growth of 3.1 % anticipated for the insurance

industry as a whole.

Since discontinuing active reinsurance operations, we have been almost exclusively

engaged in primary insurance business. Here, written premiums grew by €202.6 million

to €4.20 billion. The main area driving growth in the financial year 2009 was the Life

segment. Owing to an industry-wide surge in single-premium business, premium income

in the Life segment increased by €232.5 million. As a result of sustained pressure on

automotive insurance prices, premium revenues in the Property/Casualty segment fell

by €20.7 million. Health segment premiums, at €9.2 million, were also moderately recessive.

Reinsurance premiums assumed from insurers outside the Group totalled €49.2

million, which is €6.6 million more than in the prior year.

To determine the volume of net earned premiums, the reinsurance premiums ceded and

the savings components of unit-linked life insurance need to be deducted from the gross

premiums written. The change in net unearned premiums is also taken into account.

At €3.36 billion, net earned premiums were significantly up on the prior-year level of

€3.04 billion.

Gothaer Group Annual Report 2009 37


Management Report

Gross premiums written

Breakdown by line of insurance €million

2009 2008

Automotive Liability 221.1 231.8

Comprehensive Homeowners 122.6 116.9

Comprehensive Householders 94.7 95.1

Fire 63.8 64.2

General Liability 323.8 326.2

Life* 1,847.0 1,614.5

Health* 773.5 782.7

Marine 40.7 38.5

Other Automotive 114.3 131.0

Other Lines of Insurance 188.3 182.7

Other Lines of Property Insurance 249.9 252.1

Personal Accident 159.5 161.1

Gross premiums written in primary business 4,199.4 3,996.8

Gross premiums written in assumed business 49.2 42.6

Gross premiums written 4,248.6 4,039.4

* incl. premiums from the reserve for premium refunds

Premiums by segment in the financial year 2009

43.5 % Life

38.3 % Property/Casualty

18.2 % Health

Premiums by segment in the financial year 2008

40.0 % Life

40.7 % Property/Casualty

19.4 % Health

38 Gothaer Group Annual Report 2009


Gross premiums

written

Investments

Management Report

Breakdown by region €million

2009 2008

Domestic 4,135.9 3,933.9

Foreign 63.5 62.9

Gross premiums written in primary business* 4,199.4 3,996.8

* Primary business incl. premiums from the reserve for premium refunds.

Our business has traditionally been concentrated in Germany. Over 98 % of premium

income from primary insurance business is generated in the domestic market. The

Group’s foreign business is confined largely to countries in the European Economic Area.

Gothaer continued systematically to pursue its investment policy based on stable current

income in the past financial year. Because of the sustained impact of the financial

market crisis, the development of investments was shaped by very sharply fluctuating

markets, which were considerably more favourable, however, at the end of the year.

We therefore continued to focus on reducing asset classes that have a higher exposure

to market change risk. As a result, engagement in shares hedged by long put options was

significantly reduced and terminated together with the corresponding hedge positions.

Hedge fund exposure was also reduced. At the beginning of the year, the marked turbulence

in bond markets produced opportunities that resulted in a systematic expansion of

the corporate bond portfolio and were exploited through the acquisition of senior corporate

bonds.

The investment volume of the Gothaer Group increased by more than €1 billion to

€22.59 billion in the financial year 2009. Investments available for sale accounted for a

large proportion of new investment. Fair values also recovered, especially in the wake of

the positive development of bond prices in the second half of 2009. Because of these

two factors, nearly half of all investment – €10.83 billion as against €8.25 billion in the

prior year – was accounted for by investments available for sale. The carrying value of the

loan portfolio, at €7.00 billion, remained on a par with the prior year, whereas the volume

of financial investments held to maturity was moderately recessive at €2.28 billion

(PY: €2.80 billion).

Investment in shares in affiliated and associated companies essentially refer to shares in

companies which, due to lack of influence, need to be recognized at fair value as investments

available for sale. The carrying value of all investment increased by €57.5 million

to €1.53 billion in the financial year. Other investments were back at €0.79 billion after the

jump to €1.41 billion in the prior year. The money on call at the prior-year balance sheet

date was invested at the beginning of the financial year 2009 in investments available for

sale.

Gothaer Group Annual Report 2009 39


Management Report

Composition of

investments

Investments carried at fair value through profit or loss, which were again held to only a

limited extent, included hedging transactions as well as embedded derivatives resulting

from the separation of host and embedded components of hybrid securities. In order to

reduce our risk capital, engagement in shares was terminated along with the long put

options used as hedge positions without impact on profit or loss. As a result, the carrying

value of hedging instruments underwent a sharp decrease in the year under review,

dropping to €62.9 million from a prior-year level of €408.9 million.

Investment activities produced a moderately reduced profit of €0.67 billion (PY: €0.71 billion)

in the past financial year, which was a satisfactory result in view of the financial

market crisis. The yield on investment was 3.05 % (PY: 3.28 %). Sustained impairment

due to the financial market crisis continued to be systematically written down in 2009.

At the same time, our fixed-income portfolio was adjusted – with one-off losses – by

acceptance of exchange offers and restructuring of corporate bonds exposed to credit

risk. In line with our investment strategy, which is focused on boosting current income,

current investment result showed a moderate increase in the year under review, from the

prior-year figure of €0.85 billion to €0.88 billion.

Financial year 2009

Financial year 2008

48.0 % Available for sale

31.0 % Loans

10.7 % Other investments

10.1 % Held to maturity

0.3 % At fair value through profit or loss

38.5 % Available for sale

32.7 % Loans

13.9 % Other investments

13.1 % Held to maturity

1.9 % At fair value through profit or loss

40 Gothaer Group Annual Report 2009


Policyholder benefits

Underwriting expenses

Management Report

Investments held to cover unit- or index-linked life policies had a carrying value of

€1.13 billion in the year under review, as compared with €0.90 billion the year before.

This is another development reflecting the improved situation in the capital markets.

The change in value of these investments €179.2 million (PY: €–368.5 million) – needs

to be recognized in the statement of income. Total investment result, including income

from investments held for unit-linked life insurance policies, thus improved from

€0.34 billion to €0.85 billion.

Policyholder benefits show any expense for insureds and other claimants by the insurance

companies of the Gothaer Group. In addition to claims paid, this includes changes

in all underwriting reserves that the Group has formed to meet actual and potential

customer claims. These changes involve, in particular, changes in the policy reserves

and reserves for premium refunds of the life and health insurance carriers as well as

changes in the loss reserves of the property and health insurers.

Both gross and net benefits paid to customers by the insurance companies of the Group

increased significantly against the prior-year figures. In the gross account, benefit

volume rose from €2.68 billion to €3.60 billion; net of reinsurance, the Group paid

benefits totalling €3.38 billion in 2009, as compared with €2.44 billion in the prior year.

The increase in benefits to customers was essentially due to claims paid and changes in

policy reserves. In the Life segment, a total of €479.3 million was allocated to policy

reserves, as compared with a prior-year withdrawal of €289.3 million on balance. This

was driven mainly by the development of unit-linked life insurance but also by good new

business. The larger allocation to policy reserves in the Health segment €–249.7 million

(PY: €202.4 million) – is also attributable to an outstanding volume of new business

and stable portfolio development. Claims paid increased in all three segments. The

sharpest rises were seen in the Life segment, where increased index policy surrenders

and maturities pushed gross and net payments to €135.0 million and €143.7 million

respectively.

Gross underwriting expenses include all HR and material expenses incurred for the acquisition

and management of insurance policies. Acquisition expenses, which comprise not

only payments but also the change in deferred acquisition costs, decreased by €19.6

million to €311.7 million. Administrative expenses also fell, totalling €446.7 million after

€455.5 million in the prior year. The cost reduction programmes that we continue to

pursue within the Group can thus be seen to be having an impact. Gross underwriting

expenses amounted to €758.4 million, which was 3.6 % less than in the prior year.

The part of these expenses assignable to reinsurers increased to €110.1 million (PY:

€96.0 million). Net underwriting expenses thus fell from €690.8millionin2008to

€648.3 million in 2009.

Gothaer Group Annual Report 2009 41


Management Report

Consolidated profit

On the earnings front, we achieved a turnaround in the year under review. After amounting

to €62.1 million in the prior year, consolidated profit for the year was €74.6 million.

While the operating result, at €65.7 million, was again below the prior-year level (PY:

€141.4 million) – largely because of sharply increased policyholder benefits – the Group

profited from a significantly better tax situation. Exploiting market opportunities permitted

the reversal of negative share profits for tax purposes and consequently enabled

deferred taxes to be reversed and recognized in the statement of income. As a result,

Group profit for the financial year was boosted by tax income of €35.7 million, whereas

tax expenses of €45.8 million were incurred in the prior year. The net profit for the year

attributable to minority interests amounted to €1.7 million (PY: €2.6 million).

The return on equity, which is the ratio of consolidated profit for the year to average

equity exclusive of minority interests, stood at 7.4 % after 6.2 % in the prior year. In view

of the difficult business environment, we are very satisfied with this result.

42 Gothaer Group Annual Report 2009


Capital Management

Capitalization

Capitalization

Management Report

For insurance groups, capitalization is a key variable or parameter for the assessment of

risk-bearing capacity and thus an important performance indicator. Capital management

enables us to ensure that adequate capital is always available to meet the operational

needs of our companies and achieve optimal deployment and use of funds within the

Group. This allows us to comply with legal provisions as well as with the requirements of

regulatory authorities, rating agencies, analysts and clients, all of which have become

significantly more exigent in recent years. Major constituents of capital management

within the Gothaer Group are risk-oriented controls and Asset Liability Management

(ALM).

The equity of the Gothaer Group totalled €1.10 billion (PY: €0.98billion) at the end of the

financial year 2009. As a mutual insurance association, the Gothaer Group has no subscribed

capital. We generate equity exclusively by retention of earnings. In addition to

the revenue reserves of the Group parent, Gothaer Versicherungsbank VVaG, the equity

shown in the consolidated financial statements also includes the earnings of Group

companies generated after first-time consolidation. Also taken into account in the equity

of the Gothaer Group are unrealized gains and losses on investments available for sale.

Changes in equity are shown on page 97.

As well as Group equity, Gothaer capital management also covers so-called equity surrogates.

Equity surrogates include participation certificates issued by Gothaer as well as

subordinate liabilities. As of 31 December 2009, equity surrogates had an unchanged

carrying value of €299.7 million.

Management of debt financing in the form of bonds and loans also forms part of capital

management. As of 31 December 2009, Gothaer Group bonds and loans totalled €187.6

million (PY: €199.7 million). The decrease in the financial year resulted from the contractcompliant

redemption of bonds and repayment of loans.

The debt ratio of the Group (defined as debt capital, i.e. bonds and loans including noneligible

hybrid capital as a percentage of equity plus eligible hybrid capital) was thus

reduced from 18.7 % to 16.2 %.

Breakdown by type of capital €million

2009 2008

Equity 1,099.5 977.8

Equity surrogates

Participation certificates 35.0 35.0

Subordinate liabilities 264.7 264.7

Bonds and loans 187.6 199.7

Total 1,586.8 1,477.2

Gothaer Group Annual Report 2009 43


Management Report

Solvency

Rating

Risk-oriented control

As the parent company of a German insurance group, Gothaer Versicherungsbank VVaG

is required to demonstrate to the Federal Financial Supervisory Authority (BaFin) that

its adjusted solvency is sufficient to meet the needs of the insurance activities of the

Group. Adjusted solvency is calculated by comparing the own funds derived from the

equity shown in the consolidated financial statements of the Gothaer Group (actual

solvency) to the need for capital resulting from the volume of business (plan solvency).

At €1.40 billion, the own funds of the Gothaer Group exceed the solvency margin required

by €447.6 million. This represents a solvency ratio of 146.9 %.

As well as addressing the present requirements of the supervisory authority, we are

closely studying the future solvency requirements that will need to be met for compliance

with Solvency II. Risk models are computed and analyzed for this purpose and any

necessary capital measures taken in the course of risk controlling.

Rating agencies use insurer financial strength ratings to rate an insurance company’s

financial strength and, where applicable, an insurer’s capacity to meet its obligations in

connection with policies. The aim of our capital management is to ensure that we are

judged at all times to be a financially strong insurer. That goal has so far been successfully

achieved. The international rating agency Standard & Poor’s gives the Gothaer

Group and its core companies Gothaer Allgemeine Versicherung AG, Gothaer Lebensversicherung

AG and Gothaer Krankenversicherung AG an A- rating. The companies’

financial stability is rated “very good”. Gothaer Allgemeine Versicherung AG and Gothaer

Lebensversicherung AG are also given insurer financial strength ratings which means a

“strong” rating for financial strength.

The Gothaer Group takes a two-pronged approach to risk management. On the one hand,

we set out to minimize our risk capital requirements through highly advanced and integrated

risk management. On the other hand, we focus on continually improving our

capital base in order to increase our risk-bearing capacity. Gothaer strives for targeted,

equity-optimized growth.

With the help of value-oriented management indicators, such as RoRAC targets, which

are an intrinsic element of our incentive and compensation system, we set risk-oriented

objectives not only for the Group but also for the risk bearers.

Gothaer uses internally developed risk models to determine its particular risk position

and manage the rated risks. An early-warning system built into the internal risk models

is used to monitor a whole range of risk parameters and proximity to their threshold

values.

44 Gothaer Group Annual Report 2009


Asset liability management

Management Report

Asset liability management is another core constituent of capital management. At the

heart of strategic asset allocation for all insurance companies of the Gothaer Group is the

goal of keeping the share of net earnings accounted for by current income at a constant

high level and taking maximum advantage of scope for diversifying investments.

Strategic asset allocation in the Gothaer Group is supported by various ALM techniques

(ALM analyses, Black-Litterman models, risk budgets) and vetted by the relevant bodies

(Investment Committee, Management, Supervisory Board). Asset allocation involves not

only taking account of ratios, sectors, currency and duration but also considering stablevalue

concepts.

Asset allocation is verified on the basis of both market values and book values, naturally

taking account of all applicable restrictions on investments (section 54 of the German

Insurance Supervision Act (VAG), Investment Ordinance (AnlV), BaFin circulars). The risk

situation is reviewed regularly on a quarterly basis. This involves detailed presentation

of risk budgets on the basis of value at risk and shortfall probabilities with regard to the

attainment of net yield targets.

Gothaer Group Annual Report 2009 45


Management Report

Segmental Performance

Property/Casualty segment

Performance in the

Property/Casualty

segment

Gothaer Group activities are divided into segments reflecting Group and reporting

structure: Property/Casualty, Life, Health and Other Activities. Developments in these

segments are described below. The performance of the most important Group companies

in the segments is also assessed on the basis of financial statements prepared in

accordance with national accounting practices.

The Property/Casualty segment includes Gothaer Allgemeine Versicherung AG, Janitos

Versicherung AG, ASSTEL Sachversicherung AG and CG Car-Garantie Versicherungs-AG as

well as the Group parent Gothaer Versicherungsbank VVaG. As the largest property insurer

in the Gothaer Group, Gothaer Allgemeine Versicherung AG is responsible for all

significant lines and coverages in the area of property insurance, catering to the needs of

both private and commercial clients. Janitos Versicherung AG addresses the core target

group of high-end private clients in property insurance. ASSTEL Sachversicherung AG complements

these operations with simple property insurance products for price-sensitive

clients, mostly offered through direct marketing. CG Car-Garantie Versicherungs-AG is a

provider of automotive repair and warranty insurance.

Gross premiums in the Property/Casualty segment were moderately recessive at €1.63

billion (PY: €1.64 billion). Premium increases in indirect business were offset by premium

downturns in direct business. Because of higher retention than in the prior year, net

earned premiums in the segment rose by 0.9 % to €1.32 billion.

Investments for the segment totalled €3.82 billion, which is €272.5 million more than in

the prior year. Again, the lion’s share consisted of investments available for sale, which

increased by €227.5 million to €1.08 billion. The recovery of the capital markets is

reflected here – amongst other things in improved fair values of investments available for

sale. Also mirroring the recovery is higher investment result of €255.9 million (PY: €224.0

million), which was achieved because significantly less depreciation needed to be recognized

for impaired financial instruments in the financial year under review.

Net benefits paid to policyholders totalled €880.7 million, which was substantially more

than the prior-year figure of €802.6 million. While the loss reserve adjustment in the prior

year boosted income, the loss reserves in the year under review needed to be increased.

At the same time, the volume of claims paid was greater.

Underwriting expenses showed a gratifying development, decreasing by 9.4 % to

€382.1 million in the net account. The results of the Group cost reduction programme can

also be seen in the Property/Casualty segment, where administrative costs were sharply

reduced. Moreover, higher reinsurance commissions were noted for business ceded to

reinsurers.

46 Gothaer Group Annual Report 2009


Performance

of the companies

Management Report

The operating result of the Property/Casualty segment deteriorated somewhat against

the prior year, reaching €245.1 million. The improvement in net earned premiums, investment

result and underwriting expenses was more than compensated by higher policyholder

benefits. Tax expenses increased from €29.5 million to €39.2 million. This was

due, in particular, to the profit transfer agreements between the Group’s two life insurers

and Gothaer Versicherungsbank VVaG, which impacted on the tax situation for the first

time in the year under review. As a result, activities in the segment in 2009 produced a

net profit for the year of €191.3 million (PY: €206.3 million) before transfer of profit.

Unlike in the prior year, a profit transfer expense needed to be recognized in the

Property/Casualty segment in the year under review because both Gothaer Allgemeine

Versicherung AG and ASSTEL Sachversicherung AG concluded a profit transfer agreement

with Gothaer Finanzholding AG in 2009. The profit transfer expense amounted to €58.2

million, so that the remaining net profit for the year was €133.1 million.

Gothaer Allgemeine (German Commercial Code) €million

2009 2008

Gross premiums written 1,400.4 1,414.6

Earned premiums net of reinsurance 1,153.4 1,160.7

Net loss ratio 69.4 % 67.0 %

Net cost ratio 29.4 % 31.6 %

Investments incl. deposits retained on assumed business 2,887.7 2,721.8

Investment result 107.1 114.6

Net yield 3.8 % 4.2 %

Net profit for the year prior to transfer of profit 61.8 72.2

Equity 317.8 359.7

Underwriting reserves 2,342.6 2,272.3

Despite the difficult economic environment, Gothaer Allgemeine Versicherung AG

managed to build on its gratifying performance of previous years in 2009.

The gross premiums written by the company fell by 1.0 % to €1.40 billion in the financial

year. This development was the net result of moderate premium erosion in primary

business and a moderate increase in reinsurance premiums assumed.

Loss expenditure in the financial year 2009 was again reduced by a sharp downturn in

new claims. Gross losses incurred mirrored this positive development, decreasing by

€27.1 million or 3.0 % to €889.9 million. The biggest contributions here were made by the

accident, liability and automotive lines. The gross loss ratio improved from 65.1 % to

63.7 % – a development that confirms the effectiveness of the measures taken in past

years to improve underwriting results. After deduction of reinsurers’ shares, losses

incurred net of reinsurance totalled €800.7 million (PY: €777.9 million). The year-on-year

increase is due, in particular, to the absence of major losses and the resulting lack of

refunds from reinsurers.

Gothaer Group Annual Report 2009 47


Management Report

Gross underwriting expenses developed positively, decreasing by 1.8 % or €7.8 million

to €434.9 million. The gross cost ratio improved accordingly from 31.3 % to 31.1 %.

The underwriting result before adjustment of equalization reserves was shaped by the

development of three significant components net of reinsurance, namely the decrease

in premiums earned, the concomitant improvement in underwriting expenses and

moderately increased losses incurred. Thus formed, the underwriting result before

adjustment of equalization reserves amounted to €10.1 million, which was more than the

€5.0 million posted in the prior year. A balance of €15.6 million needed to be withdrawn

from the equalization reserves (PY: €–3.5 million). After this withdrawal, the underwriting

result was a positive €25.7 million (PY: €1.5 million).

Gothaer Allgemeine Versicherung AG again adhered systematically to an investment

policy based on stable current income in the year under review. The development of

investments – due to the ongoing financial market crisis – was defined by sharply

fluctuating markets. The book value of the investment portfolio rose to €2.89 billion

(PY: €2.72 billion) and investment result was satisfactory at €107.1 million (PY: €114.6

million).

Overall, the underwriting profit after adjustment of equalization reserves coupled with the

positive result in the non-underwriting account produced a pre-tax profit of €85.8 million.

Under the terms of the profit transfer agreement, the profit after tax was transferred to

the Group parent, Gothaer Finanzholding AG.

ASSTEL Sach (German Commercial Code)

€million

2009 2008

Gross premiums written 36.0 34.9

Earned premiums net of reinsurance 29.6 28.5

Net loss ratio 89.9 % 81.9 %

Net cost ratio 24.8 % 25.6 %

Investments 44.7 43.3

Investment result 1.9 2.2

Net yield 4.4 % 5.2 %

Net profit for the year prior to assumption of loss –3.6 –3.5

Equity 13.8 13.8

Underwriting reserves 35.1 30.2

48 Gothaer Group Annual Report 2009


Management Report

ASSTEL Sachversicherung AG addresses the direct insurance market. The property and

casualty products offered – as repeatedly confirmed by consumer publications – occupy

an outstanding position in the market.

Despite facing vigorous competition, the company again increased its gross premiums

writtenby3.2%to€36.0 million. Earned premiums net of reinsurance grew by 3.7 % to

€29.6 million. The retention rate remained unchanged at 83.0 %.

At 20,439 (PY: 19,171), the number of new insurance claims registered in 2009 was

slightly up on the prior year. Gross losses incurred mirrored this development, rising

from €34.6 million to €35.6 million. Losses incurred net of reinsurance increased to

€26.6 million (PY: €23.4 million). As a result, the net loss ratio moved up from 81.9 % to

89.9 %.

Gross underwriting expenses in the year under review, at €8.0 million, remained on a par

with the prior year. As a result of the increase in premium income, the gross cost ratio

improved from 23.0 % to 22.2 %.

Owing to the upturn in losses incurred, the net underwriting loss before adjustment

of equalization reserves increased from €2.3 million in 2008 to €4.5 million in

the year under review. The sum of €0.2 million was withdrawn from equalization reserves,

as a result of which the underwriting account showed a loss of €–4.3 million

(PY: €–3.9 million) after adjustment of equalization reserves.

On the investment front, developments were defined by the financial market crisis and

sharply fluctuating markets. The carrying value of the investment portfolio of ASSTEL

Sachversicherung AG increased by around 3.3 % to €44.7 million. Investment result, at

€1.9 million, was moderately lower than in 2008 and the net yield on investments was

4.4 % (PY: 5.2 %).

Overall, ASSTEL Sachversicherung AG made a net loss after taxes of €3.6 million, which

was balanced under the terms of the profit transfer agreement concluded with Gothaer

Finanzholding AG.

Gothaer Group Annual Report 2009 49


Management Report

Janitos Versicherung AG (German Commercial Code)

€million

2009 2008

Gross premiums written 108.0 102.6

Earned premiums net of reinsurance 43.0 37.8

Net loss ratio 56.7 % 48.3 %

Net cost ratio 34.9 % 36.8 %

Investments 44.4 38.8

Investment result 2.0 2.8

Net yield 4.8 % 7.0 %

Net profit for the year 0.1 0.8

Equity 29.8 29.8

Underwriting reserves 35.9 32.4

In the year under review, Janitos Versicherung AG again realized very satisfactory growth

above the sectoral average. As innovative property/casualty insurer, the company continues

to be an assertive player in the broker market.

Despite the macroeconomic environment, the gross premiums written by the company

increased again, climbing by 5.2 % to €108.0 million. This growth is due, in particular,

to upturns in the accident, liability, householder’s comprehensive and homeowner’s

comprehensive insurance lines.

The number of claims reported in the financial year – 49,495 – was on a par with the prior

year. The gross loss ratio rose from 74.8 % in 2008 to 78.5 %. After deduction of reinsurers’

shares, total losses incurred net of reinsurance amounted to €24.4 million

(PY: €18.2 million).

Gross underwriting expenses, at €26.2 million, were higher than in the prior year

(PY: €24.4 million). This made for a gross cost ratio of 24.6 % (PY: 24.1 %). Net underwriting

expenses, which take account of reinsurance commission income, totalled

€15.0 million in 2009 (PY: €13.9 million), as a result of which the net cost ratio improved

to 34.9 % (PY: 36.8 %).

The underwriting result before adjustment of equalization reserves was €–3.5 million in

the financial year (PY: €0.9 million). A reinsurance result of €6.9 million (PY: €4.4 million)

to the debit of reinsurers led to a net underwriting result of €3.4 million (PY: €5.4 million)

before adjustment of equalization reserves. On balance, a sum of €0.8 million

(PY: €3.2 million) was allocated to equalization reserves in 2009. After allowance for this

transfer, the company registered a positive net underwriting result of €2.6 million slightly

exceeding previous year’s result of €2.1 million.

Investment portfolio and investment result were both shaped by the ongoing financial

market crisis. The book value of the investment portfolio increased by 14.5 % to €44.4

million. With capital markets becoming more favourable again towards the end of the

financial year, the company achieved investment result of €2.0 million (PY: €2.8 million).

50 Gothaer Group Annual Report 2009


Life segment

Performance

in the Life segment

Management Report

The balance of other income and expenses was €–3.8 million in the year under review

(PY: €–3.2 million). The increase was due to the absolute growth of costs, which affected

the balance because of the way costs were distributed.

Overall, Janitos Versicherung AG achieved net profit for the year of €0.1 million (PY: €0.8

million).

The Life segment includes the activities of Gothaer Lebensversicherung AG, Gothaer

Pensionskasse AG and ASSTEL Lebensversicherung AG. At the core of the business

activities of Gothaer Lebensversicherung AG is the direct and indirect sale of all forms of

life and annuity insurance as well as related supplementary policies. This also includes

the sale of insurance investment products as well as occupational disability and invalidity

insurance. Gothaer Pensionskasse AG is a pioneer in Germany in the field of

intercompany pension schemes. It caters for companies that wish to operate a

promissory pension scheme for their employees through a pension trust. ASSTEL

Lebensversicherung AG is a direct marketer of high-performance, easily communicable

life and annuity insurance products.

The life insurers of the Gothaer Group also profited from the veritable boom that -

occurred across the industry in single premium business. We concluded significantly

more policies here, especially deferred single-premium annuity policies. However, classical

regular-premium business was sharply down on the prior year. Against this backdrop,

premium income in the Life segment increased by 14.4 % to €1.85 billion. After

deduction of reinsurance premiums ceded and savings components, net earned premiums

also rose steeply to €1.28 billion (PY: €0.96 billion).

The carrying value of the Life segment investment portfolio was €15.22 billion (PY:

€14.52 billion) at the end of the year. New investment focused more sharply on investments

available for sale, which accounted for 51.2 % of total investment by book value

(PY: 41.2 %). Investment activity generated income of €495.3 million, which is on a par

with the prior year. Owing to the sustained impacts of the financial market crisis, no

improvement was achievable here. Depreciation still needed to be applied to bond and

real property investments in the year under review. Moreover, our fixed-income portfolio

was adjusted – with one-off losses – by acceptance of exchange offers and restructuring

of corporate bonds exposed to credit risk.

Gothaer Group Annual Report 2009 51


Management Report

Performance

of the companies

Policyholder benefits, which include both losses incurred and changes in underwriting

reserves, more than doubled to €1.74 billion, rising from a prior-year figure – €0.83

billion – significantly depressed by the financial crisis. After a year in which policy reserves

were adjusted to take account of unrealised losses on unit-linked life policies of

€368.5 million, 2009 saw unrealised gains of €179.3 million factored into the adjustment.

While the allocation to reserves for premium refunds showed a moderate improvement,

benefits paid – as a result of increased index policy surrenders and

maturities – also rose sharply to €1.33 billion (PY: €1.19 billion).

In contrast to the positive development of premiums, acquisition expenses decreased

to €137.6 million (PY: €146.9 million). This was due to the greater share of singlepremium

business. Including increased administrative expenses of €47.8 million

(PY: €43.2 million), total underwriting expenses amounted to €185.4 million (PY: €190.1

million).

Owing to the developments described above, the Life segment registered an operating

loss of €11.2 million (PY: €27.0 million operating profit) in the year under review. After

allowance for financing expenses and tax income of €22.2 million (PY: €8.4 million tax

expense), the statement of income showed a net profit for the year of €6.9 million

(PY: €13.3 million) prior to transfer of profits.

Gothaer Lebensversicherung AG (German Commercial Code)

€million

2009 2008

Gross premiums written 1,470.1 1,242.8

Earned premiums net of reinsurance 1,417.3 1,147.1

Policyholder benefits 1,910.4 1,209.3

Acquisition cost ratio 5.9 % 5.8 %

Administrative cost ratio 2.7 % 2.8 %

Investments incl. deposits retained on assumed business 12,096.4 11,905.7

Investment result 450.1 494.4

Net yield 3.5 % 4.1 %

Gross profit 165.0 166.8

Equity 270.4 270.4

Underwriting reserves 10,788.4 10,322.9

Despite the financial crisis, Gothaer Lebensversicherung AG showed itself to be a sound,

profitable company and competitive market player in 2009.

Owing to the rise of single-premium business, new business volume at Gothaer Lebensversicherung

AG was significantly greater than in the prior year. As a result of the growth

registered in strategic lines of business in unit-linked life insurance and company pension

schemes, total new business increased by 65.7 % to €579.5 million. This growth is also

reflected in the 18.3 % surge in gross premiums written, which rose to €1.47 billion in the

financial year.

52 Gothaer Group Annual Report 2009


Management Report

Because of the large proportion of single premiums, the new business premium, at

€2.19 billion, remains 22.4 % below prior-year production. The new business premium is

the sum of all premiums due over the full term of the new policies written. The aggregate

insured sum of all policies in force at the end of the year reached €33.8 billion, which is

1.1 % more than in the prior year.

The benefits paid by Gothaer Lebensversicherung AG totalled €1.91 billion. Compared to

the prior-year figure of €1.21 billion, this is an increase of 58.0 %, and is due essentially

to developments in unit-linked life insurance.

Acquisition costs amounted to €130.0 million, which is 21.1 % less than in the prior year,

although production – in terms of new business premium – fell by the same amount.

The acquisition cost ratio, which is the ratio of acquisition costs to total new business

premium, was 5.9 % (PY: 5.8 %). The administrative cost ratio, which expresses administrative

costs as a percentage of the gross premiums written, showed a further improvement

to 2.7 % (PY: 2.8 %).

The book value of the Gothaer Lebensversicherung AG investment portfolio increased by

around 1.6 % to around €12.10 billion in 2009. Investment result, at €450.1 million, was

down on the prior-year figure of €494.4 million. The main extraordinary factors contributing

to this downturn were due to the financial crisis and resulted from depreciation on

real estate and bonds as well as losses on disposals in the course of portfolio restructuring.

With current average yield at a sound 5.1 %, the net yield was still satisfactory

at 3.5 % (PY: 4.1 %).

Gross profit – which is the profit before allocation of surplus to policyholders, taxes on

income and appropriation of profit – was virtually unchanged at €165.0 million

(PY: €166.8 million). The scale of the surplus is largely determined by the investment result.

Owing to the impacts of the financial market crisis, netting all the relevant forms of

income and expenses – the latter including, where applicable, the guaranteed actuarial

interest on policyholders’ assets – produced a lower surplus than in the prior year.

The greater part of gross profit was allocated to policyholders in the form of a transfer of

€91.5 million to reserves for premium refunds and direct credits totalling €53.9 million.

Before intercompany tax allocation and before transfer of profits, net profit for the year

amounted to €23.0 million. €11.8 million of this sum was transferred to the parent

company as a tax allocation and €11.2 million under the profit transfer agreement concluded

between Gothaer Finanzholding AG and Gothaer Lebensversicherung AG in 2002.

Gothaer Group Annual Report 2009 53


Management Report

ASSTEL Lebensversicherung AG (German Commercial Code)

€million

2009 2008

Gross premiums written 215.6 231.8

Earned premiums net of reinsurance 225.1 238.6

Policyholder benefits 253.1 270.3

Acquisition cost ratio 5.5 % 2.3 %

Administrative cost ratio 2.3 % 2.4 %

Investments 2,723.4 2,700.0

Investment result 98.8 124.5

Net yield 3.6 % 4.7 %

Gross profit 60.4 58.0

Equity 19.3 19.3

Underwriting reserves 2,213.7 2,142.3

ASSTEL Lebensversicherung AG – a company that can point to an unbroken string of very

good ratings and test results – is the Gothaer Group’s direct marketer of life and annuity

insurance products.

Owing to external factors – financial and economic crisis, slump in property buying,

consumer uncertainty – the influx of applications could not be maintained at the prior-year

level. The new business premium (the sum of all premiums due over the full term of the

new policies written) decreased by 68.5 % to €160.0 million. When comparing this figure

with that of the prior year, it should be noted that the sum of new business in 2008 profited

by €277.9 million from the effect of the progression of “Riester” incentives. The total

carrying value of insurance in force at the end of the year reached €9.1 billion, which is

4.6 % more than in the prior year.

Gross premiums written decreased by 7.0 % to €215.6 million. This negative development

was primarily attributable to natural retirements connected with deposit business

acquired up until 2004.

Policyholder benefits paid by ASSTEL Lebensversicherung AG totalled €253.1 million,

which was 6.4 % less than in the prior year.

Acquisition costs, at €8.7 million, fell by 26.9 % in comparison to the prior year, while the

new business premium – as stated above – decreased by 68.5 % due to the special

impact of the progression of “Riester” incentives in 2008. The acquisition cost ratio, which

is the ratio of acquisition costs to total new business premium, was 5.5 % (PY: 2.3 %).

The administrative cost ratio, which expresses administrative costs as a percentage of

the gross premiums written, stood at 2.3 % (PY: 2.4 %).

54 Gothaer Group Annual Report 2009


Health segment

Performance

in the Health segment

Management Report

The investment portfolio increased its carrying value by 0.9 % to around €2.72 billion

during the course of the financial year, generating income of €98.8 million (PY: €124.5

million). The investment result was shaped by a sound current average yield of 4.5 % but

also by depreciation on real estate and bonds due to the financial crisis as well as losses

on disposals in the course of portfolio restructuring. The net yield, at 3.6 % was still

satisfactory in comparison with the prior-year figure of 4.7 %.

Gross profit – which is the profit before allocation of surplus to policyholders, taxes on

income and appropriation of profit – increased from €58.0 million in the prior year to

€60.4 million in the year under review. The scale of gross profit is largely determined by

the investment result. Netting all the relevant forms of income and expenses – the latter

including, where applicable, the guaranteed actuarial interest on policyholders’ assets –

produced a smaller surplus than in the prior year. The full amount of gross profit was

allocated to policyholders in the form of a €31.7 million allocation to reserves for premium

refunds and direct credits totalling €28.6 million.

The Gothaer Group is represented in the Health segment exclusively by Gothaer Krankenversicherung

AG. Gothaer Krankenversicherung AG markets its products primarily through

the Gothaer field force. It also operates in the direct insurance market. Our focus in the

Health segment is on the steady implementation of a strategy to offer high-performance,

reasonably priced collective rates together with company healthcare management and

numerous services to companies and their employees.

Excluding premiums from the reserves for premium refunds, gross premiums written in

the Health segment increased by 3.8 % to €752.5 million. This is a result of the gratifying

development of new and portfolio business. Overall, gross premium income across the

segment was lower than in the prior year, down from €782.7 million at €773.5 million,

because only €21.0 million was withdrawn from the reserves for premium refunds in 2009

compared with €58.0 million the year before. In contrast to 2008, no premiums needed

to be withdrawn here for long-term care insurance in the year under review. Because the

percentage of premium ceded to reinsurers remained low, net earned premiums, at €767.9

million, were only marginally less than gross premiums written.

The carrying value of the investment portfolio of the Health segment increased significantly,

from €4.18 billion to €4.46 billion. This was largely due to an increase in investment

volume as a result of the good developments seen in new and portfolio business.

Another factor, however, was the recovery of the capital markets and the concomitant

increase in the value of investments recognized at fair value. The consequences of the

financial market crisis are also reflected in the investment result, which decreased from

€161 million to €138.1 million. In addition, impaired financial instruments continued to

be systematically written down in the year under review. Furthermore, our corporate bond

portfolio exposed to credit risk was restructured and losses on disposals consciously

accepted.

Gothaer Group Annual Report 2009 55


Management Report

Performance

of the company

Policyholder benefits totalled €803.8 million in 2009, as compared with €831.2 million

in the prior year. While the allocation to reserves for premium refunds was smaller than

in 2008, the greater volume of business entailed higher claims expenses and required

larger allocations to policy reserves.

Net underwriting expenses for the financial year increased only moderately, from

€76.7 million to €78.2 million. Despite the positive development of new and portfolio

business, acquisition expenses rose by only €0.5 million to €54.6 million. The costs

connected with new business need to be recognized here and amortized over the life of

the assets. Administrative expenses also showed only a modest upturn, increasing by

€0.9 million to €23.6 million.

Owing to the developments described above, the operating result decreased from €21.4

million to €16.1 million. After tax expenses of €5.0 million (PY: €5.4 million), the net

profit for the year in the Health segment decreased from €15.9 million to €11.1 million.

Gothaer Krankenversicherung AG (German Commercial Code) €million

2009 2008

Gross premiums written 752.5 724.7

Earned premiums net of reinsurance 746.9 719.9

Loss ratio 78.8 % 78.6 %

Acquisition cost ratio 8.7 % 7.3 %

Administrative cost ratio 3.1 % 3.1 %

Investments 4,435.1 4,231.7

Investment result 150.8 175.1

Net yield 3.5 % 4.3 %

Gross profit 64.8 104.6

Equity 146.2 151.0

Underwriting reserves 4,381.2 4,141.4

Because of its very competitive product range, Gothaer Krankenversicherung AG managed

to take advantage of the opportunities in the market and reported a generally satisfactory

sharp upturn in new business. As a result, both the number of persons insured and the

volume of gross premium income significantly increased.

The number of persons insured rose to 516,355, which is 3.9 % more than in the prior year.

Particularly gratifying was the increase in the field of comprehensive insurance, where

the number of insured surged by nearly 5,000 or 3% to 163,233. In the field of supplementary

insurance, too, the number of persons insured was sharply increased by 4.3 %. One

of the crucial factors contributing to this result was the direct insurance market, which

we address through our ASSTEL marketing channel.

56 Gothaer Group Annual Report 2009


Management Report

Gross premium income grew by 3.8 % to €752.5 million, rising from €724.7 million in the

prior year. This was essentially due to comprehensive health insurance. After allowance

for reinsurers’ shares and unearned premiums, earned premiums totalled €746.9 million

(PY: €719.9 million).

Gross claims paid including claims settlement expenses totalled €485.8 million in the

financial year 2009, rising from €456.4 million in the prior year. The allocation to loss

reserves (gross) was lower than in 2008, down from €9.5 million at €5.5 million. With

premium income also increased, the loss ratio – the gauge for assessing expenses incurred

for insureds – moved up only slightly. From 78.6 % in the prior year, it rose to

78.8 % in the year under review.

As a result of the good volume of new business, acquisition costs were significantly

higher than in the prior year, up at €65.1 million from €52.8 million. The acquisition cost

ratio, which is the ratio of acquisition expenses to earned premiums, rose from 7.3 % to

8.7 %. As a mitigating factor, expenses incurred in connection with the administration

of policies increased only moderately, from €22.7 million to €23.6 million. The administrative

cost ratio – which expresses administrative expenses as a percentage of

premiums – remained unchanged at 3.1 %.

Despite the difficult environment, the book value of the Gothaer Krankenversicherung AG

investment portfolio increased by around 4.8 % to around €4.4 billion in the financial

year 2009. Investment result totalled €150.8 million (PY: €175.1 million), depressed by

depreciation on real estate and bonds due to the financial crisis as well as losses on the

sale of investments in the wake of restructuring. With current average yield at a sound

4.7 %, net yield was still satisfactory on the whole at 3.5 % (PY: 4.3 %).

Gross profit after taxes decreased from €104.6 million to €64.8 million in the past

financial year. The surplus appropriation ratio included in the ratios catalogued by the

German association of private health insurers (PKV) indicates the percentage gross profit

distributed among policyholders. This moved down to 86.6 % in 2009 (PY: 87.1 %). The

funds appropriated for policyholders were allocated by means of a transfer of €48.0

million (PY: €54.7 million) to the reserve for performance-related premium refunds and a

transfer of €8.1 million (PY: €12.2 million) to the reserve for pool-relevant non-performance-related

premium refunds. Expressed as a percentage of earned premiums, these

two figures form the basis of the premium refund reserve allocation ratio. This ratio fell

against the prior year, moving down from 9.2 % to 7.5 %.

The remaining net profit for the year of €8.7 million is posted along with retained profit

brought forward of €5.0 million as balance sheet profit. If the proposal for appropriation

of profit is accepted, the sum of €8.7 million will be distributed to shareholders and

€5.0 million carried forward.

Gothaer Group Annual Report 2009 57


Management Report

Other Activities segment

Performance in the

Other Activities segment

Companies operating in the Other Activities segment include Gothaer Finanzholding AG

and the Group’s service providers. Gothaer Finanzholding AG, as the holding company of

the Gothaer Group, holds all the shares in the main insurance companies and many other

Group companies. As of the financial year 2004, the portfolio run-off of the former

Gothaer Rückversicherung AG is handled by Gothaer Finanzholding AG. Gothaer Finanzholding

AG is included in the Other Activities segment and not the Property/Casualty

segment because its primary function is as a holding company.

Among the main service providers are Gothaer Asset Management AG, which invests and

manages financial assets for Group companies and third parties.

Gothaer Systems GmbH is the Gothaer Group’s data centre and network operator and

a provider of other services in the area of information technology and software programming,

including applications development.

Other important services that are needed to maintain Group companies’ operations are

provided by Hamburg-Kölner-Vermögensverwaltung GmbH. The company purchases office

furnishings and supplies for Group companies, rents office space and performs other

services in the areas of facility management, company catering services, printing and

advertising.

The operations of Gothaer Finanzholding AG in the Other Activities segment consist

exclusively of handling the residual insurance run-off of the former Gothaer Rückversicherung

AG. Insurance business is thus of secondary importance in this segment

and ended the year with a loss of €–1.3 million following €–5.4 million in the prior year.

The improvement of the underwriting result was due to the fact that the volume of loss

reserves that needed to be reversed was greater in the year under review.

The carrying value of investments in the Other Activities segment totalled €2.02 billion

(PY: €1.84 billion), €1.18 billion (PY: €1.00 billion) of which related to the shares held by

Gothaer Finanzholding AG in all the insurance companies in the Gothaer Group as well as

other participations. In line with the structure of the investment portfolio, investment

result was shaped by income from these holdings, either under profit transfer agreements

or in the form of dividend payouts. After €245.4 million in the prior year, investment result

totalled only €124.5 million in the year under review. However, the prior-year figure

includes extraordinary profit on the sale of a participation.

The balance of other income and other expenses of the service providers in the Gothaer

Group improved from €–21.9 million to €–6.5 million, here too reflecting the success of

our systematic cost-cutting programmes.

58 Gothaer Group Annual Report 2009


Performance

of the companies

Management Report

Due to the lower investment result, reductions were seen in both the operating result for

the segment, which decreased from €218.1 million to €116.8 million, and net profit for

the year after transfer of profit, which fell from €64.1 million to €–15.3 million. However,

the profit transferred by Gothaer Finanzholding to Group parent Gothaer Versicherungsbank

VVaG remained on a par with the prior year at €121.0 million (PY: €118.0 million).

Gothaer Finanzholding AG (German Commercial Code) €million

2009 2008

Gross premiums written 0.5 0.6

Earned premiums net of reinsurance 0.5 0.6

Investments incl. deposits retained on assumed business 1,585.9 1,613.1

Investment result 148.7 152.6

Net yield 9.3 % 9.4 %

Net profit for the year prior to transfer of profit 121.0 118.0

Equity 764.9 724.9

Underwriting reserves 283.8 318.2

Gothaer Finanzholding AG is responsible for the financial management of the Gothaer

Group. In this capacity, it holds the shares in joint-stock insurance companies and other

major Group subsidiaries and associates. Since the suspension of active reinsurance

operations and the merger of Gothaer Rückversicherung AG with Gothaer Finanzholding

AG in 2004, the company has also been responsible for run-off liabilities and obligations

in connection with reinsurance treaties.

Gross premiums written decreased as anticipated to €0.5 million (PY: €0.6 million).

Earned premiums from retained business, at €0.5 million, remained at the same level

(PY: €0.6 million). These premiums mostly comprised pipeline premiums.

Owing to our conservative reserving policy, the run-off result net of reinsurance was

positive, totalling €1.7 million Euro (PY: €–1.4 million). As in prior years, the adequacy

of the loss reserves was verified and confirmed by actuarial methods.

Gross underwriting expenses consisted mainly of bonuses and internal administrative

costs, decreased sharply again in line with premiums. Bonus and commission expenses

totalled €1.0 million (PY: €0.1 million). As a result of further reductions in HR and

material costs, internal administrative costs decreased to €1.7 million (PY: €2.1 million).

The underwriting result net of reinsurance before adjustment of equalization reserves

was €0.7 million (PY: €–1.8 million). With the approval of the Federal Financial Supervisory

Authority, the equalization reserves are being reversed evenly over a period of

five years. In 2009, they were reduced accordingly for the fifth time by the sum of

€12.3 million, which was recognized in income. As a result, the underwriting account

showed income of €13.0 million net of reinsurance (PY: €10.5 million).

Gothaer Group Annual Report 2009 59


Management Report

The run-off of the reinsurance portfolio of the former Gothaer Rückversicherung AG

continues to proceed on target. Targeted scheduled loss reserve reversals were performed

actively at national and international level to accelerate portfolio run-off.

Mirroring the development of underwriting reserves, the investment volume of Gothaer

Finanzholding AG decreased from €1.61 billion to €1.59 million in the financial year 2009.

The investment result for the company, at €148,7 million, was also excellent and close

to the prior-year figure (PY: €152.6 million). High income from strategic investments

contributed particularly to this satisfactory development. The net yield of investments

was 9.3 % in 2009 (PY: 9.4 %).

The positive results achieved in both the underwriting and the non-underwriting

accounts resulted in a net profit for the year of €121.0 million, which was on a par with the

prior-year figure and was transferred to Gothaer Versicherungsbank VVaG. The company’s

strong equity capital base was further enhanced by the payment of €40.0 million into its

capital reserves by Gothaer Versicherungsbank VVaG.

Gothaer Asset Management AG (German Commercial Code) €million

2009 2008

Commission income 35.8 31.2

Net profit for the year prior to transfer of profit 23.0 20.3

Equity 12.0 11.6

Balance sheet total 40.2 26.2

Gothaer Asset Management AG is the financial service provider that manages the investments

of the Gothaer Group companies. The carrying value of assets under management

was €25.65 billion (PY: €24.99 billion) at the end of the financial year.

Despite the sustained financial market crisis, the volume of commissions received grew

to €35.8 million, which was 14.8 % more than in the prior year. The commission income

related mostly to Group asset management (57 %) and fund advisory services (39 %).

A total profit of €23.0 million was achieved in the financial year 2009. Under the terms of

the profit transfer agreement with Gothaer Finanzholding AG, a sum of €22.6 million was

transferred to the Group parent and €0.4 million allocated to revenue reserves.

60 Gothaer Group Annual Report 2009


Risk Report

Risk management principles

Risk-oriented

management concept

Risk management

organization

Management Report

The core business of our Group companies involves assuming risk and making

contractual commitments to pay claims or benefits. To be able to perform these tasks

reliably on a sustainable basis, Group governance is geared to the “safety first” principle

and the principles of value-oriented management. The framework of acceptable

risks that can be consciously assumed is delineated in our risk strategy. Risk tolerance,

i.e. our maximum permissible risk exposure, is defined by taking account of three requirements:

• From a regulatory perspective, minimum standards have been defined stipulating

that solvency capital requirements – including a security buffer against unplanned,

additional risks – are fulfilled at all times and that quarterly evidence is presented to

show that policy conditions can be met even in the event of adverse capital market

developments such as those simulated in Federal Financial Supervisory Authority

(BaFin) stress scenarios. At Group level, this evidence is furnished in the course of

sensitivity analysis in line with the German accounting standard DRS 5-20.

• From a rating perspective, we seek to maintain a capital adequacy ratio that, in

conjunction with the other rating factors, is sufficient for at least an A-category rating

(financial strength rating).

• A minimum security level of 99.5 % (one-year value at risk based on our own risk

model) is set for internal management purposes.

Risk management at the individual companies is part of the risk management system of

the Gothaer Group. Its functionality and efficacy is the responsibility of the entire

Management. The tasks of risk identification, analysis, management and monitoring are

for the most part performed close to risks in the operative units. Care is taken to ensure

that conflicts of interest in the performance of these tasks are avoided. Outsourced

functions are predominantly fulfilled by Group companies integrated in the Group-wide

risk management system. Responsibility for independent risk controlling is assumed

at Group level by the Chief Risk Officer (CRO) and at company level by the relevant actuarial

department. They are supported in these tasks by the Middle/Back Office of

Gothaer Asset Management AG and the central risk controlling unit at Gothaer Finanzholding

AG. The individual companies and Gothaer Asset Management AG are also

represented in the risk committee established at Group level. Its responsibilities include

monitoring risks from a Group perspective by means of an indicator-based early warning

system as well as further developing uniform cross-Group risk assessment and management

methods and processes. Risk management principles, methods, processes and

responsibilities are documented in a risk manual and an Intranet risk management

application.

Attention in the risk management process is focused on investment risks, underwriting

risks, loss of receivables risks in insurance operations, strategic and operational risks

and reputation and concentration risks at and above company level.

Gothaer Group Annual Report 2009 61


Management Report

Underwriting risks

The risk management process implemented operates an annual systematic inventory of

risks with half-yearly measures controlling, a qualitative and quantitative risk assessment,

various risk management measures, risk monitoring by the operative units and

risk controlling. The risk management system also includes an internal monitoring

system (IMS). Its purpose is to prevent or reveal damage to assets and to ensure proper,

reliable business activity and financial reporting. The IMS comprises both organizational

security measures such as access authorizations, use of the four-eyes principle

or proxy arrangements and process-integrated and cross-company controls. The compliance

function is decentralized, performed by various operative and Group units.

Regular risk reporting and ad hoc reports on specific developments make for a transparent

risk situation and provide pointers for targeted risk management.

The efficacy of the risk management system, the checks and balances and the management

and monitoring processes is regularly assessed by the Group internal auditing unit.

A review of the risk early-warning system is also part of the audit of the individual

financial statements performed by our auditors.

The Gothaer Group worked continuously in the year under review to ensure that it meets

the risk management requirements set out in Sec. 64a of the German Insurance Supervision

Act (VAG). In implementing the regulations, we take account of the stipulations of

BaFin Circular 3/2009 (MaRisk VA) setting out the minimum requirements for risk

management in insurance companies. At the same time, we monitored the development

of the new Solvency II supervisory regime. While we basically welcome and approve of

the targeted reform of the European supervisory system, we nevertheless judge the

recently published CEIOPS recommendations for the implementing regulations on

solvency and own funds requirements to be extremely problematical. For both property/casualty

insurers, but especially for German life and health insurers, the solvency

capital requirements proposed are excessive. Overall, we believe that these proposals

present a danger both to the German insurance model in general and to the insurance

groups operating on the principle of mutuality in particular. The Gothaer Group is thus

working at both national and European level for a proper, competition-neutral set of new

solvency rules.

As a general rule, the Gothaer Group companies counter underwriting risks with rates

based on actuarial principles and with underwriting guidelines commensurate with risk.

Compliance is systematically monitored through the use of controlling instruments and

early-warning systems that identify trends and negative developments in good time.

The adequacy of underwriting reserves is also subject to annual actuarial verification.

62 Gothaer Group Annual Report 2009


Property/Casualty segment

General risk situation

Private client business

Management Report

In addition, appropriate reinsurance treaties are in place to limit the risks arising from

major and accumulation losses.

For the individual Group segments, this means:

Our operations are differentiated by target group into private and corporate client

business. The possible impacts of the financial crisis are analyzed and assessed on a

continuous basis. Where bank credit dries up, the implications for our corporate client

target group are wide-ranging – from increased insolvency through reduced inclination

to invest to generally cautious purchasing behaviour. Insolvency leads to loss of client

accounts, a lack of willingness to invest and purchase and the absence or decline of

demand for insurance cover and, as a consequence, a tendency towards diminishing

premium revenues. The sharp drop in revenues registered by some of our industrial

clients resulted in premium income downturns even in 2009, especially in liability

insurance. In 2010 at the latest, however, reduced revenue figures and lower payroll

expenses will lead to diminishing premium income from lines of insurance where premiums

are based on annual turnover. These lines include liability, marine and property

insurance. Engineering insurance and property insurance will also be affected by the

anticipated downturn in inclination to invest. In fleet insurance, investment in more

economical vehicles or the absence of any new investment will impact on insurance

cover and premium income. These negative impacts, which were more than compensated

by new business in 2009, will leave visible marks on premium income figures in

2010. This has been taken into account in planning for the current financial year.

The poorer economic climate will also impact on private client business, although to a

lesser extent.

Furthermore, the general risk situation is being reshaped by changes in the legal

environment. Gothaer is not affected by the recent court rulings on the validity of instalment

surcharges. However, there is a risk that leading supreme court rulings will be

delivered on this issue in the future.

Private client business continues to be marked by high price sensitivity and a pronounced

readiness to change providers on the part of policyholders. Sustained extreme

price pressure and a high degree of market saturation are also evident. Gothaer offers

comprehensive, high-value-for-money insurance solutions to counter this market trend.

In private automotive insurance, Gothaer again refrained from participating fully in the

price competition that has become ruinous in some areas of business; it markets a

product pitched at an adequate price, committing to profit even at the expense of market

share. As in previous years, the quality of the portfolio continues to be improved by

effective portfolio management. Private automotive insurance on the whole is thus well

positioned to meet the upcoming developments in the market.

Gothaer Group Annual Report 2009 63


Management Report

Corporate

client business

In property, liability, accident and multiple-risk insurance, predatory competition is also

increasing. The portfolio loss due to a link with a broker severed by Gothaer cannot be

made up in 2010. At the same time, growth prospects are depressed by price pressure

and market saturation. Addressing this situation, our private client division continues to

pursue a dual product and price strategy. In each insurance line, we offer a basic product

that is well to very well positioned in popular rankings and test reports because of its

price. We are also adding a new accident product to our range of premium products,

which offer high-performance solutions for clients. In 2010, we will additionally conduct

a realignment campaign with a view to securing portfolios. The natural catastrophes

that have resulted from climate change in recent years will have a significant negative

impact on future underwriting results. Our portfolio management activities, with which

we systematically retain good policies and cut loose policies that are not priced at a

level commensurate with risks, will thus become increasingly important and will be

intensified.

Systematic use of ZÜRS, a zoning classification system for identifying exposure to

flooding risks, ensures that underwriting conforms to risk management requirements.

The commercial and industrial business that makes up the corporate client segment is

characterized at both national and international level by very intense competition with

sustained high pressure on premiums and conditions, especially in industrial property

insurance and fleet insurance for major risks. Even high-exposure insurance in the areas

of geothermal energy or wind power is coming increasingly under competitive pressure.

We face this competition, having adjusted at an early stage with a profit-geared cyclical

management system and responsible underwriting. Various activities are conducted to

increase market attractiveness. Examples include regular business and corporate presentations

at sales partners and relevant gearing to their needs. Feedback from sales

partners is very positive across the board and is reflected in very good sales performance.

This is due to the fact that all the efforts made have helped generate growth that

is above the market average and earnings that are on target.

The market environment for the largest single line of insurance – liability insurance –

deteriorated as a result of falling sales revenues for policyholders in the period under

review. This led to marked downturns in premium income across the portfolio. However,

client bonding was strengthened further by an early response to major clients and

flexible contracting. Positive marks in market rankings underline our very good positioning

in liability. The policy of not insuring highly exposed risks – a policy that has been

observed for many years – was systematically maintained. In addition to these profitoriented

measures, very good new business underwriting kept premium revenues

almost at the prior year level, which was nevertheless less than projected.

64 Gothaer Group Annual Report 2009


Management Report

Property insurance is an area that needs to be seen in a differentiated light. In the

commercial sector, our solution-oriented approach produced an increased volume of

new business in the face of intense competition, especially for multiple-risk products.

In the industrial sector, the pressure on premiums increased even more. Even so, profitoriented

underwriting enabled us to generate substantial growth. Fire safety and security

boost earnings in industry and commerce and offer the client genuine solutionoriented

added value. Growing interest in target-group and multiple-risk products is

noted on the part of clients and agents. While the SME campaign continues to provide

positive stimuli in the area of multiple-risk products, growth has been achieved in

corporate policies through master agreements.

Marine insurance is a regular source of growth for Gothaer. Despite a difficult market

environment, the underwriting results are very satisfactory. Art insurance and carriers

liability insurance show a gratifying earnings trend.

In engineering insurance, growth was achieved in machinery and electronic lines.

Renewable energy insurance also contributed to growth as anticipated, although not as

vigorously as in previous years. Our position as market leader in windpower plant

insurance was further consolidated and major acquisitions were noted in biogas facility

and photovoltaic system insurance. Because renewable energies in Germany and Europe

continue to be supported in the present economic environment, further growth can be

anticipated. This is taken into account by HR and DP investment.

Automotive insurance faces a difficult environment market-wide. We are prepared for

this but have left growth and earnings requirements unchanged. In commercial automotive

insurance, portfolio consolidation measures resulted in a modest downturn in

premiums. However, extensive insurance was provided for new risks, which will impact

positively on income in 2010. The selective underwriting policy pursued is producing

satisfactory underwriting results. In contrast to this, industrial fleet insurance saw a

further intensification of competition. A combination of risk management by Gothaer

Risk Management GmbH and risk-oriented contracts could not always be achieved in

new business. As a consequence, premium income fell and the underwriting result

deteriorated.

Gothaer caters for the needs of its German industrial clients abroad and makes adequate

insurance protection available for property and liability risks through international

insurance programmes. The range of services we offer is regularly presented to

sales partners and clients and generates growing demand as a result. The international

insurance programmes are generally made up of regional policies organized and

managed by Gothaer and an extensive individual coverage concept in Germany. We made

the structural, process and technical preparations for this at an early stage.

Gothaer Group Annual Report 2009 65


Management Report

Reinsurance

In 2009, an extensive stochastic-based optimization analysis was conducted to appraise

the structure of our reinsurance operation and at the same time review our exposure to

natural catastrophes. The result was that the reinsurance structure in place on 1 January

2010 was largely retained. What should be noted is that additional reinsurance needed

to be acquired for flood risk in order to ensure future cover capacity for even a 200-year

event. The context for the renewal of reinsurance treaties was marked by capital

developments at primary insurers and reinsurers. The capital lost in 2008 during the

course of the financial market crisis, for example, was virtually made up in full in 2009

by investment gains and better underwriting results due to lower natural catastrophe

losses. This resulted in higher reinsurance capacity, largely unchanged demand and

stable prices for 2010.

Overall, we see a possible but highly unlikely risk in the temporal misalignment of

primary insurance and reinsurance protection. This stems from the fact that negotiation

of a reinsurance treaty does not normally begin until the primary insurer has already

confirmed cover to policyholders. In the historically unprecedented event of a total

collapse of reinsurance capacities, e.g. in the case of a global financial crisis coinciding

with the occurrence of an extreme incidence of natural catastrophes, our risk exposure

would significantly increase.

Once again, Gothaer succeeded in placing all contracts for moderately higher prices

overall and kept default risk within narrow limits through broad diversification and

awareness of counterparty default risk. Default risk was defined – as in the prior year –

with the help of a stochastic model.

As regards the concentration of insurance risks, a distinction is made between the

scenarios described below.

66 Gothaer Group Annual Report 2009


Management Report

Low frequency loss events involving major losses

This loss category reports major losses in the area of automotive liability insurance

because a percentage of the policies in force were written on the basis of unlimited

coverage or, in the case of policies written after April 2005, with a limited but very high

cover sum of €100 million. This potential liability is taken into account in our reinsurance

treaties. Major losses could also conceivably result from a terrorist attack. In the case of

high-coverage policies (insured sums in excess of €25 million), terrorism is originally

excluded and the risk assumed by Extremus if the customer requires insurance against

terrorism. For risks where coverage is below the critical limit, our reinsurance treaties

provide limited but adequate reinsurance protection.

Cross-segment loss events

This loss category primarily relates to natural hazard events that would cut across

Gothaer segments. These include, in descending order, flood, storm, earthquake and –

of significantly less importance (mostly automotive own damage) – hail risks. Decisions

on the scope of reinsurance protection acquired are based on extensive analyses of our

entire portfolio. Those analyses are conducted by leading international reinsurance

brokers and carriers and are performed on the basis of renowned methods of modelling

exposure to natural catastrophes. The models in question include estimates of probability

of occurrence and assessments of recurrence intervals. The combined use of

RMS, EQECAT and AIR tools as well as reinsurers' internal models provides us with a

secure basis for findings.

Geographic or line-based concentration risks

Owing to the good geographic distribution of the Gothaer portfolio, geographic concentration

risk is negligible. Line-based concentration is perceptible only in engineering

insurance for wind power facilities. Here too, precautions have been taken against

both accumulation and major losses through a combination of proportional and nonproportional

reinsurance protection.

Risk dependency

Major loss events, in particular those which have a massive financial impact on the

reinsurance market, can lead to insolvencies on the part of reinsurers and thus result in

default. We seek to minimize the possible impacts on the Gothaer net account by

selecting our reinsurers with care (see under loss of receivables) and spreading our

placements. In the case of natural hazard events in particular, it has been observed that

high losses translate into high claim payments fairly rapidly and therefore result in an

outflow of funds. By keeping the cash loss limits for our proportional treaties relatively

low and agreeing adequate reinstatements for non-proportional cessions, we have made

sure that Gothaer is not affected in such events by liquidity or reinsurance capacity

shortages.

Gothaer Group Annual Report 2009 67


Management Report

Claims The following table shows the changes in Gothaer Allgemeine Versicherung AG loss

ratios and run-off results over the past 10 years across all fields of business and net of

reinsurance on the basis of IFRS.

Risks arising from

reinsurance assumed

Risk management

methods in the

Property/Casualty

segment

Developments as %

Loss ratio

after run-off

Run-off results

of initial reserves

2000 74.3 5.0

2001 68.3 8.9

2002 76.9 1.3

2003 63.8 2.5

2004 59.3 5.4

2005 64.3 –2.3

2006 59.8 4.5

2007 66.9 0.9

2008 59.5 10.0

2009 65.6 3.3

A detailed year-by-year review of the run-off of our gross primary business by year of

occurrence, without allowance for annuity reserves, is provided in the notes to the

consolidated financial statements, in the section devoted to loss reserves.

We act as a reinsurer for a number of cooperation partners. This activity predominantly

involves small business and private client lines. Terms are negotiated annually and are

in line with current market conditions.

Forecast and change risk in the estimation of reserves

Wherever a model is used, there is a risk that actual results will deviate from projections.

In the case of reserves, however, underestimation needs to be avoided, so a safety

margin is applied. To enable the appropriateness of a safety margin to be assessed, the

variability of the estimate is established by bootstrapping. This provides a basis for

quantifying the certainty of the IFRS reserve being enough to cover possible losses,

expenses and annuity payments.

Factors that cannot be adequately assessed by the models used to calculate reserves are

taken into account separately as follows:

• individual major loss analysis: where necessary, individual major loss reserves are

included in the reserve calculation results

• detailed analysis of accumulation loss events, taking account of time of occurrence

and previous run-off and comparing them with such events in the past

• detailed analysis of sublines in areas where portfolio shifts have occurred.

68 Gothaer Group Annual Report 2009


Life segment

General risk situation

Adequacy of applied

mortality tables

(biometric risks)

Management Report

Natural catastrophe, accumulation loss and major loss risk

The effects of natural disasters, accumulation losses and major losses on the net side

for Gothaer are largely mitigated by the structure of reinsurance. To keep the impacts on

the gross side as low as possible, information delivered by the ZÜRS zoning classification

system and other models is taken into account in the determination of premiums

and underwriting policy.

Reinsurance risk

Even a balanced reinsurance structure designed to mitigate the effects of extreme events

entails risk – the risk of possible default by reinsurers. At Gothaer, this risk is taken into

account in the selection of reinsurers (A rating) and is quantified by DFA modelling. It is

thus covered by risk management.

Discounted reserve risk

If reserves are discounted, the choice of discount rate and the underlying payment

schedule are critical parameters. As loss reserves are currently not discounted, this risk

does not apply to Gothaer.

The general risk situation for life insurers continues to be defined by the current financial

market crisis and the concomitant risk of recession or stagnation of the real

economy. For one thing, the crisis plays a dominant role in shaping the investment risks

described below, for another, changes in demand behaviour may result in growth risks.

The general risk situation is also determined by current and future changes in the legal

environment for life insurers. Gothaer is not affected by the recent court rulings on the

validity of instalment surcharges or clauses on surrender values or acquisition costs.

However, there is a risk that leading supreme court rulings will be delivered on these

issues in the future.

To minimize environmental uncertainty and any negative impacts it may have on the

business model and growth of our life insurers, it is our general policy to scrutinize

changes in the law before they take effect, analyze their implications and identify

possible alternative courses of action.

Policy reserves are calculated on the basis of decrement tables deemed adequate by

the supervisory authority and the German Association of Actuaries (DAV). Particular

importance here is attached to assessing longevity risk. In the estimation of the

Responsible Actuary, the current policy reserves provide sufficient safety margins for the

companies.

Gothaer Group Annual Report 2009 69


Management Report

Adequacy of

assumptions on

cancellation probability

(cancellation risk)

Interest rate

guarantee risk

With regard to the (supplementary) occupational disability policy portfolio, the reviews

focus particularly on verifying that policy reserves are at least equal to the reference

reserve mandated by the Federal Financial Supervisory Authority (BaFin). Because of the

higher subjective risk, the (supplementary) occupational disability policy portfolio is

analyzed on a regular basis. This shows that the bases for calculation currently applied

at Gothaer Lebensversicherung AG provide an adequate margin for safety. At ASSTEL

Lebensversicherung AG, there was a moderate need for reinstatement in policy reserves

and an additional allocation was made accordingly. In response to the new precontractual

duty of disclosure rules introduced with the VVG reform, we rendered

questions in application forms more precisely and modified risk assessment for occupational

disability policies accordingly.

New bases for the calculation of reserves for (supplementary) long-term care annuity

policies were published by the DAV at the end of 2008. We have analyzed the portfolios

of Gothaer Lebensversicherung AG accordingly and see no risks at present. However,

we will monitor the portfolios continuously. If necessary, the policy reserves will be

increased.

Cancellation probability is not taken into account in the calculation of premiums or

underwriting reserves. In recent years, cancellation behaviour at Gothaer Lebensversicherung

AG has tended to be unremarkable, mostly producing a lapse rate lower

than the market average. In 2009, however, a moderate rise was observed in the lapse

rate. We have therefore taken cancellation prevention measures. At ASSTEL Lebensversicherung

AG, the lapse rate has invariably been significantly lower than the market

average in recent years. After the lapse rate rose in 2008 due to reductions in “Riester”

premiums by customers responding to the automatic increase in premiums in the final

Riester stage, the lapse rate remained at that level in 2009 because of the financial

crisis. If there is a medium-term rise in unemployment, those developments in lapse

rates might continue. We will remain vigilant for any sign of sustained change in

cancellation behaviour. For Gothaer Lebensversicherung AG, there is also a risk of

increased liquidity being required for the cancellation of major contracts, which could

force us to realize hidden liabilities in the current capital market situation. We counter

this risk with selective key account management for major clients.

Because of the low interest rate phase for government bonds due to the financial market

crisis, coupled with the volatility and risky state of the stock and corporate bond

markets, the German life insurance industry and therefore the Gothaer Group may be

exposed to risks inherent in high interest rate guarantees, which generally extend over

several decades in the case of life insurance products.

70 Gothaer Group Annual Report 2009


Risk management

methods in the

Life segment

Management Report

The maximum actuarial interest rate since 1 January 2007 has been 2.25 %. Despite this

downturn, the unchangeable nature of figures guaranteed in policies in force results in

a state of inertia in the reduction of this risk. In addition, the margin between the

average actuarial interest rate for policies in force and the current yields realizable in

the capital market remained narrow during the course of 2009. Interest rate guarantee

risk thus remains one of the major risks for life insurers and has been heightened even

more by the low interest rate phase. We therefore make a point of ensuring that investments

are aligned with liability deadlines and thus tailored to the risk-bearing capacity

of the Company. Priority is assigned here to generating a stable long-term flow of income.

Risks associated with life insurance policies stem mainly from the guarantee of the basic

data used to calculate premiums (for interest, biometrics and costs) and the surrender

values over the whole term of the policy. Since it is generally not possible to adjust life

insurance premiums at a later date, these risks are all lessened by appropriate safety

margins in the bases for calculations.

Gothaer employs a variety of instruments to establish the nature and extent of risks

arising from life insurance policies. The main risk connected with a life insurance policy

is interest rate guarantee risk, which increases in low interest rate phases in particular.

Application of the two DAV models “Verification of Actuarial Interest for Life Insurance

Portfolios” and “Risk Assessment of Long-term Guarantees”, the GDV model used to

determine the viability of future actuarial interest rates, our own model for determining

the maximum actuarial interest rate that can be financed as well as ALM analyses, the

models of the QIS4b Solvency II impact study and our internal capital requirement model

show that Gothaer’s past and future interest rate guarantees are acceptable and

financeable. There is no interest rate guarantee risk with unit-linked life policies, except

for guaranteed annuity factors for the term of unit-linked annuity insurance.

Other risks associated with life insurance policies result from adverse changes in

mortality, longevity, invalidity and expenses as well as from a change in cancellation

behaviour. These risks are reduced, amongst other things, by appropriate reinsurance

treaties and maximized reserving at the level of guaranteed surrender values. The extent

of Gothaer’s exposure to these risks is established using embedded value sensitivity

analyses and Solvency II QIS4b impact study stress scenarios. For equal relative change,

changes in cancellation and expenses have the most impact. However, the analyses

confirm that these risks are acceptable and financeable by Gothaer.

Gothaer Group Annual Report 2009 71


Management Report

Health segment

General risk situation

Underwriting risks

As in the prior year, the market and prospects of development for private health

insurance will be defined to a large extent by the consequences of the healthcare reform

(Act to Enhance Competition in Statutory Health Insurance, GKV-WSG). For example, it

was made easier in 2009 for new customers in comprehensive health insurance to

change insurers and have part of the ageing reserve formed for them transferred to the

new insurer. This results, on the one hand, in greater portfolio volatility – also in terms

of risks – and, on the other, in higher premiums for financing the facility to change

insurers. Scrutiny of the act by the Constitutional Court produced a generally negative

outcome from the viewpoint of private health insurers, so the industry needs to adapt to

the change in the legal environment.

The social safeguard mechanisms of the basic tariff, the generous rules for persons

formerly not insured and emergency treatment even for non-payers has to be borne by

everyone with a comprehensive private health insurance policy.

So in view of the 3-year moratorium still in place on the earnings ceiling for compulsory

state health insurance, growth prospects in our core field of business – comprehensive

insurance – are generally subdued. Even so, last year did see organic growth achieved

in this segment because of favourable competitive positioning.

In supplementary insurance, on the other hand, growth prospects continue to be very

bright. Consumer purchasing power here is curbed only by incipient economic slowdown.

Nevertheless, the constant contraction of the range of statutory health insurance

benefits is creating appreciable demand for supplementary insurance. For the companies

concerned, this means having to make appropriate adjustments in terms of sales

channels, cooperations and administrative processes.

However, as a result of the ongoing difficulties in the capital markets – which are

currently marked by very low interest rates for safe investments –the earnings situation

is deteriorating. And because a large portion of the recessive profits from investment

goes to the insureds, significantly higher premiums need to be paid.

Underwriting risks include risks that arise from the composition of portfolios and from

premiums that are not commensurate with risks. The risks mentioned have a major

bearing on the ability to allocate adequate reserves for premium refunds and thus have

the funds available to lessen the impact of the development of premiums for our

customers. A particularly important role is played here by the recurrent financing of

annually granted premium limits.

We continue to counter these risks with rates based on actuarial principles, professional

underwriting and professional benefit and health management as well as by the use

of controlling tools and early-warning systems. The adequacy of loss reserves remains

subject to regular actuarial verification.

72 Gothaer Group Annual Report 2009


Risk management

methods in the

Health segment

Management Report

In view of the composition of our portfolios, attention is particularly focused on the

introduction of the basic tariff and the anticipated increase in switches from one private

insurer to another as a result of the prorata portability of ageing reserves. To keep the

reserve for premium refunds at an acceptable level despite adverse conditions, it was

necessary to modify the premium refund for claim-free clients, which will result in a

significantly reduced financial requirement. The adjustment was made in such a way

that no rise in benefit claims behaviour is anticipated.

Premiums from new business are based on mortality rates that include a safety margin

which is at least equal to that of the latest private health insurance mortality table. The

cancellation probability factors applied are based on our own duration-dependent

hospitalization studies as well as association experience. Extensive scenario computations

have been used to estimate the prorata portability of existing portfolio reserves

and reserves for new customers switching from other private health insurers and to factor

the findings into the calculation of premiums. Particular attention needs to be paid at

present to the changed procedure by which a comprehensively insured client switches

to another private health insurer. The obligation to be insured results in extensive

requirements to furnish proof, which slows down processing and thus delays balance

sheet impact.

The actuarial interest rate, one of the most important bases for calculation in private

health insurance, is dependent upon developments in the capital markets. This fact is

taken into account through the use of professional tools for analyzing investments and

harnessing the findings for a more focused investment strategy as well as by the

regular performance of stress tests and extrapolations. In view of developments in the

capital markets, however, the chance that the net target yield will not be achieved is still

elevated. Investment strategy is therefore focused on a reasonable risk-return ratio

coupled with a high probability of guaranteed actuarial interest being achieved. From

the present vantage, there is no reason to expect a reduction in actuarial interest in 2011.

Financial risks in the area of health insurance can result from the occurrence of major and

accumulation losses. These risks are taken into account by a comprehensive reinsurance

policy.

Portfolio composition, premiums not commensurate with risks, allocations to reserves

for premium refunds, recurrent financing of premium limits granted annually

We address this area of risk with professional underwriting, professional benefit and

healthcare management and other controlling instruments. With regard to portfolio

composition, special consideration is also given to the new basic tariff.

Extensive sensitivity analyses are carried out in connection with annual financial

projections in order to examine the impact on the reserve for premium refunds and the

financing of premium limits granted annually. The alternative scenarios include, among

other things, modified assumptions about benefit claims and new business.

Gothaer Group Annual Report 2009 73


Management Report

In order to test the sensitivity of the main indicators against the individual parameters,

the results of the alternative scenarios are compared with those of the basic scenario.

In addition, sensitivity analyses make it possible to portray the entire range of possible

ramifications for the Company and take early action to counter undesirable developments.

Cancellation probability

The above-mentioned sensitivity analyses are also used to evaluate exposure to cancellation

probability risk. They can be used to examine the impact of a reduction in

cancellations, for example, or to study the prorata portability of ageing reserves anticipated

in the wake of the healthcare reform. In the event of identifiable endangerment

of key financial ratios, countermeasures are taken, such as lowering the cancellation

probability used in the calculations.

Mortality rates

Sensivity analyses based on various mortality tables as well as on the Company’s latest

actual mortality figures are performed to evaluate the mortality rate risk. The mortality

figures used to calculate premiums are chosen so that a sufficient safety margin is

ensured even after allowance for mortality trends.

As in the case of insurance benefits, a change in the law in 2008 allowed changes in

mortality to trigger premium adjustments and thus promptly eliminate any imbalance

between actual and calculated figures.

Actuarial interest

Actuarial interest rate risk is addressed at the investment level with professional

analytical tools and the results obtained are systematically harnessed to optimize investment

strategy. The focus of investment activities is on achieving a secure current

average yield. This also applies to the “actuarial company yield” (Aktuarieller Unternehmenszins,

AVZ), an actuarial interest verification procedure developed by the DAV

that is carried out annually by Gothaer Krankenversicherung. The yield in investments is

also regularly subjected to stress tests and extrapolations as well as stochastic sensitivity

analyses.

Major and accumulation losses

Exposure to major and accumulation loss risk in the area of health insurance is managed

by a comprehensive reinsurance policy tailored to the specific requirements of

the Company. The adequacy of insurance protection is reviewed quarterly on the basis

of detailed reinsurance accounts, after which appropriate adjustments are made as

required.

74 Gothaer Group Annual Report 2009


Loss of receivables risk

Outstanding receivables

Receivables on assumed

reinsurance business

Management Report

For Gothaer Krankenversicherung AG, loss of receivables risk acquired a new significance

in 2009 because of the issue of non-payers, which affects the entire private health

insurance sector. Whereas under the old law non-payment of premium constituted

grounds for contract termination by the insurer, the GKV-WSG no longer allows that

sanction option in comprehensive insurance. Instead, the insurer can suspend benefit,

i.e. pay benefit only for emergency healthcare as defined in the Act. To cover the anticipated

loss of receivables, an extensive programme of measures has been drafted and

adequate provision has been made by significantly increasing the reserve for bad debt.

Accounts receivable from policyholders and insurance agents in connection with direct

written insurance business at Gothaer Allgemeine Versicherung AG, Gothaer Lebensversicherung

AG, Gothaer Krankenversicherung AG and ASSTEL Lebensversicherung AG

totalled €180.4 million at balance sheet date. This figure includes valuation allowances

that take adequate account of the risk of possible loss of receivables. The following table

shows the age structure of the receivables handled by our central collection systems.

Outstanding for more than €million

90 days 88.7

180 days 56.0

360 days 27.0

The average collection loss (unsuccessful court orders) in the last three years was

€5.9 million, which represented an average of 1.6 ‰ of gross premiums written.

We cede reinsurance only to first-class reinsurers. 52 % of our reinsurance premiums are

ceded to reinsurers with a rating of AA- or better. Accounts receivable in connection with

reinsurance business totalled €48.0 million at balance sheet date. Accounts receivable

in connection with reinsurance ceded amounted to €45.9 million. The structure of receivables

from reinsurers by rating class was as follows:

Breakdown by rating category €million

AAA 0.0

AA 15.3

A 21.0

BBB 0.9

Gothaer Group Annual Report 2009 75


Management Report

Investment risks

Companies with no rating accounted for €8.7 million of accounts receivable from

reinsurers. The sharp increase in the figure in comparison to prior years is due to a major

treaty with a reinsurer furnishing a loss reserve deposit. As a result of our security policy,

loss of receivables in past years has been insignificant.

The investment portfolio is designed to meet all of the Gothaer Group’s current and

future payment obligations. The risks associated with it are limited by systematic

compliance with regulatory requirements (e.g. BaFin stress tests), which are seen only

as minimum risk management requirements, and with the use of modern controlling

systems. All major investment risks are identified, measured, monitored, reported and

managed within the context of risk management. To improve its risk/earnings ratio, the

Gothaer Group attaches a great deal of importance to diversification of investment in

terms of mix and spread. The prime focus of this investment management is risk-bearing

capacity, which is established on the basis of internal models and Asset Liability

Management (ALM).

The wide range of ALM concepts employed at Gothaer includes stochastic risk models

such as ALM projections, asset-only analyses as a module of the early-warning system

within the Group as well as stochastic support for net target yield and surplus statement

planning. These analyses from different perspectives form the basis for the regular

verification and adjustment of strategic asset allocation.

In addition, key business ratios are analyzed with the help of empirical distributions and

shortfall probabilities. These ratios show, among other things, net and market value

yield, hidden asset-side net reserves, uncommitted reserves for premium refunds and

the own funds ratio.

Regularly defined individual scenarios are also examined. The basis is formed by a

scenario that is deemed highly likely to occur. Furthermore, analysis is extended to

critical scenarios that are identified in the course of the stochastic evaluation of results.

76 Gothaer Group Annual Report 2009


Market change risks

Management Report

Stochastic indicator-based risk measurements are also used to establish probabilities

of failure to achieve investment result targets at the end of the year. The probabilities are

the result of a simulation of market value development and earnings generated by the

major investment classes based on the Group’s own performance expectations for the

year ahead. Other models such as our own capital requirement model or the QIS study

models for Solvency II are also used.

Systematic further development of the risk models used also promotes a sustainable

increase in risk-bearing capacity. In addition to risk restrictions required by the supervisory

authority, special investment guidelines (compliance) are applied to monitor

internal risk limits.

The following three types of risk are monitored and managed within the investment

management system described.

Market change risk is the risk of financial loss due to changes in market prices. Market

change risk can be influenced, for example, by changes in prices, spreads, volatilities,

correlations or even illiquidity in the market. Market change risk management is supported

by regular computations based on the use of stochastic and deterministic

models. Sensitivity analyses are developed to measure risk potential. The investment

portfolio, which is particularly susceptible to market change risk, is also subjected to

stress scenarios. The results of the individual sensitivity analyses are shown in the stress

scenario impacts on equity table.

Interest change risk

Interest change risk is the risk of a change in the risk-free interest rate and any consequent

negative impacts on the market value of interest-bearing instruments. As a result

of systematic gearing to Asset Liability Management, market value is ensured by the fact

that interest change risks for the Gothaer Group are primarily viewed against the backdrop

of the life of liability-side obligations. The resulting asset-side curb on the interest

change limit is reflected in the internal (target) limits for duration. Another tool used is

tactical duration management, which allows portfolio management – within a defined

context – to exploit short-term opportunities arising from changes in interest rates.

Interest change risk is measured, reported and managed by Risk Controlling in the form

of modified duration calculations performed on portfolios and individual securities

within the framework of internal duration reporting.

Gothaer Group Annual Report 2009 77


Management Report

Reinvestment risk

When interest rates fall, there is a risk that funds can only be reinvested at a lower rate

of interest. Gothaer limits this reinvestment risk by the use of ALM and duration

analyses. In ALM analyses, reinvestment risk is taken into account in the stochastic

models. Possible impacts can be identified in the attainment probabilities of the target

variables (e.g. net yield or solvency). The outcomes of the analyses performed in recent

years show that, because of the even spread of maturities over the years, reinvestment

risk does not reach problematical proportions in any of the years projected. Gothaer

counters reinvestment risk by active portfolio management. The primary focus here is

on careful selection of the maturity structure of the bond portfolio, which is managed

by taking into account derivatives, interest structures and quantitative approaches (e.g.

trend-following models).

Price risk

Price risk is the risk of market value being lost as a result of adverse changes in share,

stake, hedge fund and property prices. Price risk management involves, amongst other

things, continuous intensive observation of concentrations at industry, regional and

issuer level. It also involves limiting and monitoring exposure in the individual asset

classes on the basis of internal (target) limits which reflect the results of the annual ALM

analyses and which, when observed, guarantee the risk-bearing capacity of the individual

companies. Asset classes exposed to a heightened price risk are not only

subjected to sensitivity analysis; they are also monitored in stress tests.

For unexpected developments, individual company hedging concepts (e.g. share

options) can be implemented to ensure a risk-adequate response to short-term

fluctuations and, in extreme cases, limitation of the losses that occur. These hedging

concepts are constantly reviewed in the light of market developments and adjusted as

required.

Share price risk was minimal in the Gothaer Group at balance sheet date because both

a large portion of the liquid share portfolio and the corresponding hedge were liquidated

at the beginning of 2009.

In the wake of the financial market crisis, property markets are currently in an abnormal

state in many international submarkets. Transaction volumes are only a fraction of what

they were in past. As a result of the present weakness of the market, many sales do not

take place voluntarily; in numerous cases, they are due to extraordinary constraints,

such as breaches of covenants in loan agreements. To that extent, the markets are

currently functioning under restrictions.

78 Gothaer Group Annual Report 2009


Management Report

The transaction prices for property achieved in the forced sale transactions observed at

present – especially in international markets – are considerably lower than long-term

average prices and thus cannot be used unreservedly for balance sheet reporting as

reference values for establishing the fair values of long- and medium-term property

investments. Property participations held as long-term investments are valued, in some

cases, on the basis of their capitalized earnings values established by the discounted

cash flow method. The computed values are based on normalized market parameters

substantiated over the medium term and, in some cases, are above the property values

established on the basis of current, inefficient transaction prices.

Exchange rate risk

Exchange rate risk is the risk presented by adverse changes in currency exchange rates.

The existing exchange rate risk is almost entirely hedged at company level by foreign

exchange forward contracts. Hedging is performed in a rolling programme for each

currency. The following chart shows exposure per currency in euros and the relevant

market value in foreign currency at the end of the year. Set against the latter but not

shown in the table are more or less equal volumes of foreign exchange forward contracts

concluded as hedges.

Breakdown by foreign currency €million

Market values in €

Market values

in nominal currency

2009 2008 2009 2008

US dollar 673.8 631.8 1,100.6 860.7

Pound sterling 263.3 158.7 234.0 145.1

Swiss franc 4.4 6.1 6.6 8.7

Other currencies 14.2 5.9 various various

Considering the hedges in place, a change of 1 % in the individual exchange rates would

thus result in only insignificant changes in the market values of the aggregate foreign

currency positions.

Gothaer Group Annual Report 2009 79


Management Report

Counterparty

default risk

Interest-bearing

financial instruments

Counterparty default risk is the risk that arises as a result of default or as a result of a

change in the credit rating or assessment of creditworthiness (credit spread) of security

issuers, counterparties and other debtors with accounts payable. In addition to regulatory

monitoring, counterparty default risk is limited and monitored by reference to internal

investment ceilings.

For risk management purposes, the acquisition of any investment vehicle is permissible

only if a qualified assessment of creditworthiness by an external agency such as

Standard & Poor’s or Moody’s or a qualified internal rating is available. Internal ratings

are used only where no rating has been issued by an external agency. Credit risks are

broadly spread to avoid concentration risks. All investments are constantly monitored in

this regard on the basis of regulatory requirements.

The interest-bearing financial instruments held by the insurance carriers in the Gothaer

Group are divided into two categories for risk management purposes: “liquidity” and

“credit”. The distinction here is whether an instrument presents only an interest risk or

whether an additional credit risk exists because of the solvency of the issuer. So where

a financial instrument entails no or only a minimal default risk, it is assigned to the

“liquidity” category. This is the case, for example, with German government bonds

(bunds) and senior secured covered bonds (pfandbriefe). The balance sheet book values

of our interest-bearing financial instruments can be regarded as an equivalent for the

maximum default risk of the Gothaer Group.

The table below shows the market value of interest-bearing financial instruments

assigned to the “liquidity” and “credit” categories by rating class, as managed and

monitored in the Gothaer Group. Retail funds are not included.

Breakdown by rating category Share in %

2009 2008

AAA 45.7 48.3

AA+ 7.3 5.0

AA 3.3 3.2

AA– 6.1 9.7

A+ 5.6 4.8

A 7.2 9.7

A– 6.0 5.0

BBB+ 5.7 5.1

BBB 2.3 2.6

BBB– 3.9 1.7

Speculative grade (BB+ to D) 5.8 3.6

Non-rated 1.0 1.3

The diagram below shows the market value of the financial instruments assigned to the

“liquidity” and “credit” categories.

80 Gothaer Group Annual Report 2009


Interest-bearing

financial instruments

breakdown by liquidity

and credit

Financial year 2009

Financial year 2008

54.5 % Liquidity

45.5 % Credit

57.0 % Liquidity

43.0 % Credit

Management Report

In certain parts of the bond market, especially in the market for subordinate bank and

insurance bonds (Tier 1 and Upper Tier 2), no trading was conducted after the fourth quarter

of 2008. Because the listed prices of these illiquid bonds were no longer the result of

an active market with willing partners engaged in arm’s length transactions, a switch was

made to mark-to-model valuation in line with IAS 39.AG74 in order to price the bonds as

required. In the course of modelling, cash flow profiles based on internal credit analysis

were created to take account of the anticipated coupon losses and their possible repayment

in future years. These individual payment streams were adequately discounted by

applying factors observed in the market and carried as fair value. In 2009, however, the

bulk of these bonds were again valued on the basis of market prices because there is

again an active market for them.

At year-end, fixed-income securities accounted for around 77% of the investment portfolio

on the basis of market value. In the area of bearer bonds, without taking account of

retail funds, financials (unsecured/subordinate bonds issued by banks, insurers or

financial service providers) accounted for around 9 % of total investment and corporates

(unsecured/subordinate bonds issued by companies) for around 10 %.

Gothaer Group Annual Report 2009 81


Management Report

Shares

Because of the sharp reduction of credit spreads and illiquidity premiums, the fixedincome

portfolio showed a marked improvement in unrealized gains and losses in

comparison to the prior year. Due not only to the recovery of markets in the second half

of the year, this was also a consequence of restructuring measures in the credit sector.

The unrealized losses that still exist are primarily due to subordinate financials. In the

wake of the financial crisis, special impairment analyses were performed for critical investments.

The individual investments identified were written down to their recoverable

amount.

In view of the still smouldering economic crisis, it is expected that interest will remain

unpaid on certain subordinate bank bonds in the coming financial year. The unpaid

amounts are anticipated in the model price calculations and were recognized in income

in the financial year under review.

Risk concentrations

The Gothaer Group manages concentration risks in line with BaFin Circular 15/2005 by

ensuring a broad mix and spread of investment. It also monitors concentrations of risk in

accordance with Sec. 104i of the German Insurance Supervision Act (VAG). Alongside

supervisory regulation, concentration risk is additionally limited by our internal limit

system, which ensures that concentrations at issuer level cannot occur on a significant

scale. The tables below show the financial risk concentrations in the form in which they

are monitored and managed in the Gothaer Group. Distinctions are made between rating

class (see table under Counterparty Default Risk), sector, country and issuer concentrations.

In aggregating risk concentrations, we adopt the same segmentation practices

as independent data providers such as iBoxx.

Breakdown by sector Share in %

2009 2008

Banks 0.5 11.0

Chemicals 2.4 5.1

Commodities 2.5 0.0

Financial services 2.8 0.7

Healthcare 2.6 0.6

Household goods 10.4 0.5

Industrial goods & services 9.2 4.5

Insurance 37.7 10.9

Oil & gas 0.0 16.3

Plant and mechanical engineering 10.8 2.1

Technology 4.8 4.8

Telecommunications 0.2 9.6

Travel and leisure 2.5 0.0

Utilities 0.1 12.9

Other 8.8 17.5

No sectoral assignment 4.7 3.5

82 Gothaer Group Annual Report 2009


Shares

Liquidity risk

Management Report

Breakdown by country Share in %

2009 2008

Austria 1.5 0.0

Belgium 1.9 0.1

Finland 0.0 3.1

France 4.6 30.1

Germany 62.6 33.8

Ireland 1.4 0.0

Italy 0.1 8.2

Netherlands 6.6 5.6

Spain 1.4 12.9

Switzerland 3.4 0.9

UK 10.4 3.5

Other 6.1 1.8

Liquidity risk is the risk of a company being unable to fulfil its financial obligations

entirely or on time because of a lack of adequate funds. Comprehensive Group-wide liquidity

management ensures that the necessary liquidity is always available, even when

liquidity requirements peak, and that timely adjustments can be made during the year

through the disposal of marketable securities. The high percentage of government bonds

with the highest liquidity as well as the broad spread of investments in our portfolio

ensure adequate long-term liquidity. This means we can meet our liability-side obligations

at any time with asset-side liquid and liquidable funds. No liquidity bottlenecks

occurred during 2009. At balance sheet date, around 3 % of directly held investments

could be liquidized at short notice to address any liquidity bottlenecks.

Substantive payment obligations arising from real estate commitments (around €381

million) have been included in liquidity planning for the financial year 2010. Budgets for

capital redemption operations continue to be taken into account within the framework of

liquidity planning. In line with prior-year developments, a liquidity surplus is anticipated

over the year as a whole.

The maturity dates and residual terms of liabilities are shown at number 24 in the Notes

to the Consolidated Financial Statements.

Gothaer Group Annual Report 2009 83


Management Report

Scenario analysis

and stress scenarios

Stress scenario

Stress scenarios

The Gothaer Group companies satisfy all four variants of the stress test prescribed by the

Federal Financial Supervisory Authority (BaFin). Based on data from financial statements,

these stress tests simulate very negative capital market changes – sometimes for both

shares and fixed-income securities or investment property – and examine the impact on

the insurer’s financial statements. The target horizon is the next reporting date. Surplus

cover – even in this exaggerated stress scenario – indicates the risk-bearing capacity and

stability of the Gothaer Group insurance companies.

Scenario analysis

In scenario analysis, the risks defined above are quantified and aggregated on the

basis of the year-end value of the portfolio. Sensitivity analysis pursuant to the German

accounting standard DRS 5-20 produced the following figures for the Gothaer Group.

An increase of 100 basis points in the interest curve reduced the market value of fixedincome

securities by €826.8 million in comparison to the year-end value of the portfolio.

An isolated parallel 100-basis-point rise in the spread curve reduced the market value of

the bond portfolio susceptible to credit risk by €375.3 million. Taking into account

hedging measures, a decrease of 20 % in trading prices resulted in a fall in market value

of €354.3 million in the case of shares and other non-fixed-income financial instruments.

A decrease of 10 % in the market value of the property investments of the Gothaer Group

represents €171.4 million. The following table shows the possible change in equity

assuming the above sensitivities.

Impact on equity €million

Decrease

in market value

Change in equity not

recognized in

statement of income

of income

Change in equity

recognized in statement

of income

2009 2008 2009 2008 2009 2008

Fixed-income securities

(interest change risk) 826.8 836.7 54.2 34.8 0.0 0.0

Fixed-income securities

susceptible to credit risk

(counterparty default risk) 375.3 346.4 19.0 14.9 0.0 0.0

Shares and other

non-fixed-income financial

instruments (price risk) 354.3 362.6 0.0 0,0 133.7 125.4

Property (price risk) 171.4 160.1 23.6 22.2 0.0 0.0

Total 1,727.8 1,705.8 96.8 71.9 133.7 125.4

84 Gothaer Group Annual Report 2009


Operational and other risks

Management Report

Information and communication technology (ICT) is an indispensable tool for an insurance

company and, due to the increasing importance of process support and automation,

plays a central role in Gothaer Group risk management. Owing to growing dependence

on ICT, security mechanisms have been systematically improved and stabilized in

recent years. We also guarantee compliance with the provisions of the German Federal

Data Protection Act (Bundesdatenschutzgesetz) and protect business-critical applications

by using a business continuity management process that not only ensures technological

integrity but also safeguards critical business processes.

Foreseeable changes in population demographics and the current financial market crisis

will produce significant human resource risks. Mention should be made here of the “war

for talent” and the resultant risks in terms of scarcity, departure, motivation, adaptation

and loyalty as well as market developments due to the financial market crisis that are not

yet predictable. Coordinated HR information and management systems guarantee that

quantitative and qualitative hazard potentials are promptly identified and countered with

appropriate measures. Prospects for personal development in combination with competitive

performance-based incentive instruments help us ensure that employees remain

motivated even in times of constant change and that high performers and individuals

with high potential are retained.

To ensure the regulatory compliance of the financial statements, we have set up

accounting controls and other organizational rules such as accounting principles, time

scheduling and monitoring and clear assignments of responsibility for accounting

systems and data interfaces. The units involved in the reporting process continue to be

integrated in the Gothaer Group risk management system. General observance of the

“four-eyes” principle, clear regulation and verification of authority as well as clear

assignment of responsibility for bookkeeping systems are key elements of the internal

monitoring system. Verification of these elements is performed by the Internal Auditing

unit. Another example of an organizational arrangement is the separation of accounting

and preparation of financial statements. Changes in accounting rules are met by constant

further development and training of employees.

By keeping abreast of legislative activity and current case law, we are able to respond

promptly to developments and implement change immediately according to the specific

circumstances of the Company.

Internal guidelines and checks are in place – and their observance regularly monitored –

to prevent life insurance or refund-of-premium accident insurance being used to launder

money or finance terrorism.

Gothaer Group Annual Report 2009 85


Management Report

Summary of the risk situation

The own funds of €1.4 billion derived from the group equity of the Gothaer Group exceed

the amount needed to meet solvency requirements by €447.6 million.

In 2009, Standard and Poor’s confirmed its A- (very good) financial strength ratings for

Gothaer Allgemeine Versicherung AG, Gothaer Krankenversicherung AG and Gothaer

Lebensversicherung AG and FitchRatings again gave A (very good) ratings for Gothaer

Allgemeine Versicherung AG and Gothaer Lebensversicherung AG.

The control mechanisms, instruments and analytical processes described above ensure

effective risk management. At the present time, we see nothing in the risk situation of

the individual Group companies that might jeopardize the fulfilment of commitments

assumed under insurance contracts.

86 Gothaer Group Annual Report 2009


Outlook

General economic outlook

Gothaer Group

Property/Casualty segment

General situation

Outlook

Management Report

Despite the gradual economic recovery, the economic environment remains difficult for

the German insurance industry in 2010. Growth estimates for the year at present are

between 1 % and 2 %. As a result of sustained high unemployment and growing inclination

to save, private household demand is expected to play a particularly active role

in slowing down the recovery process and presenting insurers with major challenges.

The future development of the Gothaer Group will be largely defined by its core fields of

business, i.e. the Property/Casualty, Life and Health segments. Because these segments

have both shared and separate environments, the prognosis in terms of opportunities

for future development is made on the basis of these segments.

Despite the moderate economic growth anticipated and the consequent stabilization of

the German economy, the sharp downturn in economic performance in 2009 is expected

to impact on the development of premiums within the insurance sector in 2010. The scope

for growth in non-life insurance is limited in equal measure by price competition – which

has been at a ruinous pitch in some lines of insurance for years – and high market

saturation. Overall, premium revenues from property/casualty insurance are forecast to

be 0.5 % lower in 2010 than last year.

Once again, the downturn in automotive insurance – the largest line in the Property/

Casualty segment – will be sharper than in the market as a whole. After a fall of –1.5 % in

2009, premium volume here is expected to contract by –1.0 %. This is due to waning

demand and migration to more favourable no-claims categories coupled with prices that

are tending to stagnate.

In the light of economic developments, premium revenues in industrial and commercial

property and liability insurance are expected to decline. Policies with premiums based on

turnover (liability, consequential loss and marine policies) will particularly be affected

here. Positive premium growth is anticipated in private property insurance and legal

expenses insurance, making private households a major source of premium income for

property/casualty insurers in 2010.

The consequences of the economic and financial crisis will have a dampening effect on

the development of property/casualty premiums in 2010. For example, the larger number

of insolvencies in Germany could increase client loss. A reduced inclination to invest on

the part of clients will also present an obstacle to growth. Moreover, a change in purchasing

behaviour can be observed among our clients, especially in lines such as marine

or engineering insurance.

Gothaer Group Annual Report 2009 87


Management Report

In view of falling sales figures and reduced payroll expenses, we anticipate decreases in

premium income (premium shortfalls) in lines of insurance where premiums are based on

turnover. These include liability, marine and, to a certain extent, property consequential

loss insurance. Because of reporting delays, the real impact of this development will not

be felt until 2010. Investments may also be postponed, so impacts on turnovers are also

anticipated here.

Premium income is therefore expected to fall in corporate client business, especially in

the liability segment, which is our largest single line of insurance. We will counteract this

development with various profit-oriented measures, such as more intensive client

bonding and a policy of non-engagement in highly exposed risks.

The focus continues to be on medium-scale corporate client business. Market positioning

– especially for renewable energy and multiple-risk product business – will be

further enhanced in the medium term.

In the private client segment, we anticipate impacts due to persistent price competition

and market saturation. As in 2009, this development will be boosted significantly again

in 2010 by competition in private automotive business.

A strategy of “Growth with Safeguards for Required Earnings” is pursued in the private

client segment by adhering to a systematic underwriting policy and ensuring constant

portfolio management. At the same time, we continue vigorously to pursue a dual product

and price strategy. In each line of insurance, we set out to offer a basic product that is

priced to be well to very well positioned in ratings and test reports. We are also adding a

new accident product to our range of premium products, which offer high performance

solutions for the client.

We also operate as a direct insurer in the Property/Casualty segment under the ASSTEL

brand. In 2010, we expect the direct insurance market to grow faster than the market as

a whole. The number of people using the Internet for consumer purchasing is steadily

growing.

The “Xynthia” storm toll will impact on the underwriting results of the industry in the

financial year 2010. The earnings of the Gothaer Group in the Property/Casualty segment

will not be significantly affected.

With underwriting results recessive and investment result largely constant, net profit in

this segment in 2010 and 2011 is expected to reach a level that can be described as

sound, especially against the backdrop of the economic and financial crisis.

88 Gothaer Group Annual Report 2009


Life segment

General situation

Outlook

Management Report

The impacts of the financial and economic crisis on the real economy and the resulting

sustained reluctance of broad sections of the population to make long-term investments

will continue to define business for classical life insurers in 2010.

However, with a combination of security, guarantees and yield, life insurance products

continue to be competitively positioned in the private financial investment sector. With

single-premium business growing in importance in recent years, the products concerned

have stepped up their impact on the performance of life insurance as a whole. Whether

and at what level there will be a repetition of last year’s marked increase in 2010 is highly

uncertain. In contrast to single-premium business, the imbalance between the growth

rates of new contract conclusions and regular contract maturities is generally hampering

the development of premiums – even though no further marked rise in cancellations is

anticipated as a consequence of the financial market crisis.

Assuming the volume of single-premium business is unchanged, this is forecast to result

in a 3 % downturn in premium income in 2010.

Because of the environment described above, we anticipate a temporary impairment of

production in 2010 in insurance protection, pension strategy and wealth creation. On a

positive note, however, it should be stressed that our clear positioning in the company

pension scheme market as well as our biometric and unit-linked products have earned us

a very good reputation, so growth potential will be tapped here.

Due to the planned downturn in premium income, mainly as a result of reduced singlepremium

production, there is an urgent need for further optimization of operational and

cost structures coupled with an improvement in service quality and marketability.

Appropriate measures have been initiated accordingly.

In addition, there is every likelihood that the lapse rate will fall again as the result of a

range of portfolio maintenance measures.

Given our early response to Solvency II norms, we are planning for only a moderate rise

in net yield. Accordingly, we have significantly lowered the surplus statement for 2010 to

strengthen our capital base. However, current competitive comparisons show that our

products remain marketable.

Gothaer Group Annual Report 2009 89


Management Report

Health segment

General situation

Under the ASSTEL brand, we also operate in the Life segment as a direct insurer. In our

estimation, the direct market is developing more dynamically than the insurance market

as a whole. To increase our market share here too, we will respond to the anticipated

expansion of the market with selected top quality products and prime ratings.

The earnings and financial position of the Gothaer Group in the Life segment will develop

positively in the coming years. We anticipate rising gross profits, in which our clients, in

particular, will participate.

The development of private health insurance business is largely dependent on the

political and legal environment. With the new federal government elected at the end of

2009, the environment expected for the present parliamentary term is significantly

better for the private health insurance industry.

Experience has shown that the impacts of reform are not likely to be felt until future years,

no major changes are anticipated in the ratio of statutory to private health insurance.

One positive stimulus in 2010 should stem from the fact that the three-year moratorium

on switching to private health insurance introduced in 2007 ends for the first qualifying

candidates on 2 February 2010. State-insured employees whose earnings exceeded the

ceiling for compulsory state insurance for the first time in 2007 and did so again in 2008

and 2009 can switch to private health insurance.

The improved tax deductibility of health and long-term care premiums under the German

Citizens Relief Act (Bürgerentlastungsgesetz) may also impact positively on the development

of business. This makes a switch to private health insurance significantly more

attractive, especially for voluntary holders of statutory insurance, who currently benefit

from contribution-free family insurance. In private health insurance, a separate premium

still needs to be paid for each member of the family but the premiums can now largely be

set against tax.

Because of the financial and economic crisis, the development of business in supplementary

insurance in 2010 is likely to be somewhat more moderate than in past years.

Overall, premium income from private health insurance is expected to increase by 5 % in

2010, although most of the upturn will be due to premium adjustments resulting from

rising healthcare costs.

90 Gothaer Group Annual Report 2009


Outlook

General

Management Report

One major focus in 2010 will be on maintaining the growth rate that has now been

restored. Accordingly, we plan to increase premium revenues steadily in the years ahead.

Our marketing strategy, which was revised last year, will therefore be systematically

maintained and implemented in four defined submarkets (market segments) addressed

with different sub-strategies.

In the classical comprehensive and supplementary health insurance market – the first

market segment – 2009 furnished impressive evidence that Gothaer can still realize

considerable growth on the basis of its very competitive range of products. Supplementary

insurance business will be further increased via the second (collective business

with corporate clients) and fourth (direct/retail cooperation) market segments. The third

market segment is the private/statutory convergence market.

The strategy of cooperating with statutory health insurance schemes will continue to be

pursued intensively. After 2009, which was an exceptional year, we are planning for a

reduced volume of new business in 2010. The main reason for this is that the recent

change in the scales for no-claims premium refunds and the higher premium adjustment

in comparison to past years may give rise to temporary caution on the part of individual

sales partners. Against this backdrop, we note a very satisfactory start to the year for new

business. The total projected volume of new business will suffice to realize the premium

growth target for 2010.

On the earnings side, the focus continues to be on stabilizing profitability at the level

achieved. Despite a market-wide rise in healthcare costs, we are planning for a relatively

constant loss ratio. Because of the reduced volume of new business, the cost ratio is

likely to be moderately recessive. Our sights are thus set on a relatively constant development

of the underwriting profit ratio. Overall, we anticipate a balanced risk result, so the

safety margin will be available in full as a source of income.

For 2010 and 2011, we anticipate a return to rising net yields from investments. This will

impact positively on the development of gross profit.

No transactions or events of special significance occurred after the reporting date.

The forecasts and assessments of future business development contained in this Annual

Report are provided on the basis of what is known at the present time. Economic

developments, upheavals in financial markets, changes in legal, tax and demographic

conditions as well as changes in the competitive environment may cause the parameters

underlying the forecasts to develop differently.

Gothaer Group Annual Report 2009 91


Consolidated Financial Statements

92 Gothaer Group Annual Report 2009


Gothaer Group Annual Report 2009 93


Consolidated Financial Statements

Consolidated Statement of Financial Position

Assets

€million

Notes 2009 2008 Opening

balance

sheet

2008

A. Intangible assets

I. Goodwill [1] 25.1 25.1 25.1

II. Other intangible assets [2] 135.7 127.7 98.2

Total A. 160.8 152.8 123.3

B. Tangible assets

C. Investments

[3] 195.1 207.7 209.3

I. Investment property [4] 89.7 92.9 113.2

of which: in disposal groups 0.0 0.0 15.9

II. Shares in affiliated and associated companies

1. Shares in affiliated and associated companies

[5]

– non-consolidated

2. Shares in associated companies

1,459.9 1,402.0 1,219.7

– carried at equity 70.3 70.7 80.8

Total II. 1,530.2 1,472.7 1,300.5

III. Investments held to maturity [6] 2,280.7 2,802.7 2,197.5

IV. Loans [7] 6,994.7 7,011.9 6,332.9

V Investments available for sale [8] 10,831.0 8,251.4 10,899.3

VI. Investments measured at fair value through profit or loss [9]

1. Held for trading 62.9 408.9 439.0

2. By designation 7.3 3.1 3.0

Total VI. 70.2 412.0 442.0

VII.Other investments [10] 788.6 1,407.6 600.5

Total C. 22,585.1 21,451.2 21,855.9

D. Investments held for unit-linked life insurance policies

E. Receivables

1,124.7 904.1 1,095.6

I. Receivables from primary insurance business

1. from policyholders 108.1 160.8 138.5

2. from intermediaries 98.1 90.1 78.5

Total I. 206.2 250.9 217.0

II. Other receivables 630.6 588.1 610.3

Total E. [11] 836.8 839.0 827.3

F. Cash and cash equivalents 247.0 274.6 361.0

G. Reinsurers’ share of underwriting reserves

I. Unearned premiums 89.7 79.2 62.2

II. Policy reserves 1,307.0 1,327.0 1,357.1

III. Reserves for unpaid claims 448.9 501.7 515.9

IV. Other underwriting reserves –8.6 –5.5 5.8

Total G.

H. Reinsurers’ share of underwriting reserves for unit-linked

1,837.0 1,902.4 1,941.0

life insurance policies 0.0 0.0 1.3

I. Deferred acquisition costs

I. Gross 1,052.9 1,036.9 1.027.8

II. Reinsurers’ share 69.0 71.0 80.1

Total I. [12] 983.9 965.9 947.7

J. Tax assets

I. from current taxation 128.6 123.1 110.8

II. from deferred taxes 360.4 326.2 255.0

Total J. [13] 489.0 449.3 365.8

K. Other assets [14] 9.7 10.8 13.4

Total assets 28,469.1 27,157.8 27,771.6

94 Gothaer Group Annual Report 2009


Equity and liabilities

Consolidated Financial Statements

€million

Notes 2009 2008 Opening

balance

sheet

2008

A. Equity

I. Revenue reserves 969.9 906.5 774.9

II. Other reserves

III. Consolidated net profit for the year attributable to

[15] 22.5 –26.4 140.8

shareholders of the parent company 74.6 62.1 131.2

Total I.–III. (Group equity) 1,067.0 942.2 1,046.9

IV. Minority interests [16] 32.5 35.6 44.4

Total A. 1,099.5 977.8 1,091.3

B. Gross underwriting reserves [17]

I. Unearned premiums [18] 464.9 431.5 379.1

II. Policy reserves [19] 17,709.8 16,774.1 16,160.6

III. Reserves for unpaid claims [20] 2,234.6 2,262.4 2,319.6

IV. Other underwriting reserves

of which: reserves for deferred premium refunds

[21] 1,781.8 1,589.3 2,342.6

in disposal groups 0.0 0.0 –6.1

Total B.

C. Gross underwriting reserves for unit-linked

22,191.1 21,057.3 21,201.9

life insurance policies

D. Other accruals

1,124.7 904.1 1,095.6

I. Provisions for pension benefits and similar obligations [22] 306.3 299.4 293.6

II. Other accruals [23] 113.9 110.0 122.4

Total D.

E. Liabilities

420.2 409.4 416.0

I. Participation certificates 35.0 35.0 96.4

II. Subordinate liabilities 264.7 264.7 264.7

III. Bonds and loans

IV. Liabilities from primary insurance business

187.6 199.7 223.4

1. towards policyholders 805.0 859.2 987.5

2. towards intermediaries 32.1 32.0 26.7

Total V. 837.1 891.2 1,014.2

V. Other liabilities 1,729.7 1,845.3 1,801.8

Total E. [24] 3,054.1 3,235.9 3,400.5

F. Tax debts

I. for current taxation 167.6 151.1 154.5

II. for deferred taxes 411.9 422.2 411.8

Total F. [25] 579.5 573.3 566.3

Total equity and liabilities 28,469.1 27,157.8 27,771.6

Gothaer Group Annual Report 2009 95


Consolidated Financial Statements

Consolidated Statement of Comprehensive Income

I. Statement of income (recognized through profit or loss)

1. Premiums written

a) Gross 4,248.6 4,039.4

b) Reinsurers’ share 380.6 400.9

[26] 3,868.0 3,638.5

2. Change in unearned premiums

a) Gross –33.5 –52.0

b) Reinsurers’ share –10.6 –16.9

[26] –22.9 –35.1

3. Savings components

a) Gross 483.1 562.2

b) Reinsurers’ share 0.1 2.0

[26] 483.0 560.2

4. Net premiums earned [26] 3,362.1 3,043.2

5. Investment result [27] 671.4 711.6

of which: income from associated companies 21.6 22.4

6. Income from investments held for unit-linked

life insurance policies [27] 179.2 –368.5

7. Other income [28] 144.0 136.4

Total income 4,356.7 3,522.7

8. Policyholder benefits

a) Gross 3,598.6 2,678.9

b) Reinsurers’ share 215.3 242.7

[29] 3,383.3 2,436.2

9. Underwriting expenses

a) Gross 758.4 786.8

b) Reinsurers’ share 110.1 110.1

[30] 648.3 690.8

10. Other expenses [31] 259.4 254.3

Total expenses 4,291.0 3,381.3

11. Operating result 65.7 141.4

12. Financing expenses 25.1 30.9

13. Taxes on income [32] –35.7 45.8

14. Net profit for the year 76.3 64.7

of which attributable to shareholders of the parent company 74.6 62.1

of which attributable to minority interests

II. Other comprehensive income (recognized directly in equity)

1.7 2.6

15. Unrealized gains and losses on investments [33] 51.7 –169.0

III. Comprehensive income 128.0 –104.3

of which attributable to shareholders of the parent company 123.5 –105.1

of which attributable to minority interests 4.5 0.8

* Comparatives after restatement

€million

Notes 2009 2008*

96 Gothaer Group Annual Report 2009


Statements of Changes in Equity

Group equity

Revenue

reserves

Other

reserves

Consolidated Financial Statements

Consolidated

profit

for the year

Minority

interests

€million

As a mutual insurance association, the Group parent, Gothaer Versicherungsbank VVaG,

has no subscribed capital. Equity is generated exclusively through retention of earnings.

Gothaer Group Annual Report 2009 97

Total

Balance as of

1 January 2008 774.9 140.0 131.2 44.4 1,091.3

Allocation to revenue

reserves 131.2 0.0 –131.2 0.0 0.0

Comprehensive income 0.0 –167.2 62.1 0.8 –104.3

Dividend 0.0 0.0 0.0 –7.8 –7.8

Other 0.4 0.0 0.0 –1.8 –1.4

Balance as of

31 December 2008 906.5 –26.4 62.1 35.6 977.8

Allocation to revenue

reserves 62.1 0.0 –62.1 0.0 0.0

Comprehensive income 0.0 48.9 74.6 4.5 128.0

Dividend 0.0 0.0 0.0 –7.6 –7.6

Other 1.3 0.0 0.0 0.1 1.4

Balance as of

31 December 2009 969.9 22.5 74.6 32.5 1,099.5


Consolidated Financial Statements

Statement of Cash Flows

€million

2009 2008*

Net profit for the year** 76.3 64.7

Change in underwriting reserves 836.8 555.7

Change in underwriting reserves for unit-linked life insurance policies 220.5 –190.3

Change in deferred acquisition costs –18.0 –18.2

Change in deposits retained on assumed business/received from

reinsurers and receivables/liabilities in connection with reinsurance

business –17.9 –13.8

Change in investments measured at fair value through profit or loss 88.6 125.8

Change in other receivables and other liabilities –105.5 –200.5

Change in deferred tax assets and deferred tax liabilities –73.8 –15.5

Change in other balance sheet items 27.6 –30.9

Realized gains and losses on investments –55.0 –178.1

Correction for investment result and expenses

without cash inflows/outflows 116.6 822.3

Correction for other income and expenses

without cash inflows/outflows 68.1 67.2

Cash flow from operating activities 1,164.3 988.4

Cash outflows for the purchase of consolidated companies 0.0 0.0

Cash inflows from the disposal of consolidated companies 0.0 0.0

Cash outflows for the purchase of other investments –11,385.1 –4,897.3

Cash inflows from the disposal of other investments 10,186.5 4,073.8

Change in investments for unit-linked life insurance policies 90.7 –58.8

Other cash inflows 10.4 9.5

Other cash outflows –50.0 –76.5

Cash flow from investing activities –1,147.5 –949.3

Cash inflows from company owners and minority shareholders 0.4 0.0

Cash outflows for company owners and minority shareholders –0.1 –1.7

Dividend –7.6 –7.8

Changes in participation certificates and subordinate liabilities 0.0 –61.4

Other –37.1 –54.6

Cash flow from financing activities –44.4 –125.5

Change in cash and cash equivalents –27.6 –86.4

Cash and cash equivalents at the beginning of financial year 274.6 361.0

Change in cash and cash equivalents due to change

in scope of consolidation 0.0 0.0

Cash and cash equivalents at the end of financial year 247.0 274.6

* Comparatives after restatement

**Including minority interests

98 Gothaer Group Annual Report 2009


Other information on statement of cash flows

Acquisitions and

disposals of subsidiaries

Consolidated Financial Statements

No subsidiaries were acquired or sold in the financial and previous year.

€million

2009 2008

Operating activities

Taxes on income paid (net) 55.1 35.6

Interest paid 30.8 27.7

Interest received 846.4 791.1

Dividend received 210.7 406.5

Financing activities

Interest paid 25.1 34.5

Gothaer Group Annual Report 2009 99


Consolidated Financial Statements

Segmental Report

Segment assets

Property/Casualty

2009 2008 2009 2008

A II. Other intangible assets 72.1 73.4 17.0 14.8

B. Tangible assets 13.9 13.4 2.0 2.0

C. Investments

I. Investment property 0.0 0.0 0.0 0.0

II. Shares in affiliated and associated companies

1. Shares in affiliated and associated companies

– non-consolidated 243.8 232.4 736.5 692.0

2. Shares in associated companies

– carried at equity 964.5 902.2 416.9 383.4

Total II. 1,208.3 1,134.6 1,153.4 1,075.4

III. Investments held to maturity 336.6 389.1 1,331.9 1,651.2

IV. Loans 885.3 926.6 4,635.0 4,654.2

V. Investments available for sale 1,079.6 852.1 7,787.0 5,979.0

VI. Investments measured at fair value

through profit or loss

1. Held for trading 9.0 47.9 47.7 262.9

2. By designation 0.0 0.0 7.3 3.1

Total VI. 9.0 47.9 55.0 266.0

VII.Other investments 304.0 200.0 261.3 896.8

Total C. 3,822.8 3,550.3 15,223.6 14,522.8

D. Investments held for unit-linked

life insurance policies 0.0 0.0 1,124.7 904.1

E. Reinsurers’ share of underwriting reserves 521.4 552.2 1,308.3 1,327.4

F. Reinsurers’ share of underwriting reserves

for unit-linked life insurance policies 0.0 0.0 0.0 0.0

G. Deferred acquisition costs 41.2 38.1 782.6 778.3

H. Other segment assets 729.3 713.7 706.9 577.8

Total segment assets 5,200.7 4,941.2 19,165.2 18,127.2

100 Gothaer Group Annual Report 2009

Life


Health Other Activities Consolidation Total

Consolidated Financial Statements

€million

2009 2008 2009 2008 2009 2008 2009 2008

31.8 17.9 14.8 21.6 0.0 0.0 135.7 127.7

1.5 1.5 199.3 212.8 –21.6 –22.0 195.1 207.7

0.0 0.0 121.8 125.3 –32.1 –32.4 89.7 92.9

264.7 228.9 214.7 248.8 0.0 0.0 1,459.9 1,402.0

126.0 119.1 1,182.0 999.8 –2,619.1 –2,333.8 70.3 70.7

390.7 348.0 1,396.7 1,248.6 –2,619.1 –2,333.8 1,530.2 1,472.7

612.1 762.3 0.0 0.0 0.0 0.0 2,280.7 2,802.7

1,552.1 1,493.0 211.9 225.3 –289.5 –287.2 6,994.7 7,011.9

1,805.4 1,283.9 159.1 136.3 0.0 0.0 10,831.0 8,251.4

5.2 96.6 1.1 1.5 0.0 0.0 62.9 408.9

0.0 0.0 0.0 0.0 0.0 0.0 7.3 3.1

5.2 96.6 1.1 1.5 0.0 0.0 70.2 412.0

89.9 195.5 133.5 102.6 0.0 12.6 788.6 1.407.6

4,455.4 4,179.3 2,024.1 1,839.6 –2,940.7 –2,640.8 22,585.1 21,451.2

0.0 0.0 0.0 0.0 0.0 0.0 1,124.7 904.1

0.6 0.4 78.0 89.7 –71.3 –67.3 1,837.0 1,902.4

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

160.0 149.5 0.0 0.0 0.0 0.0 983.9 965.9

152.5 149.3 276.0 344.0 –282.3 –211.1 1,582.5 1,573.7

4,801.9 4,497.9 2,592.1 2,507.7 –3,316.0 –2,941.3 28,444.0 27,132.7

Gothaer Group Annual Report 2009 101


Consolidated Financial Statements

Segment liabilities

Property/Casualty

2009 2008 2009 2008

A. Gross underwriting reserves

I. Unearned premiums 464.8 431.3 0.0 0.0

II. Policy reserves 51.4 51.0 14,088.0 13,361.9

III. Reserves for unpaid claims 1,763.5 1,761.6 54.3 52.7

IV. Other gross underwriting reserves 19.4 21.4 1,154.5 972.4

Total A. 2,299.1 2,265.3 15,296.8 14,387.0

B. Gross underwriting reserves for unit-linked

life insurance policies 0.0 0.0 1,124.7 904.1

C. Other accruals 230.0 186.4 82.3 28.4

D. Other segment liabilities 915.7 838.0 2,373.3 2,547.7

Total segment liabilities 3,444.8 3,289.7 18,877.2 17,867.2

102 Gothaer Group Annual Report 2009

Life


Health Other Activities Consolidation Total

Consolidated Financial Statements

€million

2009 2008 2009 2008 2009 2008 2009 2008

0.1 0.1 0.0 0.0 0.0 0.0 464.9 431.5

3,580.5 3,370.9 0.0 0.0 –10.2 –9.7 17,709.8 16,774.1

136.2 130.7 352.0 384.7 –71.4 –67.3 2,234.6 2,262.4

809.6 728.4 0.0 0.0 –201.7 –132.9 1.781.8 1,589.3

4,526.4 4,230.1 352.0 384.7 –283.3 –209.9 22,191.1 21,057.3

0.0 0.0 0.0 0.0 0.0 0.0 1,124.7 904.1

26.5 8.8 81.5 185.9 –0.1 –0.1 420.2 409.4

98.0 109.8 833.8 770.6 –587.3 –456.9 3,633.6 3,809.2

4,650.9 4,348.7 1,267.3 1,341.2 –870.7 –666.9 27,369.6 26,180.0

Gothaer Group Annual Report 2009 103


Consolidated Financial Statements

Segment statement

of income

Property/Casualty

2009 2008 2009 2008

1. Gross premiums written

from insurance business with other segments 0.0 0.0 0.0 0.0

from insurance business with non-related

third parties 1,627.5 1,641.6 1,847.0 1,614.5

1,627.5 1,641.6 1,847.0 1,614.5

2. Net premiums earned 1,317.0 1,305.0 1,276.5 959.7

3. Investment result 255.9 224.0 495.3 495.9

of which: from associated companies 8.3 7.6 16.4 15.2

4. Income from investments held for unit-linked

life insurance policies 0.0 0.0 179.2 –368.5

5. Other income 122.1 128.5 46.6 31.1

Total income 1,695.0 1,657.5 1,997.7 1,118.2

6. Policyholder benefits (net) 880.7 802.6 1,740.6 834.9

7. Underwriting expenses (net) 382.1 421.7 185.4 190.1

8. Other expenses 187.2 181.5 82.9 66.2

Total expenses 1,450.0 1,405.8 2,008.9 1,091.2

9. Operating result 245.1 251.7 –11.2 27.0

10. Financing expenses 14.6 15.9 4.1 5.3

11. Taxes on income 39.2 29.5 –22.2 8.4

12. Net profit for the year prior to transfer of profit 191.3 206.3 6.9 13.3

13. Expense from transfer of profit 58.2 0.0 11.2 22.7

14. Net profit for the year after transfer of profit 133.1 206.3 –4.3 -9.4

15. Minority interests

16. Consolidated profit for the year attributable

to shareholders of the parent company*

* The consolidated profit for the year is shown only for the Group as a whole. Segmentation would result in an inaccurate

presentation due to interlocking intersegmental arrangements.

104 Gothaer Group Annual Report 2009

Life


Health Other Activities Consolidation Total

Consolidated Financial Statements

€million

2009 2008 2009 2008 2009 2008 2009 2008

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

773.5 782.7 0.5 0.6 0.0 0.0 4,248.6 4,039.4

773.5 782.7 0.5 0.6 0.0 0.0 4,248.6 4,039.4

767.9 777.9 0.5 0.6 0.0 0.0 3,362.1 3,043.2

138.1 161.0 124.5 245.4 –342.4 –414.7 671.4 711.6

5.8 7.3 –1.9 38.6 –7.0 –46.3 21.6 22.4

0.0 0.0 0.0 0.0 0.0 0.0 179.2 -368.5

14.8 12.2 294.7 314.0 –334.2 –349.3 144.0 136.4

920.8 951.0 419.7 560.0 –676.6 –764.0 4,356.7 3,522.7

803.8 831.2 –0.9 3.7 –40.9 –36.3 3,383.3 2,436.2

78.2 76.7 2.7 2.3 0.0 0.0 648.3 690.8

22.7 21.8 301.2 335.9 –334.5 –351.0 259.4 254.3

904.7 929.7 302.9 341.9 –375.4 –387.3 4,291.0 3,381.3

16.1 21.4 116.8 218.1 –301.2 –376.7 65.7 141.4

0.0 0.0 20.5 23.9 –14.2 –14.2 25.1 30.9

5.0 5.4 –9.4 12.1 –48.2 –9.7 –35.7 45.8

11.1 15.9 105.8 182.1 –238.7 –352.9 76.3 64.7

0.0 0.0 121.0 118.0 –190.4 –140.7 0.0 0.0

11.1 15.9 –15.3 64.1 –48.4 –212.2 76.3 64.7

1.7 2.6

74.6 62.1

Gothaer Group Annual Report 2009 105


Consolidated Financial Statements

Other information on the segmental reports

Property/

Casualty

Life Health Other

Activities

€million

2009 2008 2009 2008 2009 2008 2009 2008

Interest income 101.8 100.3 608.3 594.1 173.7 154.4 19.5 24.2

Interest expense 28.1 28.6 56.2 59.2 2.4 0.5 34.5 36.3

Scheduled depreciation

and amortization 14.4 13.5 2.5 1.8 1.2 1.1 28.5 25.2

Substantive income (+)

and expenses (–) without

cash inflows/outflows* –96.0 14.7 –762.5 –585.3 –260.8 –312.7 82.6 –65.3

* Excluding scheduled depreciation and amortization

In the Property/Casualty, Life and Health segments, the figures stated for scheduled

depreciation and amortization as well as substantive income and expenses without cash

inflows/outflows do not include depreciation or write-ups on intangible assets or fixed

assets. In the case of insurance companies, these expenses and income are spread over

investment expenses, policyholder benefits and underwriting expenses within the

framework of cost unit accounting.

106 Gothaer Group Annual Report 2009


Notes to the Consolidated Financial Statements

Group Accounting Policies

Consolidated Financial Statements

Gothaer Versicherungsbank VVaG is the parent of the Gothaer Group. Gothaer Versicherungsbank

VVaG must therefore prepare consolidated financial statements and a Group

Management report pursuant to sections 341i, 341j and 290 et seq. of the German

Commercial Code (HGB). Gothaer Versicherungsbank VVaG exercises the option pursuant

to section 315a(3) HGB in conjunction with Article 5 of the Regulation (EC) No.1606/2002

of the European Parliament and the council of 19 July 2002 that permits preparation of the

consolidated financial statements and Group Management report in compliance with

International Financial Reporting Standards (IFRS. All the International Financial Reporting

Standards adopted by the European Union as well as all the relevant regulations in the

HGB are observed in the preparation of the financial statements and report. The IFRS

consolidated financial statements are thus as informative as HGB consolidated financial

statements.

The International Accounting Standards Board (IASB) has been gradually replacing its

International Accounting Standards (IASs) by the International Financial Reporting

Standards (IFRSs) since 2003. In addition, the interpretations of the International

Financial Reporting Interpretations Committee (IFRIC), formerly the Standing Interpretations

Committee (SIC), were also observed. The IASB had not completed its regulations

governing the recognition and measurement of insurance transactions in 2009. Consistent

with the framework of IFRS and IAS 1/IFRS 4, US Generally Accepted Accounting

Principles (US GAAP) were therefore applied, in particular Financial Accounting Standards

(FAS) 60 and 97.

The consolidated financial statements are denominated in euros and amounts are shown

in millions of euros. The consolidated financial statements consist of the consolidated

statement of financial position and consolidated statement of comprehensive income,

the statement of changes in equity, the statement of cash flows, segmental report and the

notes to the consolidated financial statements. The consolidated financial statements

are supplemented by a Group Management report. In addition to business developments

in the various segments, the latter contains statements on capital management as well

as a risk report and outlook.

In keeping with the internal reporting structure of the Gothaer Group, the segmental

reports distinguish between the segments Property/Casualty, Life, Health and Other

Activities. At the same time, the segments reflect the core areas of business of the Group.

The Property/Casualty segment includes the insurance companies of the Group that

engage in all major lines and types of property/casualty insurance. The Life segment

encompasses the insurance companies that offer all forms of life and pension insurance

as well as related supplementary insurance products. The Health segment relates to the

insurer through which the Group engages in private health insurance. All other companies

are grouped in the Other Activities segment.

Gothaer Group Report 2009 107


Consolidated Financial Statements

The presentation of the segments includes consolidation of intrasegmental transactions,

but not, however, intersegmental transactions. Intersegmental consolidation is shown

separately. Transactions between Group companies are effected on market terms as a

matter of principle.

The cash flow statement shows the change in cash and cash equivalents for the financial

year. A distinction is made here between cash flows from current operating activities,

investing activities and financing activities. The indirect method is used to report cash

flows from current operating activities. In this case, net profit for the year is adjusted to

eliminate the effects of transactions of a non-cash nature (in particular write-ups/writedowns,

changes in reserves, receivables and liabilities). Net income or loss for the period

is also adjusted for items of income or expense associated with investing or financing

cash flows. The direct method is used to report cash flows from investing activities,

Inflows and outflows of funds from the accounts of the various companies are reported

here. Essentially, inflows and outflows of funds in connection with acquisitions/disposals

are reported. Cash flows are adjusted to eliminate the effects of changes in the scope of

consolidation. The direct method is used to report cash flows from financing activities.

Cash and cash equivalents include current credit balances with financial institutions,

cheques and cash on hand.

108 Gothaer Group Annual Report 2009


Principles of Consolidation

Consolidated Financial Statements

All companies whose accounts are included in the consolidated financial statements

prepared financial statements as of 31 December 2009 which consistently reflect the

application of Group accounting policies. Interim financial statements as of 31 December

2009 were prepared for special funds with a 31 January 2010 closing date excluding one

fund. In addition, pursuant to IAS 27.27 financial statements of eight associated companies

and 15 property holding companies with cut-off date 30 September 2009 were included

taking into account material transactions between 30 September 2009 and 31 December

2009. For reasons of materiality, the financial statements of the associated companies

were not adapted to the uniform accounting policies of the Gothaer Group.

Subsidiaries and special funds are consolidated if they are controlled directly or indirectly

by the Group. The day on which the Gothaer Group assumes control of a company is taken

as the date of first-time consolidation. The acquisition method of accounting is used for

purposes of capital consolidation. This involves recognizing the assets, liabilities and

contingent liabilities of the acquired undertaking at fair value (complete revaluation) and

offsetting them against the parent company's share of the equity of the subsidiary.

A positive difference is allocated to the proportionate share of hidden reserves and

charges contained in the assets and liabilities, and goodwill. Goodwill is recognized as

an asset and tested for impairment at least once a year. Negative differences are recorded

under the same headings as positive differences and reversed with recognition in

the statement of income in the year in which they originate.

Income generated by subsidiaries after first-time consolidation is included in the revenue

reserves of the Group after deduction of any minority interests. Minority interests are

shown on the face of the statement of financial position under equity.

Intragroup operating receivables and payables, expenses and income and profits are

eliminated unless they are of insignificant importance for presentation of the net assets,

financial position and results of operation of the Group. Transactions between Group

companies are effected on market terms as a matter of principle.

Gothaer Group Annual Report 2009 109


Consolidated Financial Statements

Scope of Consolidation

Joint-venture

undertakings

The determination of the scope of consolidation is subject to materiality, which is

established based on equity. Companies are consolidated when a certain equity

threshold is exceeded. If the threshold fails to be reached after first-time consolidation,

the company in question is not deconsolidated on grounds of immateriality. Materiality

is applied as a criterion only to companies that are not engaged in insurance business.

All the Gothaer Group insurers are consolidated as a matter of principle.

Accordingly, 55 subsidiaries (PY: 51) were included in the consolidated financial statements

in compliance with IAS 27. They comprised six insurance companies (PY: six), one

pension trust and 48 other companies (PY: 44). 25 special funds (PY: 27) were also

consolidated under SIC 12. The changes in the fully consolidated companies are as

follows: Two equity investment companies, Gothaer Fünfte Kapitalbeteiligungsgesellschaft

mbH & Co. KG as well as Gothaer Sechste Kapitalbeteiligungsgesellschaft mbH,

and the property holding company RE Brockton Capital Fund II Feeder GmbH & Co. KG

were newly established in 2009. The property holding company RE LaSalle Asia Opportunity

Fund III Feeder GmbH & Co. KG was consolidated for the first time in the wake of a

capital increase that raised its equity above the materiality threshold. Gothaer Risk-

Management GmbH, a subsidiary that was not previously consolidated on grounds of

immateriality, was merged with the consolidated Gothaer Prüfungs GmbH. The new

company now operates under the name of Gothaer Risk-Management GmbH. In addition,

two special security funds were merged with other existing funds, one special security

fund was fully liquidated and another established.

Five companies (PY: five) jointly owned with non-affiliated companies were recognized

proportionately in accordance with IAS 31. Four of those companies were recognized

proportionately because although the Company is a majority shareholder, it holds only

50 % of the voting rights. The assets and liabilities of the joint ventures are as follows:

Financial information €million

2009 2008 Opening

balance sheet

2008

Short-term assets 22.5 20.2 65.9

Long-term assets 468.2 425.2 358.6

Short-term liabilities 60.2 56.4 41.8

Long-term liabilities 289.2 247.6 186.2

Expenses 263.0 265.0 197.5

Income 248.0 273.7 221.7

110 Gothaer Group Annual Report 2009


Consolidated Financial Statements

11 companies (PY: 10) in which a significant influence can be exerted were recognized in

the consolidated financial statements as associates and evaluated by the equity method

in accordance with IAS 28. TRIFORUM Verwaltung GmbH & Co. Objekt Neuisenburg III KG

and RREEF European Feeder GmbH & Co. Value Added Fund I KG were consolidated for the

first time in 2009. The former company exceeded the materiality limit in the year under review;

in the case of the latter, substantive influence occurred in 2009 as the result of an

increased participation quota. Furthermore, Morgan Stanley Infrastructure Parners

Luxembourg Feeder no longer needed to be consolidated at equity in 2009 because

influence was no longer significant due to a reduced participation quota.

All the consolidated companies of the Gothaer Group in 2009 (with the exception of the

special-funds) are listed below. A further list of holdings pursuant to section 313 (4) of the

German Commercial Code (HGB), which also includes subsidiaries, joint ventures and

associated companies which are not consolidated, is published on the Company Register

(Unternehmensregister) website.

Gothaer Group Annual Report 2009 111


Consolidated Financial Statements

Subsidiaries (fully consolidated pursuant to IAS 27)

Interest*

%

€thousand

Equity** Profit

or loss**

Allgemeine Versicherungs-Software GmbH, Cologne 100.00 1,515.6 –18.3

ASSTEL Lebensversicherung AG, Cologne 100.00 19,305.0 0.0

ASSTEL ProKunde Versicherungskonzepte GmbH, Cologne 100.00 2,958.6 0.0

ASSTEL Sachversicherung AG, Cologne 100.00 13,821.0 0.0

BECURA Beteiligungen und Unternehmensberatung

GmbH, Cologne 99.50 1,367.3 328.2

capiton Zweite Holding GmbH & Co. KG, Berlin 99.00 9,028.3 3,447.0

capiton Zweite Kapitalbeteiligungsgesellschaft mbH,

Berlin 99.00 23.209.1 57.1

CPI Asia G-Fdr LP GmbH & Co. KG, Frankfurt a.M. 100.00 19,517.4 2,610.7

GG-Grundfonds Vermittlungs GmbH, Cologne 100.00 –15,451.5 –255,8

Gothaer Allgemeine Versicherung AG, Cologne 100.00 307,601,8 0.0

Gothaer Asset Management AG, Cologne 100.00 4,305.3 400.0

Gothaer Beteiligungsgesellschaft USA/Carlyle mbH,

Göttingen 100.00 1,629.9 –406.4

Gothaer Dritte Kapitalbeteiligungsgesellschaft mbH,

Cologne 99.50 77,226.4 3,459.9

Gothaer Erste Kapitalbeteiligungsgesellschaft mbH,

Cologne 100.00 5,624.6 104.2

Gothaer Erste META-Kapitalbeteiligungsgesellschaft mbH,

Cologne 99.50 24,104.0 901.8

Gothaer Finanzholding AG, Cologne 100.00 764,928.5 0.0

Gothaer Fünfte Kapitalbeteiligungsgesellschaft mbH,

Cologne*** 100.00 0.0 0.0

Gothaer Grundbesitz GmbH, Cologne 100.00 2,881.0 237.3

Gothaer Immobilien Beteiligungsgesellschaft

Méditerranée mbH, Göttingen 100.00 317.3 –15.8

Gothaer Invest- und FinanzService GmbH, Cologne 100.00 1,026.9 –1,182.8

Gothaer Krankenversicherung AG, Cologne 100.00 135,967.4 8,700.0

Gothaer Lebensversicherung AG, Cologne 100.00 209,099.4 0.0

Gothaer Pensionskasse AG, Cologne 100.00 22,600.0 0.0

Gothaer Risk-Management GmbH, Cologne

(formerly Gothaer Prüfungs GmbH, Cologne) 100.00 785.5 277.0

Gothaer Sechste Kapitalbeteiligungsgesellschaft mbH,

Cologne*** 100.00 0.0 0.0

Gothaer Systems GmbH, Cologne 100.00 4,009.7 137.8

Gothaer Vierte Kapitalbeteiligungsgesellschaft mbH,

Cologne 99.25 24,246.5 519.2

Gothaer Zweite Beteiligungsgesellschaft Niederlande

mbH, Cologne 100.00 2,154.0 –49.5

Gothaer Zweite Kapitalbeteiligungsgesellschaft mbH,

Cologne 100.00 291.7 –1.7

* In the case of interests that are partially held indirectly, economic interests are calculated

** Separate financial statements according to HGB

*** The companies have a different financial year, which ends on 30 September, and were not formed until October 2009,

so no balance sheet data are available yet.

112 Gothaer Group Annual Report 2009


Consolidated Financial Statements

Interest*

%

€thousand

Gotham City Residential Partners I GmbH & Co. KG,

Frankfurt a.M. 100.00 10,947.1 –80.3

Hamburg-Kölner-Vermögensverwaltungsgesellschaft mbH,

Cologne 100.00 3,579.5 0.0

Janitos Versicherung AG, Heidelberg 100.00 29,761.7 86.3

JP Morgan IIF German 1 GmbH & Co. KG,

Frankfurt a.M. 74.07 66,385.8 –9,203.1

KE Power GmbH, Berlin

(formerly capiton Power GmbH, Berlin) 72.69 –145.7 –14,031.1

kk Metalltechnik GmbH, Berlin 72.69 –2,966.4 934.8

KR automotive Kapitalbeteiligungs GmbH, Berlin

(formerly capiton automotive Kapitalbeteiligungsgesellschaft

mbH, Berlin) 72.69 2.4 –3,242.1

MediExpert Gesellschaft für betriebliches

Gesundheitsmanagement mbH, Cologne 100.00 178.1 31.7

Mermont Holdings GmbH, Munich 90.00 2,879.7 –25.0

Munich CARLYLE Productions GmbH & Co. KG, Grünwald 100.00 –64,011.2 907.3

RE AEW Value Investors Asia Feeder GmbH & Co. KG,

Cologne 100.00 25,070.7 –33.2

RE Brazil Real Estate Opportunities Fund I Feeder

GmbH & Co. KG, Cologne 100.00 10,959.5 –35.0

RE BREP Real Estate Partner VI Feeder GmbH & Co. KG,

Cologne 100.00 22,378.3 –68.0

RE Brockton Capital Fund I Feeder GmbH & Co. KG,

Cologne 100.00 18,723.2 –47.1

RE Brockton Capital Fund II Feeder GmbH & Co. KG,

Cologne 100.00 103.0 –13.8

RE Carlyle Infrastructure Feeder GmbH & Co. KG, Cologne 100.00 19,229.5 –17.7

RE Carlyle Realty Partners V Feeder GmbH & Co. KG,

Cologne 100.00 32,949.7 6.8

RE Colony Realty Partners II Feeder GmbH & Co. KG,

Cologne 100.00 27,471.3 –37.6

RE Feeder GmbH, Cologne 100.00 143.9 59.4

RE Gothaer PLA Residential Fund III Green Feeder

GmbH & Co. KG, Cologne 100.00 22,196.8 –170.1

RE LaSalle Asia Opportunity Fund III Feeder

GmbH & Co. KG, Cologne 100.00 5,690.5 –1,880.2

RE LaSalle Japan Logistic Fund II Feeder GmbH & Co. KG,

Cologne 100.00 3,503.3 –1,568.4

RE O’Conner Capital Partners II Feeder GmbH & Co. KG,

Cologne 100.00 29,567.6 201.2

RE Red Fort India Real Estate Fund I Feeder

GmbH & Co. KG, Cologne 100.00 32,116.7 81.8

Tishman Speyer China Feeder (Scots/C) L.P., Edinburgh,

Scotland 75.76 11,440.1 135.2

Unterstützungskasse der BERLIN-KOELNISCHE

Lebens- und Sachversicherung GmbH, Cologne 100.00 3,005.8 –226.7

* In the case of interests that are partially held indirectly, economic interests are calculated

** Separate financial statements according to HGB

Equity** Profit

or loss**

Gothaer Group Annual Report 2009 113


Consolidated Financial Statements

Joint-venture undertakings (consolidated on a proportionate basis pursuant to IAS 31)

CG Car-Garantie Versicherungs-AG, Freiburg i.Br. 50.00 49,176.5 11,812.2

KILOS Beteiligungs GmbH & Co. Vermietungs-KG, Pöcking 93.69 41,324.8 2,522.0

TRIFORUM Verwaltung GmbH & Co. Objekt

Hallbergmoos KG, Pöcking 94.04 642.4 –28.6

TRIFORUM Verwaltung GmbH & Co. Objekt IKS Köln KG,

Pöcking 94.04 245.6 –113.3

TRIFORUM Verwaltung GmbH & Co. Objekt

Neu-Isenburg II KG, Pöcking 94.00 7,996.9 –50.2

Associated companies (consolidated at equity pursuant to IAS 28)

Interest*

%

€thousand

Equity** Profit

or loss**

Aachener Bausparkasse AG, Aachen 25.00

ARI-Armaturen Albert Richter GmbH & Co. KG, Schloss Holte-Stukenbrock 25.00

BIOCEUTICALS Arzneimittel AG, Bad Vilbel 24.82

DKV EURO SERVICE GmbH & Co. KG, Düsseldorf 44.89

HSBC NF China Real Estate GmbH & Co. KG, Düsseldorf 41.67

KOKI TECHNIK Holding GmbH, Konstanz 27.84

RREEF European Feeder GmbH & Co. Value Added Fund I KG, Eschborn 32.26

Reum Beteiligungs GmbH, Hardheim 33.29

ROLAND Rechtsschutz-Versicherungs-AG, Cologne 25.10

TRIFORUM Verwaltung GmbH & Co. Objekt Neu-Isenburg III KG, Pöcking 94.00

W. Classen GmbH & Co KG, Kaisersesch 20.00

* In the case of interests that are partially held indirectly, economic interests are calculated

**Separate financial statements according to HGB

114 Gothaer Group Annual Report 2009

%

Interest*


Accounting Policies

Description of accounting policies

Introduction

Consolidated Financial Statements

Financial statements are prepared on a going concern basis. Income and expenses are

recognized when they occur, i. e. they are reported in the periods to which they relate.

Settlement date accounting within the meaning of IAS 39 is used for purposes of recognition

of financial assets. The respective companies are taken as cash-generating units

within the meaning of IAS 36 for purposes of recognition and measurement of impairment

losses.

The application of accounting policies requires estimates and assumptions to be made

which impact on balance sheet positions, the consolidated statement of comprehensive

income as well as contingent assets and liabilities. Estimates and assumptions are used,

in particular, for mathematical and statistical methods of valuing reserves such as policy

reserves, reserves for unpaid claims or provisions for pension benefits and similar

obligations. However, they are also required for establishing the fair value of financial

instruments and assessing deferred taxes. Estimates are made on the basis of reasonable,

appropriate assumptions that are verified on a yearly basis. Because estimates

naturally involve a degree of uncertainty, actual values may differ from the estimates.

Estimates may thus increase or decrease net profit for the year. Further information is

found in the descriptions of accounting policies for the individual balance sheet positions.

New International Financial Reporting Standards

IFRS 7 –

Financial instruments:

disclosures

IFRS 8 –

Operating segments

The following standards were applied in the financial year for the first time.

The amendments to IFRS 7 require detailed disclosures to be made to establish fair

values. Financial instruments need to be divided into three categories, which make up a

fair value hierarchy. Disclosures need to be made in tabular form and presented in the

notes to consolidated financial statements after the disclosures relating to financial

investments recognized at fair value through profit or loss. Detailed information on

liquidity risk is also required. These disclosures are made within the framework of the

risk report.

IFRS 8 adopts the management approach for identification of reportable segments for

purposes of segmental reporting instead of the so-called risk and reward approach of IAS

14. Under the management approach, the information is relevant that is regularly made

available to chief decision-makers for decision-making purposes. At the same time,

the management approach is also adopted for purposes of measurement in the case of

segments instead of the financial accounting approach under IAS 14. The basic structure

of the segmental report remains unchanged after the initial application of IFRS 8. A distinction

continues to be made between the segments Property/Casualty, Life and Health

in the Gothaer Group. However, compliance with IFRS 8 requires that consolidation

effects should be reported separately from Other Activities.

Gothaer Group Annual Report 2009 115


Consolidated Financial Statements

IAS 1 (revised 2007) –

Presentation of financial

statements

IFRS 3 –

Business combinations

and IAS 27 –

consolidated and

separate financial

statements

IFRS 9 –

Financial instruments

Furthermore, as well as the disclosures required by IAS 14 for segment assets, segment

liabilities and segment profit, additional information needs to be published about e. g.

income and expenses of a non-cash nature or disclosures on impairment in each

segment. These supplementary disclosures appear in the Consolidated Financial Statements

immediately after the segmental report.

As a result of the revision of IAS 1, a statement of financial position as of the beginning

of the earliest comparative period is required in the case of retrospective restatement,

correction of errors or reclassification of items in the financial statements. The presentation

of the statement of income and the statement of changes in equity has also been

changed. Changes in unrealized gains or losses, which constitute what is referred to as

other comprehensive income, are no longer to be shown in the statement of changes in

equity, but instead in an expanded statement of income, the so-called statement of

comprehensive income. The statement of comprehensive income shows all items of

results recognized in the period and not, like the statement of income in the past, only

items with impact on profit or loss.

The revised version of IFRS 3 refines the accounting rules concerning business combinations

by, amongst other things, changing the definition of a business combination,

extending the scope of application and modifying the rules on recognition and evaluation

of assets and liabilities in the context of a business combination. The amendments to

IAS 27 stipulate for the first time that changes in shareholdings that do not affect the

possibility of control should be shown in the Consolidated Financial Statements as equity

transactions.

The following standards, which are not mandatory for the reporting period, were not

applied ahead of schedule by the Gothaer Group.

In approving IFRS 9, the IASB took the first step towards replacing IAS 39 Financial

Instruments: Recognition and Measurement. The IASB’s aim hereby is to simplify the

accounting regulations regarding financial instruments. IFRS 9 starts by classifying

valuation models. According to IFRS rules, the basis for the subsequent valuation of

financial instruments will in future need to be either fair value or amortized cost.

Valuation at amortized cost is permissible only for debt capital instruments that are held

as part of a business model geared to holding financial instruments as a source of

contractual cash flows and are based on contractual terms that result exclusively in

predefined periodic cash flows from redemption and interest payments on outstanding

capital amounts. As a matter of principle, all debt capital instruments that do not meet

these requirements as well as all equity instruments need to be recognized at fair value

in the statement of income. An exception to the rule of recognition at fair value in the

statement of income is made in the case of equity instruments that are not held for

trading. The application of IFRS 9 is mandatory for financial years beginning after

1 January 2013; earlier application is permissible. For the application of IFRS 9, all

financial instruments need to be studied and classified according to the new valuation

models.

116 Gothaer Group Annual Report 2009


IAS 24 –

Related party

disclosures

Consolidated Financial Statements

This will have a major impact on the Gothaer consolidated statement of financial position

– for one thing because recognition at fair value recognized directly in equity is no

longer admissible under IFRS 9, for another because financial instruments that are

currently recognized at amortized cost will in future need to be recognized at fair value in

the statement of income.

The revision of IAS 24 clarifies the definition of a related party. Application of the revised

version of IAS 24 is mandatory for financial years beginning after 1 January 2011. Earlier

application is permissible. The amendments have no effect on the disclosures of the

Gothaer Group.

Both IFRS 9 and IAS 24 have yet to be endorsed by the EU and incorporated into European

law.

Changes in accounting policies as well as accounting errors and reclassifications

Under the rules of IAS 8, changes in accounting policies as well as accounting errors are

required to be corrected by retrospective adjustment. In the 2008 financial statements,

procedural errors occurred in the calculation of deferred taxes on valuation differences

between the IFRS and tax balance sheets of business partnerships as well as in the

calculation of the tax-balancing item relating to business partnerships.

For the sake of clarity, reclassifications were also effected in the statement of financial

position. Tax reserves are not longer recognized as other reserves but as part of tax debts.

Reserves for deferred premium refunds, which relate to differences in IFRS valuation of

reinsurers’ shares of underwriting reserves, are no longer recognized as assets within

reinsurers’ shares but as liabilities within gross underwriting reserves. These changes

were implemented as set out below:

Gothaer Group Annual Report 2009 117


Consolidated Financial Statements

Consolidated statement

of financial position

Consolidated

statement of

comprehensive income

Assets €million

31 Dec. 2008 Adjustment

IAS 8

31 Dec. 2008

Annual

Report 2008

Annual

Report 2009

G. Reinsurers’ share of underwriting reserves

IV. Other underwriting reserves 58.7 –64.2 –5.5

J. Tax assets

II. from deferred taxes 317.1 9.1 326.2

Equity and Liabilities €million

31 Dec. 2008 Adjustment

IAS 8

31 Dec. 2008

Annual

Report 2008

Annual

Report 2009

A. Equity

III. Consolidated profit for the year attributable to

shareholders of the parent company 61.7 0.4 62.1

B. Gross underwriting reserves

IV. Other underwriting reserves

Reserves for premium refunds 1,657.5 –68.2 1,589.3

D. Other accruals

II. Accruals for taxes 125.2 –125.2 0.0

E. Liabilities

V. Other liabilities 1,847.8 –2.4 1,845.4

F. Tax debts

I. for current taxation 25.9 125.2 151.1

II. for deferred taxes 407.1 15.1 422.2

Statement of Income €million

31 Dec. 2008 Adjustment

IAS 8

31 Dec. 2008

Annual

Report 2008

Annual

Report 2009

5. Investment result 711.5 0.1 711.6

8. Policyholder benefits

a) Gross 2,674.0 4.9 2,678,9

b) Reinsurers’ share 233.8 8.9 242,7

2,440.2 –4.0 2,436.2

10. Other expenses 256.7 –2.4 254.3

13. Taxes on income 39.8 6.0 45.8

15. Minority interests 2.6 –0.1 2.6

16. Consolidated profit for the year attributable

to shareholders of the parent company 61.7 0.4 62.1

118 Gothaer Group Annual Report 2009


Accounting policies of different items

Intangible assets

Consolidated Financial Statements

In the case of intangible assets, a distinction is made between goodwill and other

intangible assets.

Goodwill is recognized under intangible assets in the consolidated financial statements

upon first-time consolidation if the cost of an acquisition exceeds the proportionate

share of the equity acquired after the release of hidden reserves. Goodwill is regularly

tested for impairment within the meaning of IAS 36 (impairment only approach).

For the purpose of impairment testing, the book values of the companies, including the

goodwill allocated to the companies, are set against the relevant recoverable amount.

The recoverable amount is based on fair value, which is also the value in use, less costs

to sell. If no direct market prices can be observed, valuation is normally by the capitalized

earnings value method. Calculation of the capitalized earnings value is based on

the latest financial projections approved by the Management, which normally have a

planning horizon of 3 to 5 years. For the period beyond the detailed planning horizon, a

detailed analysis of past experience is used to establish a reasonable going concern

value that is extrapolated into the future based on growth assumptions appropriate for

the market.

If goodwill is found to be impaired, an impairment loss is recognized. The loss is

recorded under other expenses. Negative goodwill is considered in the same item as

positive goodwill. The latter is reversed directly through profit or loss in the year of

occurrence. Reversals are recognized as other income.

Other intangible assets include purchased as well as internally generated software. All

internally generated intangible assets meet the requirements of IAS 38. They are recognized

at cost less any impairment losses and amortized over their useful lives (3 to 10

years) by the straight-line method. Other intangible assets are also regularly tested for

impairment in line with IAS 36 and impairment losses are recorded if necessary. Writedowns

are reported in the statement of income and, in the case of an insurance

company, spread over investment expenses, policyholder benefits and underwriting

expenses. Where write-downs result from a non-insurance company, they are reported

in other expenses.

Gothaer Group Annual Report 2009 119


Consolidated Financial Statements

Tangible assets

Investments

Investment property

Property, plant and equipment held for own use are shown under tangible assets. These

assets are carried at amortized cost. We refer to the comments on “investment property”

for information on regular depreciation of buildings held for own use based on the

component approach. Other tangible assets are normally subjected to straight-line

depreciation over a useful life of 3 to 13 years. Tangible assets are also regularly tested

for impairment within the meaning of IAS 36. In the event of impairment, the carrying

amount of impaired tangible assets is reduced to the recoverable amount. In the event

that the reasons leading to an impairment loss in the past no longer apply, the carrying

amount of the asset is increased to a maximum of amortized cost.

Scheduled depreciation and write-downs are also recognized in the statement of income

as are write-ups. In the case of an insurance company, they are spread over investment

expenses, policyholder benefits and underwriting expenses. Where they relate to a noninsurance

company, depreciation and write-downs are reported in other expenses and

write-ups in other income.

Investment property is recognized in accordance with IAS 40 at cost less accumulated

depreciation and any accumulated impairment losses. The rate of scheduled depreciation

is determined by the component approach, whereby buildings are differentiated

by components and depreciated on a straight-line basis over a useful life of 10 to 80 years

depending on building class. In the case of permanent impairment, non-scheduled

depreciation is applied to the recoverable amount, which is the lower of fair value less

disposal costs or value in use. Scheduled and non-scheduled depreciation is shown in

the statement of income under investment result.

Subsequent acquisition or production costs are recognized as assets and depreciated

according to the rules described above if they are significant and qualify for recognition

under IAS 40. The fair values of properties are disclosed in the notes. Fair values are

determined by external evaluators based on the Valuation Ordinance (Wertermittlungsverordnung)

and the Valuation Guidelines (Wertermittlungsrichtlinien). In general, the

capitalized earnings value approach is employed.

120 Gothaer Group Annual Report 2009


Shares in affiliated and

associated companies

Consolidated Financial Statements

Shares in non-consolidated majority-owned subsidiaries are recognized under investments

in affiliated companies. They are carried at fair value in the “available for sale”

category. In the case of listed shares, the prices as of the reporting date are used; in

other cases, third-party valuations are used or carrying amounts determined using the

capitalized earnings value approach. Calculation of the capitalized earnings value is

based on the latest financial projections approved by the Management, which normally

have a planning horizon of 3–5 years. For the period beyond the detailed planning

horizon, a detailed analysis of past experience is used to establish a reasonable going

concern value that is extrapolated into the future based on growth assumptions appropriate

for the market. For parts of the property holding companies, carrying amounts are

also determined based on capitalized earnings values, which are established by the

discounted cash flow method. Owing to the abnormal state of international property

markets at present, medium-term market parameters are considered.

Changes in fair value are recognized in equity through other reserves after any allocation

to reserves for deferred premium refunds and after deduction of deferred taxes. In the

event of permanent impairment, however, the carrying amount is reduced to fair value

and the loss recognized in the statement of income. After an asset is written down, any

further decrease in fair value – even if impairment is insignificant or temporary – is

recorded as impairment loss in the statement of income. If the reasons for earlier

impairment no longer exist, the recovery in value needs to be recognized directly in

equity.

Shares in associated companies with a significant influence are shown in the consolidated

financial statements at equity, i. e., at the proportionate share of equity. Income

resulting from increases or expense resulting from decreases in the proportionate share

is then shown under investment result. The proportionate share of equity is determined

based on the most recent annual financial statements available. For reasons of materiality,

the carrying amounts in the financial statements of associated companies are

retained and not adapted to the uniform accounting policies of the Group.

Associated companies that are not accounted for at equity are carried at fair value as

investments available for sale. The same accounting and valuation rules are used here

as for non-consolidated shares in affiliated companies.

The net yield on shares in affiliated and associated companies comprises current

income, any gains or losses on disposals and, where applicable, impairment losses.

Current income includes dividend payments from affiliated and associated companies

on the one hand as well as income realized upon consolidation of associated companies

on the other hand. Quantitative statements on net yields are made in the Notes to the

Consolidated Financial Statements on the investment result.

Gothaer Group Annual Report 2009 121


Consolidated Financial Statements

Investments held

to maturity

Loans

Investments

available for sale

Investments held to maturity include bearer bonds and other loans that the Company

intends and is able to hold to maturity. These investments are carried at amortized cost.

Any premiums or discounts are spread over the entire term using the effective interest

method. Impairment tests are also carried out as of each reporting date. In the event it

is determined that permanent impairment is likely, the carrying amount is reduced to

the present value of expected future cash flows. In the event impairment from the past

is reduced, the carrying amount is increased up to a maximum of initial cost less

accumulated amortization. Both impairment losses and reversals are shown in the statement

of comprehensive income under investment result. The fair values of investments

held to maturity are shown in the Notes to the Consolidated Financial Statements on the

assets side of the consolidated statement of financial position. In the case of publicly

traded financial instruments, the trading price is taken as fair value. In the case of financial

instruments that are not publicly traded, fair value is determined with the help of

yield curves, discounted cash flow methods or prices obtained from outside valuation

services. Because of illiquid market conditions, a mark-to-model-based fair value

established by the discounted cash flow method is used for some publicly traded

subordinate bearer bonds issued by banks and insurance companies.

The net yield on investments held to maturity includes current income, any gains or

losses on disposals and, where applicable, impairment losses or reversals. Current

income contains amortization income or expense as well as interest income. Writedowns

and write-ups include translation differences in the case of securities denominated

in foreign currencies as well as impairment losses and reversals. Quantitative

statements on net yields are made in the Notes to the Consolidated Financial Statements

on the investment result.

Loans include fixed-income securities that are not listed on an active market as well as

mortgage loans, policy loans and other loans. As in the case of investments held to

maturity, loans are accounted for using the effective interest method. Impairment tests

are also carried out as of each reporting date. The treatment of impairment losses and

reversals is the same as that used for investments held to maturity. The fair value of

loans is also disclosed in the Notes to the Consolidated Financial Statements. Fair values

are established by the same methods used for investments held to maturity. The

components of the net yield on loans also correspond to those of the net yield on

investments held to maturity.

Investments available for sale include stocks, investment fund certificates, other nonfixed-income

securities and other shares. In addition, bearer bonds, other fixed-income

securities, registered bonds, promissory notes and loans that are not carried as loans or

investments held to maturity are disclosed under this heading.

122 Gothaer Group Annual Report 2009


Investments measured

at fair value through

profit or loss

Consolidated Financial Statements

These items are recognized at fair value. In the case of publicly traded financial instruments,

the trading price is taken as fair value. In the case of financial instruments that

are not publicly traded, fair value is determined with the help of yield curves, discounted

cash flow methods or prices obtained from outside valuation services. Because

of illiquid market conditions, a mark-to-model-based fair value established by the

discounted cash flow method is used for some publicly traded subordinate bearer bonds

issued by banks and insurance companies.

If appropriate, temporary changes in fair value are transferred directly to equity under

other reserves after any allocation to reserves for deferred premium refunds and

deduction of deferred taxes. In the case of likely permanent impairment, on the other

hand, the carrying amount is reduced to fair value and the loss shown in the statement

of income. In the case of equity instruments that have been amortized and the loss

recognized in the statement of income, any subsequent decrease in fair value is recognized

as impairment loss in the statement of income, even if the impairment is insignificant

or temporary. If the reasons for an impairment loss taken in the past no longer

apply, the value of equity instruments is increased directly in equity. In the case of fixedincome

securities, impairment losses are reversed in an amount of up to a maximum of

cost less accumulated amortization. Gains and losses on disposals are determined

based on the difference between the proceeds from the disposal and cost or, as the case

may be, cost less accumulated amortization and any impairment losses.

The net yield on investments available for sale includes current income, gains or losses

on disposals and any impairment losses or reversals. Current income contains dividend

payments from non-fixed-income investments and interest from fixed-income securities,

including amortization income or expense. Write-downs and write-ups also include translation

differences in the case of fixed-income securities denominated in foreign currencies

as well as impairment losses and reversals. Quantitative statements on net yields

are made in the Notes to the Consolidated Financial Statements on the investment result.

In addition to investments held for trading, this item also includes investments by

designation. In the trading portfolio exclusively derivative financial instruments are

recorded. If the components of hybrid financial instruments cannot be separated, such

instruments are assigned to the category by designation. Investments in the two subcategories

are recognized at fair value, which is obtained based on stock exchange

prices or other valuation (use of external prices or option price models) as of the

reporting date. Only financial instruments with a positive fair value are recognized on the

assets side of the statement of financial position. Financial instruments with a negative

fair value are recognized under liabilities on the equity and liabilities side of the

statement.

Gothaer Group Annual Report 2009 123


Consolidated Financial Statements

Other investments

Impairment

Changes in the fair value of financial instruments – both those with a positive value and

those with a negative one – are recognized in the statement of income as investment

result. Gains and losses on disposals are determined based on the difference between

the proceeds from the disposal and the fair value at the last balance sheet date.

The net yield on investments measured at fair value through profit or loss includes

current income, gains or losses on disposals and any impairment losses or reversals.

Current income shows mainly interest on income of fixed-income securities. Changes in

fair value are reflected in impairment losses or reversals. Quantitative statements on

net yields are made in the Notes to the Consolidated Financial Statements on the investment

result.

Other investments include deposits with financial institutions, deposits retained on

assumed business and those financial instruments that cannot be assigned to any other

heading. Pursuant to IAS 39, they are recognized as loans at (amortized) cost or at

nominal value. The fair value of other investments generally corresponds to the carrying

amount. The net yield on other Investments includes current income, any gains or losses

on disposals and, where applicable, any impairment losses or reversals.

At every balance sheet date, a check is run to verify whether there are substantial

objective indications of impairment of financial instruments or groups of financial

instruments. In the Gothaer Group, shares and participations that are classed as investments

available for sale are regarded as impaired where fair value has been significantly

below cost or below it for an uninterrupted period of nine months up to the balance

sheet date. In the case of fixed-income securities, which are recognized as investments

held to maturity, loans or investments available for sale, permanent impairment is

assumed in the event of significant changes in creditworthiness. This could occur in the

wake of a significant deterioration of rating or a sharp drop in fair value below cost.

Investments held for unit-linked life insurance policies

Investments held to cover unit- or index-linked life insurance are shown separately from

other investments. They are recognized at fair value. Changes in value affect neither net

profit for the year nor equity since the corresponding underwriting reserve changes

commensurately.

124 Gothaer Group Annual Report 2009


Receivables

Cash and cash equivalents

Deferred acquisition costs

Consolidated Financial Statements

Receivables include receivables from primary insurance business, accounts receivable

in connection with reinsurance business, deferred interest and rent and receivables from

affiliated and associated companies. Receivables are recognized pursuant to IAS 39 as

loans at nominal value less any necessary write-offs. The fair value of receivables

generally corresponds to the carrying amount.

Cash and cash equivalents are recognized pursuant to IAS 39 as loans at amortized cost.

The fair value is generally the carrying amount.

FAS 60 defines acquisition costs as all variable costs that are directly incurred in

connection with the acquisition or extension of insurance contracts. Such costs include

commissions for intermediaries as well as fees for medical examinations. Acquisition

costs are capitalized and amortized on a systematic basis.

In the area of property/casualty insurance, acquisition costs incurred in connection with

new contracts are amortized on a straight-line basis over the legal term of the contract

of up to three years. Deferred acquisition costs, which used to be written off over five

years prior to the reform of the Insurance Contract Act VVG, are depreciated in full in the

current accounting year.

In the case of life insurance policies recognized pursuant to FAS 60, acquisition costs are

amortized in proportion to recognition of premium income. Annual amortization is

determined on the same basis as for actuarial calculations used to determine policy

reserves. In the case of life insurance contracts that fall under FAS 97, acquisition costs

are amortized in proportion to the emergence of estimated profits. Estimates of future

profits are based on assumptions as regards the development of biometric risks, cancellations,

investment income and bonuses due to policyholders. Assumptions are regularly

examined to determine whether they are appropriate. If necessary, the bases used for

calculation are revised and deferred acquisition costs are increased or reversed

accordingly.

In the case of health insurance, acquisition costs are amortized over the term of the

contract. Amortization is determined on the actuarial basis used to determine policy

reserves. In the case of short-term health insurance contracts with unearned premiums,

amortization is proportional to recognition of premiums in the statement of income.

Deferred acquisition costs are assessed for impairment as of each reporting date by

carrying out a test of recoverability.

Gothaer Group Annual Report 2009 125


Consolidated Financial Statements

Taxes

Other assets

Equity

Underwriting reserves

Tax assets or tax debts that need to be recognized under national tax laws are included

in the current taxes.

In deferred taxes temporary differences between carrying amounts in the IFRS balance

sheet and the tax base are accounted for by recognition of deferred tax assets or

liabilities. Deferred taxes may also result from the carryforward of unused tax losses or

from consolidation issues. Deferred tax assets are recognized only if an offset with future

taxable profit is probable. The recoverability of deferred tax assets is reviewed as of each

reporting date pursuant to IAS 12.56. The tax rate is determined based on the respective

tax situation of individual items or that of the Group companies.

Changes in tax rates are taken into account as soon as they are enacted. Deferred taxes

are to be consistently recognized in connection with the business transactions from

which they result. This means that transactions with an impact on profit or loss result in

recognition of deferred taxes in the statement of income and transactions with no impact

on profit or loss result in recognition of deferred taxes directly in equity.

All other assets are shown at cost less accumulated depreciation or at nominal value

less any necessary impairment losses.

Equity is subdivided in the four positions revenue reserves, other reserves, consolidated

profit for the year and minority interests. Other reserves mainly include unrealized gains

and losses on investments available for sale after allocation to reserves for deferred

premium refunds and adjustment for deferred taxes and the effects of consolidation.

Gross underwriting reserves are shown under liabilities. The reinsurers’ shares are shown

on the assets side. Reinsurers’ shares are also recognized separately in the statement

of income. The value of reinsurers’ shares of underwriting reserves is established based

on individual reinsurance treaties.

126 Gothaer Group Annual Report 2009


Unearned premiums

Policy reserves

Consolidated Financial Statements

Unearned premiums from property/casualty insurance and short-term health insurance

policies are calculated on an individual and day-by-day basis. No expenses are deducted

(reduction in unearned premiums as a function of a specific expense ratio for commissions

and administrative expense) for unearned premiums and deferred acquisition

costs are recognized simultaneously. Unearned premiums are not recognized in the case

of long-term life and health insurance contracts since the policy reserve is determined

as a function of premium maturity.

The provisions of FAS 60 pertaining to long-duration insurance contracts provide the

basis for recognition and measurement of policy reserves in the area of life and health

insurance. On the other hand, life insurance policies providing benefits that are

determined by the performance of the investments covering the policyholder account

are carried pursuant to FAS 97. In the case of insurance contracts that primarily involve

the transfer of financial risks, the provisions of IAS 39 are applied.

Policy reserves for all life insurance contracts carried pursuant to FAS 60 are estimated

on an individual basis using the prospective method. Taking into account adequate

safety margins, accounting assumptions are based on expected investment yields,

mortality, morbidity, cancellation frequency as well as claims settlement expenses and

periods during which no premiums are paid. The estimates include the results of the

Company’s own observations as well as external data. The policy reserve contains

bonuses already allocated and declared to policyholders plus those components of

premiums that may not be recognized in the statement of income until after the

reporting date.

Policy reserves for unit- and index-linked life insurance are determined in compliance

with FAS 97 and mainly include payments received from policyholders, withdrawals to

cover risks and expenses as well as changes in the market value of the corresponding

investments. Those components of the policy reserve that correspond to the market

values of the investments assigned to these contracts are disclosed separately. In the

case of contracts recognized pursuant to IAS 39, policy reserves are determined based

on the corresponding cash flows using the effective interest method.

Policy reserves for health insurance contracts are determined based on the difference

between the present value of future benefits including claims settlement expenses and

the present value of estimated premium income. The reserves are determined based on

current actuarial assumptions and adequate safety margins using the prospective

unlocking approach. This enables insurers to adjust premiums. The assumptions made

at the beginning of a contract are retained until the premiums for that contract are

adjusted. The assumptions then remain in place until the next adjustment. The rules

resulting from the planned new proof of compulsory insurance were met by taking

account of late awareness. Otherwise, the calculation itself remained unchanged.

Additional reserves are formed for obligations in the following year resulting from

transfers.

Gothaer Group Annual Report 2009 127


Consolidated Financial Statements

Reserves for

unpaid claims

Reserves for unpaid claims include liabilities in connection with insurance policies of

uncertain amount or timing. In the area of property/casualty insurance, the future

development of claims is estimated pursuant to FAS 60 based on past claims experience

using recognized statistical methods and taking into account current or anticipated

parameters and the ultimate cost of settlement is calculated per year along with the cost

of claims settlement. This provides the basis for determination of the required loss

reserves.

For reasons of materiality, individual loss reserves are established for some lines of

property/casualty insurance on the basis of past experience when they are of importance

for reserves for losses incurred but not reported. With the exception of reserves for

annuities in connection with property/casualty insurance, loss reserves are not discounted.

For technical reasons, estimated liabilities may differ from actual expenses.

In the area of life insurance, reserves for unpaid claims – unless covered by settlement

with lead managers in the case of group contracts – are estimated for each individual

claim based on experience as of 31 December. In the case of claims under supplementary

occupational disability insurance policies that have not yet been settled, reserves

are established overall in an amount based on past experience. Reserves for losses

incurred but not yet reported are established for insured events occurring after the

general estimate is made and before 31 December through estimation of the amounts at

risk on the basis of the individual claims, i.e. essentially the difference between benefits

to be paid and available cover. General reserves in an amount based on past

experience are established for mortalities occurring during the financial year but not

reported.

In the area of health insurance, reserves for unpaid claims are estimated with the help

of a statistical approximation method. The estimate is based on the percentage of claims

incurred as of the reporting date and settled as of the date of establishment of the

reserves and a factor derived from experience in the past three financial years. Separate

estimates are made for the previous year and earlier financial years.

128 Gothaer Group Annual Report 2009


Other underwriting

reserves

Consolidated Financial Statements

Other underwriting reserves mainly include reserves for premium refunds.

Reserves for premium refunds in the area of life and health insurance set aside all

amounts to be used for payment of bonuses to policyholders in compliance with national

or regulatory requirements, legal provisions or contractual conditions. Reserves for

premium refunds, including deferred premium refunds, comply with the definition of

discretionary participation features pursuant to IFRS 4.

Since 2008, the new Minimum Premium Refund Ordinance (MindZV) has been applied.

Based on this, policyholders participate in the result sources of investment result, risk

income and other income with 90%, 75% or 50%, when the respective results are

positive. It can be estimated that based on this ordinance the minimum participation of

the policyholders in the total surpluses continues to be approx. 90 % on average.

Discretionary payments of bonuses that are not already included in the policy reserves

are carried as liabilities under reserves for premium refunds and liabilities from direct

written insurance business.

In the case of health insurance modelled on life insurance, the German Ordinance on

the Determination and Distribution of Interest and Profit in Health Insurance (ÜbschV)

requires that 80% of profit determined in accordance with section 4(1) ÜbschV be

transferred to reserves for performance-related premium refunds, whereby the minimum

amount transferred is to be reduced by the surplus interest already credited pursuant to

section 12a(1) of the German Insurance Supervision Act (VAG). In the case of private

compulsory long-term care insurance, 80% of profit determined in accordance with

section 4(1a) ÜbschV is to be transferred to reserves for performance-related premium

refunds, whereby the minimum amount transferred is to be reduced by the amount

transferred to non-performance-related premium refunds for group insurance contracts.

In addition to performance-related premium refunds, non-performance-related premium

refunds also exist in the case of health insurance that result in particular from amounts

from the area of long-term care insurance and section 12a(3) VAG.

Reserves are also established pursuant to sections 12(4a) (legal supplement) and 12a(2)

VAG in the case of health insurance. These reserves are used to permit lower premiums

in the future and are therefore included as a component of reserves for premium refunds.

In the event of changes in the value of the assets or liabilities of life and health insurers

as a result of differences between the German Commercial Code (HGB) and IFRS, such

differences are taken into account in the reserve for deferred premium refunds in an

amount estimated to be due to policyholders upon realization.

Gothaer Group Annual Report 2009 129


Consolidated Financial Statements

Adequacy of

underwriting reserves

Provisions for contingent losses are established for some insurance portfolios in property/casualty

following the premium deficiency test. Equalization reserves established

pursuant to the provisions of HGB are not considered liabilities and are therefore not

permissible under IAS 37.

Application of IFRS 4 requires regular assessment of the adequacy of insurance liabilities

(liability adequacy test).

In the area of property/casualty insurance, a so-called premium deficiency test is

conducted pursuant to FAS 60 to establish whether future premiums and the corresponding

investment result of the relevant insurance portfolio is expected to cover the anticipated

claims and costs. If it emerges that future income will not cover the anticipated

expenses, the reversal of deferred acquisition costs needs to be followed by the

establishment of a provision for contingent losses calculated at the level of the line of

insurance.

The adequacy of life insurance underwriting reserves is assessed pursuant to FAS 60 by

means of what is referred to as loss recognition test. This involves estimation of future

cash flows, taking into account realistic estimates of mortality and other probabilities for

termination as well as expense ratios. The cash flows are discounted at a rate commensurate

with current interest expectations. The results of the loss recognition test show

that reserves and future revenues estimated on the basis of realistic assumptions

currently suffice to cover all contractual obligations.

The margins of safety included in the underlying assumptions for health insurance

underwriting reserves are sufficiently high so that it is possible to dispense with assessment

of appropriateness of the liabilities.

Underwriting reserves for unit-linked life insurance

In addition to policy reserves, other underwriting reserves are also established here for

liabilities in connection with life insurance policies that transfer investment risk to policyholders

or provide index-linked benefits.

Pursuant to FAS 97, the amount stated for gross policy reserves is the same as the

amount stated for investments held for unit-linked life insurance policies.

Investments assigned to unit-linked life insurance are carried separately from those of

the Group. In this case unrealized gains and losses result in an increase or decrease in

the corresponding reserves. All gains on these investments accrue to policyholders, as

do all losses.

130 Gothaer Group Annual Report 2009


Provisions for pension benefits and similar obligations

Other accruals

Liabilities

Premiums

Consolidated Financial Statements

Group companies for the most part use defined-benefit plans to provide pension

benefits. Defined-benefit pension plans are accounted for pursuant to IAS 19 using the

projected unit credit method and taking into account actuarial parameters. Calculation

is based on the use of current mortality tables, disability and fluctuation probability,

assumptions on increases in remuneration and annuities and a realistic discount rate.

Actuarial gains and losses result from differences between actual obligations and

benefits paid and obligations and benefits anticipated based on actuarial assumptions

as well as from changes in actuarial assumptions. Actuarial gains and losses are

accounted for using the corridor method pursuant to IAS 19.92.

Other accruals and provisions are established in amounts based on the best estimate of

the outflow of funds required to settle the corresponding obligations as of the reporting

date. Long-term accruals and provisions are discounted if the interest effect is significant.

This item includes participation certificates, subordinate liabilities, bonds and loans,

deposits received from reinsurers and other liabilities. These liabilities are all recognized

at repayable amounts or amortized cost. Investments held for trading with a

negative fair value are also shown under this item.

Earned premiums do not contain those components of premiums that may be recognized

in the statement of income only after the reporting date. In property/casualty

insurance, premiums are essentially booked as income on a day-by-day basis over the

term of the insurance contract. Unearned premiums are calculated and deferred for each

individual contract. Premium income from short-term accident and health insurance

contracts is recorded on a pro rata basis over the term of each contract. In classical life

insurance and in long-term accident and health insurance contracts, premiums are

booked as earned when due. At the same time, reserves for anticipated benefits are

formed to spread profits over the term of the contracts.

Gothaer Group Annual Report 2009 131


Consolidated Financial Statements

Currency translation

Leasing agreements

In the case of life insurance products that primarily cover assignment of financial risk or

can be separated explicitly in insurance and savings components (e. g. unit-linked life

policies), savings components are deducted from the gross premiums written because

only income from the coverage of risks and costs may be recognized as earned

premiums. In addition, a deduction is made from premiums to allow for a collective

valuation allowance. This takes account of payment default risk based on past experience.

The consolidated financial statements of the Gothaer Group are denominated in euros.

All companies whose accounts are included in the consolidated financial statements

denominate their financial statements in euros. Since our business is concentrated in

Germany, currency translation is of insignificant importance for our Group.

Monetary items in foreign currencies are translated at the exchange rate prevailing as

of the reporting date. Non-monetary items in foreign currencies that are carried at

historical cost are translated at the exchange rate prevailing at the time of acquisition.

Non-monetary items in foreign currencies that are carried at fair value are translated at

the exchange rate at the time of valuation. Underwriting liabilities involving payment in

foreign currencies are covered by funds in the same currency (congruent coverage) to

the extent possible due to the difficulty of estimating such uncertain liabilities.

Differences in connection with monetary financial instruments that result from translation

of items in foreign currencies as of the reporting date at an exchange rate that

differs from that used for first-time recognition are shown in the statement of income.

Intangible assets and tangible assets are used under operating leases. In the case of

operating leases, assets are not recognized by the lessee since the lessor retains the

related benefits and risks of ownership. Lease payments are recognized as expense in

the financial year in which they occur.

Finance leases exist in the area of EDP hardware. Assets used under finance leases are

recognized as assets by the lessee. Lease payments due at future dates are recognized

as liabilities.

132 Gothaer Group Annual Report 2009


Other information

Consolidated Financial Statements

Due to the presentation of amounts in millions of euro, rounding differences may occur

in tables.

Comments on the information on insurance policies required under IFRS 4 as well as

information on financial instruments required under IFRS 7 are provided in the risk report

within the Management report where they are not provided in the Accounting Policies

and Notes to the Consolidated Financial Statements. Classification for the presentation

of information required in IFRS 7 is based on the accounting categories contained in

IAS 39.

Gothaer Group Annual Report 2009 133


Consolidated Financial Statements

Notes to the Consolidated Statement

of Financial Position – Assets

[1]

Goodwill

[2]

Other intangible assets

[3]

Tangible assets

No companies were acquired in 2009. Nor, as in the prior year, did the impairment test

show any need for write-downs. The gross book value of goodwill thus remains unchanged

at €33.8 million and accumulated impairment at €8.7 million.

Developments in the financial year €million

Internally

generated

134 Gothaer Group Annual Report 2009

2009

Purchased Total

2008 2009 2008 2009 2008

Gross as of 1 Jan. 174.6 150.9 291.7 269.2 466.3 420.1

Accumulated amortization

as of 1 Jan. 119.3 109.7 219.3 212.2 338.6 321.9

Balance as of 1 Jan. 55.3 41.2 72.4 57.0 127.7 98.2

Additions 17.6 23.8 25.9 30.0 43.5 53.9

Disposals 0.0 0.0 6.5 0.2 6.5 0.2

Scheduled amortization 11.3 9.7 17.7 14.4 29.0 24.1

Balance as of 31 Dec. 61.6 55.3 74.1 72.4 135.7 127.7

Accumulated amortization

as of 31 Dec. 130.6 119.3 202.0 219.3 332.6 338.6

Gross as of 31 Dec. 192.2 174.6 276.1 291.7 468.3 466.3

Developments in the financial year €million

2009 2008

Gross as of 1 Jan. 503.6 496.4

Accumulated depreciation as of 1 Jan. 295.9 287.1

Balance as of 1 Jan. 207.7 209.3

Additions 6.5 23.4

Disposals 3.9 9.2

Scheduled depreciation 15.2 15.8

Balance as of 31 Dec. 195.1 207.7

Accumulated depreciation as of 31 Dec. 285.0 295.9

Gross as of 31 Dec. 480.1 503.6

The balance consists of €162.9 million (PY: €165.5 million) for self-occupied property and

€32.2 million (PY: €42.2 million) for tangible assets.

The fair value of self-occupied property comes to €199.5 million (PY: €199.1million).


[4]

Investment property

[5]

Shares in affiliated and

associated companies

Consolidated Financial Statements

Developments in the financial year €million

2009 2008

Gross as of 1 Jan. 198.8 241.1

Accumulated depreciation as of 1 Jan. 105.9 127.9

Balance as of 1 Jan. 92.9 113.2

Additions 2.0 0.0

Disposals 0.4 16.4

Scheduled depreciation 1.9 1.9

Impairment 3.2 2.0

Reversals 0.3 0.0

Balance as of 31 Dec. 89.7 92.9

Accumulated depreciation as of 31 Dec. 103.7 105.9

Gross as of 31 Dec. 193.4 198.8

The fair value of investment property comes to €126.1 million (PY: €127.9 million).

Operating expenses directly attributable to rented property, including repairs and maintenance,

come to €6.9 million (PY: €4.5 million).

Impairment losses were incurred exclusively in the Other Activities segment. Additions in

2009 refer completely to new acquisitions.

Eleven (PY: ten) associated companies were carried at equity in the amount of €70.3

million (PY: €70.7 million). The corresponding goodwill of these associated companies is

unchanged at €24.2 million. Any negative consolidation differences are amortized

directly in the financial year in which they occur. No negative differences occurred in the

financial year 2009 or in the prior year. The fair value of the associated companies

consolidated at equity totalled €378.1 million (PY: €424.1 million).

Gothaer Group Annual Report 2009 135


Consolidated Financial Statements

Associated companies

Shares in affiliated and

associated companies –

non-consolidated

[6]

Investments held

to maturity

Financial information* €million

Assets Liabilities Sales revenues Profit

2009

Other affiliated and associated companies are not consolidated because they are of

insignificant economic importance. These interests are recognized as investments

available for sale at fair value. Unrealized gains and losses were shown under equity after

any deduction of deferred taxes and reserves for deferred premium refunds.

Breakdown by type of company €million

Amortized cost Unrealized

Unrealized

Fair value

gains

losses

2009

2008 2009 2008 2009 2008 2009 2008

Affiliated

companies 444.8 404.1 78.7 105.0 1.0 4.0 522.5 505.1

Associated

companies 870.5 791.8 73.8 120.2 6.9 15.1 937.4 896.9

Total 1,315.3 1,195.9 152.5 225.2 7.9 19.1 1,459.9 1,402.0

Breakdown by type of investment €million

Amortized

cost

2009

2008 2009 2008 2009 2008 2009 2008

Consolidated 751.3 781.3 652.4 691.7 1,716.7 1,463.9 23.0 20.7

Non-consolidated 100.1 209.7 48.7 36.7 121.6 118.9 –36.3 122.1

* The last two available financial statements of the associated companies are the basis for the above figures.

Unrealized

gains

Unrealized

losses

Fair value

2008 2009 2008 2009 2008 2009 2008

Bearer bonds 2,239.9 2,761.8 44.8 14.8 124.0 424.2 2,160.7 2,352.4

Other loans 40.8 40.8 0.0 0.0 1.7 5.3 39.1 35.5

Total 2,280.7 2,802.7 44.8 14.8 125.7 429.5 2,199.8 2,387.9

136 Gothaer Group Annual Report 2009


Investments held

to maturity

Consolidated Financial Statements

Breakdown by residual term €million

Amortized cost Fair value

Gothaer Group Annual Report 2009 137

2009

2008 2009 2008

Up to 1 year 80.8 49.0 80.0 30.5

1 to 2 years 239.9 97.1 245.2 87.9

2 to 3 years 146.3 286.5 143.9 261.4

3 to 4 years 388.6 148.1 387.3 136.3

4 to 5 years 250.5 394.8 242.9 368.8

5 to 10 years 1,038.4 1,428.0 986.3 1,210.7

After 10 years 136.2 399.2 114.2 292.3

Total 2,280.7 2,802.7 2,199.8 2,387.9

Breakdown by rating category €million

Amortized cost Fair value

2009

2008 2009 2008

AAA 0.0 67.9 0.0 67.6

AA 153.4 214.5 143.9 198.3

A 1,149.7 1,366.3 1,143.9 1,237.5

BBB 748.9 1,039.9 709.2 812.2

BB 215.5 111.4 189.9 70.6

B 7.2 0.0 6.9 0.0

CCC and lower 5.1 0.0 5.1 0.0

Non-rated 0.9 2.6 0.9 1.7

Total 2,280.7 2,802.7 2,199.8 2,387.9

Impairment €million

2009 2008

Amortized cost before impairment 199.3 245.7

Impairment

Due to significant change in creditworthiness 0.9 6.9

Due to significant decrease in fair value 18.9 9.2

Amortized cost after impairment 179.5 229.6


Consolidated Financial Statements

[7]

Loans

Breakdown by type of investment €million

Amortized

cost

2009

Unrealized

gains

Unrealized

losses

Fair value

2008 2009 2008 2009 2008 2009 2008

Mortgage loans 420.5 474.3 13.2 7.0 0.0 0.0 433.7 481.3

Loans and advance

payments on

insurance policies 60.5 58.1 12.4 0.0 0.0 0.0 72.9 58.1

Loans to affiliated

companies 21.1 21.7 0.0 0.0 0.0 0.0 21.1 21.7

Loans to associated

companies 31.2 26.0 0.0 0.0 0.0 0.0 31.2 26.0

Other loans 34.7 32.2 0.5 0.0 2.1 4.4 33.1 27.8

Bearer bonds 1,111.1 1,141.7 83.4 83.1 69.9 48.7 1,124.6 1,176.0

Registered bonds 2,088.3 2,311.8 45.4 22.8 29.6 39.2 2,104.1 2,295.4

Promissory notes 3,227.3 2,946.1 34.0 19.4 88.8 100.7 3,172.5 2,864.8

Total 6,994.7 7,011.9 188.9 132.3 190.4 193.0 6,993.2 6,951.1

Loans to associated companies include €22.5 million (PY: €17.8 million) in loans to

consolidated companies and €8.7 million (PY: €8.2 million) in loans to non-consolidated

companies.

Breakdown by residual term €million

Amortized cost Fair value

Up to 1 year 1,134.7 582.0 1,113.6 569.3

1 to 2 years 728.0 841.1 733.3 842.0

2 to 3 years 818.8 560.8 806.7 557.8

3 to 4 years 501.9 1,066.4 514.9 1,050.4

4 to 5 years 653.8 564.3 675.6 569.3

5 to 10 years 1,659.7 2,054.0 1,666.4 2,077.4

After 10 years 1,497.8 1,343.3 1,482.7 1,284.9

Total 6,994.7 7,011.9 6,993.2 6,951.1

138 Gothaer Group Annual Report 2009

2009

2008 2009 2008


Loans

Consolidated Financial Statements

Breakdown by rating category €million

Amortized cost Fair value

AAA 2,237.6 2,210.1 2,257.8 2,194.6

AA 1,855.1 2,018.3 1,841.9 1,977.9

A 1,392.7 1,696.3 1,376.1 1,660.5

BBB 590.5 442.5 605.1 462.6

BB 213.6 14.5 212.6 17.2

B 43.7 2.5 27.6 1.5

CCC and lower 76.0 1.3 55.9 1.3

Non-rated 585.5 626.4 616.2 635.5

Total 6,994.7 7,011.9 6,993.2 6,951.1

Impairment €million

2009 2008

Amortized cost before impairment 99.3 427.3

Impairment

Due to significant change in creditworthiness 0.1 22.1

Due to significant decrease in fair value 2.4 12.0

Amortized cost after impairment 96.8 393.2

Gothaer Group Annual Report 2009 139

2009

2008 2009 2008


Consolidated Financial Statements

Reclassification

in accordance with

IAS 39.50

Anticipated cash flows

No reclassification in accordance with IAS 39.50 was made in the financial year. In 2008

investments available for sale with a fair value of €1,034.4 million were reclassified as

loans. These financial instruments had a carrying value, i.e. amortized costs of €936.1

million (PY: €1,063.1 million) at the end of the financial year and a fair value of €956.7

million (PY: €1,096.6 million), and income and expenses totalling €105.4 million (PY:

€59.3 million) was recorded in the statement of comprehensive income.

Change in fair value of reclassified investments €million

2009 2008

Until time of reclassification

Unrealized gains and losses 0.0 –117.0

Realized gains and losses 0.0 –0.8

Without reclassification (shadow accounting)

Unrealized gains and losses 107.6 –43.7

Realized gains and losses 0.4 –0.8

The effective yield of the reclassified financial instruments was between 3.4 % and

20.3 %.

Payment times €million

2009 2008

Up to 1 year 69.7 28.9

1 to 2 years 91.4 18.4

2 to 3 years 80.3 62.5

3 to 4 years 42.8 54.6

4 to 5 years 179.7 47.2

5 to 10 years 656.9 929.0

Total 1,120.8 1,140.7

140 Gothaer Group Annual Report 2009


[8]

Investments available

for sale

Fixed-income securities

Consolidated Financial Statements

Breakdown by type of investment €million

Amortized

cost

2009

Unrealized

gains

Unrealized

losses

Fair value

2008 2009 2008 2009 2008 2009 2008

Non-fixed-income

securities 1,943.5 2,454.1 81.6 176.9 238.8 573.5 1,786.3 2,057.5

Fixed-income

securities

Bearer bonds 8,177.7 5,316.1 199.0 130.7 32.3 170.9 8,344.4 5,275.9

Registered

bonds 42.1 32.5 0.9 0.6 0.0 0.0 43.0 33.1

Promissory

notes 653.8 703.6 3.5 3.5 0.0 0.1 657.3 707.0

Other loans 0.0 176.2 0.0 1.9 0.0 0.2 0.0 177.9

Total 10,817.1 8,682.5 285.0 313.6 271.1 744.7 10,831.0 8,251.4

Breakdown by residual term €million

Amortized cost Fair value

Up to 1 year 1,652.6 271.1 1,653.6 260.8

1 to 2 years 943.4 152.0 955.6 152.3

2 to 3 years 755.4 539.0 767.6 538.2

3 to 4 years 604.2 338.7 619.8 336.6

4 to 5 years 792.8 623.4 825.9 617.5

5 to 10 years 2,928.3 3,534.3 3,007.9 3,528.7

After 10 years 1,196.9 769.9 1,214.3 759.8

Total 8,873.6 6,228.4 9,044.7 6,193.9

Gothaer Group Annual Report 2009 141

2009

2008 2009 2008


Consolidated Financial Statements

Investments

available for sale

Fixed-income securities

Breakdown by rating category €million

AAA 4,777.3 3,751.3 4,830.8 3,821.0

AA 1,521.5 1,326.9 1,549.6 1,339.7

A 837.9 402.3 886.2 394.8

BBB 738.0 264.9 764.9 225.0

BB 157.9 111.8 168.3 97.2

B 117.3 146.4 120.9 94.1

CCC and lower 8.0 2.3 6.9 2.3

Non-rated 715.5 222.5 717.0 219.8

Total 8,873.6 6,228.4 9,044.7 6,193.9

Concentration of default risks is avoided through strict limits for all fixed-income

securities imposed by the supervisory bodies of the Gothaer Group. In addition, the

amounts and ratings of individual exposures are constantly monitored to permit timely

identification of possible defaults.

The effective interest rates on our fixed-income securities lie between 0.0 % and 12.5 %.

All valuation categories include financial instruments with variable coupons that are

dependent upon market conditions or specific corporate events.

Impairment

Amortized cost Fair value

142 Gothaer Group Annual Report 2009

2009

2008 2009 2008

€million

2009 2008

Amortized cost before impairment 1,416.6 1,849.3

Impairment

Due to significant change in creditworthiness 0.2 5.6

Due to significant decrease in fair value 83.8 266.5

Due to permanent negative fair value reserve 16.4 15.6

Due to repeated impairment of impaired investments 83.7 52.1

Amortized cost after impairment 1,232.5 1,509.5


[9]

Investments measured

at fair value through

profit or loss

Derivative

financial instrument

Consolidated Financial Statements

Breakdown by type of investment €million

Held for trading

Non-fixed-income 0.0 0.0 10.4 323.2

Fixed-income 0.0 0.0 52.5 85.7

0.0 0.0 62.9 408.9

By designation

Non-fixed-income 6.1 0.0 6.7 0.0

Fixed-income 0.5 4.0 0.6 3.1

6.6 4.0 7.3 3.1

Total 6.6 4.0 70.2 412.0

The Gothaer Group does not use hedge accounting within the meaning of IAS 39. All

derivative financial instruments are therefore shown under investments held for trading.

Derivatives are financial instruments whose value changes as a function of the changes

in one or more underlying variables. Derivative financial instruments are used within the

Gothaer Group for purposes of performance management and protection of investment

portfolios against falling prices. In particular, forward foreign exchange contracts are used

to protect against exchange rate risks and interest swaps to protect against changes in

interest rates. All derivative financial instruments are recognized based on conventional

option, future or swap models.

Valuation models

Historical cost Fair value

Listed share options Quoted price — —

Total return swaps Theoretical Market value of Cash value

price reference instrument method

Yield curve

Yield swaps Theoretical Swap curve Cash value

price Money market yield curve method

Forward exchange Theoretical Spot rate Cash value

transactions price Money market y1ield curve method

Credit default swaps Theoretical Credit spreads Cash value

price Recovery rates method

Yield curve

Gothaer Group Annual Report 2009 143

2009

2008 2009 2008

Derivative Pricing method Parameters Pricing model


Consolidated Financial Statements

Embedded derivatives are separated from the host contracts and shown under investments

held for trading. Hybrid financial instruments are generally fixed-income

securities that have been combined with a derivative. All embedded derivatives are

separated from their host contracts in compliance with the provisions of IAS 39.11(a) when

their characteristics and risks are not closely related to those of the respective host

contracts and they go beyond the interest risks of the respective host contracts. Host

contracts are recognized as fixed-income securities at amortized cost under loans or

investments held to maturity or alternatively at fair value under investments available for

sale.

Separation of derivatives from underlyings involves three categories of securities. The

first category includes bonds with interest coupons and/or redemption linked to a

reference instrument (e. g., stock indexes or hedge funds). Such structures consist of a

plain vanilla bond and a long call or a total return swap on the underlying reference asset.

In the case of a total return swap, we assume that the yield of the plain vanilla bond is

variable and in line with the market. The total fluctuation in fair value is thus recognized

through profit or loss at total return swap level. The second category includes separate

recognition of credit-linked notes. In this case, the embedded credit default swap used

to hedge the credit risk is shown separately. In the third category are hybrid bonds

consisting of a plain vanilla bond for retirement at call date and a short put.

Derivative financial instruments with a negative fair value are shown in Equity and

Liabilities under item E.-Liabilities.

As required by IAS 39.11(c) hybrid instruments in special funds are accounted for as

financial instruments at fair value under the subheading “by designation.”

The maximum credit risk of financial instruments recognized by designation at fair value

through profit or loss is €7.3 million (PY: €3.1 million). No credit derivatives exist that

reduce the credit risk of these financial instruments. Any changes in fair value are in our

opinion due exclusively to market fluctuations.

144 Gothaer Group Annual Report 2009


Investments measured

at fair value

through profit or loss

Fixed-income securities

Consolidated Financial Statements

Breakdown by residual term €million

Restlaufzeiten – Erfolgswirksam zum Held beizulegenden

for trading By designation

Zeitwert bewertete Finanzinvestitionen in Mio. EUR

Gothaer Group Annual Report 2009 145

2009

2008 2009 2008

Up to 1 year 1.1 6.8 0.0 0.4

1 to 2 years 0.1 14.7 0.0 0.9

2 to 3 years 0.3 2.9 0.0 0.0

3 to 4 years 0.0 5.9 0.6 0.0

4 to 5 years 3.9 1.6 0.0 1.5

5 to 10 years 46.8 49.8 0.0 0.3

After 10 years 0.3 4.0 0.0 0.0

Total 52.5 85.7 0.6 3.1

Breakdown by rating category €million

Restlaufzeiten – Erfolgswirksam zum Held beizulegenden

for trading By designation

Zeitwert bewertete Finanzinvestitionen in Mio. EUR

2009

2008 2009 2008

AAA 0.0 0.0 0.0 0.0

AA 0.0 0.0 0.0 0.0

A 0.0 0.0 0.0 0.0

BBB 0.0 0.1 0.0 0.0

BB 0.0 0.5 0.0 0.0

B 0.0 0.6 0.6 3.1

CCC and lower 0.0 0.3 0.0 0.0

Non-rated 52.5 84.2 0.0 0.0

Total 52.5 85.7 0.6 3.1


Consolidated Financial Statements

Investments measured

at fair value through

profit or loss

Reconciliation

of level 3 investments

Valuation hierarchy €million

Level 1 Level 2 Level 3 Total

Investments measured at fair value and recognized in equity include non-consolidated

shares in affiliated and associated companies as well as investments available for sale.

The valuation hierarchy also shows the investments measured at fair value through profit

or loss, which have a negative fair value and are recognized accordingly under

liabilities on the equity and liabilities side of the statement of financial position.

Investments with a fair value of €12.3 million were reclassified in the financial year from

level 2 to level 1.

Developments in the financial year €million

Level 3 investments produced a net profit of €64.5 million.

146 Gothaer Group Annual Report 2009

2009

2009 2009 2009

Investments measured at fair value

and recognized directly in equity

Non-fixed-income 801.7 1,542.9 901.6 3,246.2

Fixed-income 7,641.7 1,403.0 0.0 9,044.7

Investments measured at fair value

through profit or loss

Held for trading –0.2 –73.3 0.0 –73.5

By designation 7.3 0.0 0.0 7.3

Investments held for unit-linked life

insurance policies 886.7 238.0 0.0 1,124.7

Total 9,337.2 3,110.6 901.6 13,349.4

2009

Value as of 1 Jan. 819.8

Change in value recognized through profit or loss –87.7

Change in value recognized in equity –11.5

Acquisitions 194.2

Sales 13.2

Change in class assignment 0.0

Value as of 31 Dec. 901.6


[10]

Other investments

[11]

Receivables

Other investments/

receivables

Consolidated Financial Statements

Breakdown by type of investment €million

The carrying amount of other investments corresponds to the fair value.

2009 2008

Deposits retained on assumed business 56.8 61.7

Bank deposits 694.0 1,307.9

Miscellaneous other 37.8 38.0

Total 788.6 1,407.6

Breakdown by type of receivable €million

2009 2008

Receivables from primary insurance business

from policyholders 108.1 160.8

from intermediaries 98.1 90.1

Accounts receivable in connection with reinsurance business 54.0 56.2

Accounts receivable from affiliated and associated companies 13.7 11.2

Deferred interest and rent 305.2 307.6

Miscellaneous other 257.7 213.1

Total 836.8 839.0

The carrying amount of receivables corresponds to the fair value. Prepayments of

€0.2 million (PY: €0.0 million) were made. There are no receivables from related companies.

Breakdown by residual term €million

Deposits with

ceding undertakings

Up to 1 year 56.1 60.9 694.0 1.307.9 831.1 875.8

1 to 5 years 0.0 0.0 0.0 0.0 73.3 25.2

After 5 years 0.7 0.8 0.0 0.0 61.0 61.0

Total 56.8 61.7 694.0 1,307.9 965.4 962.0

Gothaer Group Annual Report 2009 147

2009

Bank deposits Other

receivables

2008 2009 2008 2009 2008

In addition to the receivables shown under item E. Receivables in the statement of

financial position, other receivables include the tax refunds due in the amount

of €128.6 million (PY: €123.0 million) that are shown under item J. I. of the statement of

financial positions.


Consolidated Financial Statements

[12]

Deferred acquisition

costs (net)*

[13]

Tax assets

[14]

Other assets

Breakdown by segment €million

Property/

Casualty*

2009

* Figures based on full consolidation

** Including insurance portfolio of Gothaer Finanzholding AG

Life Health

148 Gothaer Group Annual Report 2009

Total

2008 2009 2008 2009 2008 2009 2008

Balance 1 Jan.

Gross 48.1 55.5 839.3 821.2 149.5 151.2 1,036.9 1,027.8

Reinsurers’ share 10.0 6.7 61.0 73.4 0.0 0.0 71.0 80.1

Net 38.1 48.8 778.3 747.7 149.5 151.2 965.9 947.7

New deferred

acquisition costs

Gross 47.6 35.4 74.1 114.9 29.3 15.9 151.0 166.3

Reinsurers’ share 21.4 9.1 1.4 1.2 0.0 0.0 22.7 10.3

Net 26.3 26.3 72.7 113.7 29.3 15.9 128.3 156.0

Amortization

Gross 35.4 42.8 80.9 96.8 18.7 17.6 135.0 157.2

Reinsurers’ share 12.3 5.8 12.5 13.6 0.0 0.0 24.8 19.4

Net 23.1 37.0 68.4 83.2 18.7 17.6 110.2 137.8

Balance 31 Dec.

Gross 60.4 48.1 832.5 839.3 160.0 149.5 1,052.9 1,036.9

Reinsurers’ share 19.1 10.0 49.9 61.0 0.0 0.0 69.0 71.0

Net 41.3 38.1 782.6 778.3 160.0 149.5 983.9 965.9

Deferred tax assets are based on the one hand on deferred taxes arising from tax loss

carryforwards and on the other hand on lower carrying amounts for investments under

IFRS than under the tax balance sheet and higher carrying amounts for provisions for

pension benefits.

In the current financial year, corporate income tax loss carryforwards in the amount of

€175.7 million (PY: €207.9 million) and trade tax loss carryforwards in the amount of

€183.6 million (PY: €218.3 million) were considered not utilizable so that no deferred tax

assets were recognized. They can be used without time limitation.

Breakdown by asset item €million

2009 2008

Inventories 2.3 3.3

Other assets 7.4 7.5

Total 9.7 10.8


Notes to the Consolidated Statement

of Financial Position – Equity and Liabilities

[15]

Other reserves

Unrealized gains

and losses on

investments available

for sale

[16]

Minority interests

Consolidated Financial Statements

Breakdown by reserve item €million

2009 2008

Unrealized gains and losses

on investments available for sale 40.3 2.5

resulting from reclassification of investments –17.8 –28.9

Total 22.5 –26.4

Due to the application of the revised version of IAS 39 in 2005, investments in the

available for sale category were reassigned to the valuation categories for investments

held to maturity and loans. In 2008, the new option in IAS 39.50 was used to reclassify

other investments available for sale as loans. The unrealized gains and losses from these

reclassified investments are recognized in a special reserve under other reserves. In the

event of the disposal or impairment of an investment, the reserve is reversed in full. If the

investment remains unchanged in the portfolio, the reserve is reversed by amortization

over the residual term of the asset.

Reconciliation €million

2009 2008

Gross amount 158.5 –224.9

Less:

Reserves for deferred premium refunds 114.2 –203.0

Deferred taxes –4.6 –30.3

Effects of consolidation 8.6 5.9

Total 40.3 2.5

Exchange rate differences of €–0.8 million (PY: €0.5 million) are recognized directly in

equity.

Breakdown by equity item €million

2009 2008 Opening balance

sheet 2008

Revenue reserves 22.2 27.2 30.4

Other reserves 8.6 5.8 7.7

Net profit for the year 1.7 2.6 6.3

Total 32.5 35.6 44.4

Gothaer Group Annual Report 2009 149


Consolidated Financial Statements

[17]

Underwriting reserves

Breakdown by type of underwriting reserve (financial year) €million

Unearned premiums 464.9 89.7 375.2

Policy reserves 17,709.8 1,307.0 16,402.8

Reserves for unpaid claims 2,234.6 448.9 1,785.7

Other underwriting reserves

Reserves for premium refunds 1,773.7 0.2 1,773.5

Miscellaneous other underwriting reserves 8.1 -8.8 16.8

Total 22,191.1 1,837.0 20,354.0

150 Gothaer Group Annual Report 2009

2009

Gross Re Net

Breakdown by type of underwriting reserve (previous year) €million

Unearned premiums 431.5 79.2 352.3

Policy reserves 16,774.1 1,327.0 15,447.1

Reserves for unpaid claims 2,262.4 501.7 1,760.7

Other underwriting reserves

Reserves for premium refunds 1,579.4 0.2 1,579.2

Miscellaneous other underwriting reserves 9.9 –5.7 15.6

2008

Gross Re Net

Total 21,057.3 1,902.4 19,154.9

Breakdown by type of underwriting reserve (opening balance sheet) €million

Opening balance sheet 2008

Gross Re Net

Unearned premiums 379.1 62.2 316.9

Policy reserves 16,160.6 1,357.1 14,803.5

Reserves for unpaid claims 2,319.6 515.9 1,803.7

Other underwriting reserves

Reserves for premium refunds 2,326.3 0.0 2,326.3

Miscellaneous other underwriting reserves 16.3 5.8 10.5

Total 21,201.9 1,941.0 19,260.9


Underwriting reserves –

gross

Maturities (financial year)

Up to

1 year

Consolidated Financial Statements

€million

Gothaer Group Annual Report 2009 151

2009

1 to 5

years

More

than

5 years

Without

a fixed

term

Unearned premiums 348.4 116.5 0.0 0.0 464.9

Policy reserves 899.4 2,904.1 9,308.8 4,597.6 17,709.9

Reserves for unpaid claims 752.1 578.4 823.5 80.6 2,234.6

Other underwriting reserves

Reserves for premium refunds 72.1 73.0 0.0 1,628.6 1,773.7

Miscellaneous other underwriting reserves 5.7 1.7 0.0 0.6 8.1

Total 2,077.7 3,673.7 10,132.3 6,307.4 22,191.1

Maturities (previous year)

2008

Up to

1 year

1 to 5

years

More

than

5 years

Without

a fixed

term

Total

€million

Unearned premiums 330.3 101.2 0.0 0.0 431.5

Policy reserves 792.5 2,822.0 8,875.3 4,284.3 16,774.1

Reserves for unpaid claims 751.4 555.9 876.8 78.3 2,262.4

Other underwriting reserves

Reserves for premium refunds 64.9 103.1 0.0 1,411.4 1,579.4

Miscellaneous other underwriting reserves 7.4 1.9 0.0 0.6 9.9

Total 1,946.5 3,584.1 9,752.1 5,774.6 21,057.3

Maturities (opening balance sheet)

Opening balance sheet 2008

Up to

1 year

1 to 5

years

More

than

5 years

Without

a fixed

term

Total

€million

Unearned premiums 318.2 61.0 0.0 0.0 379.1

Policy reserves 851.2 2,756.8 8,477.1 4,075.4 16,160.6

Reserves for unpaid claims 732.3 567.9 929.8 89.6 2,319.6

Other underwriting reserves

Reserves for premium refunds 66.0 135.4 0.0 2,124.9 2,326.3

Miscellaneous other underwriting reserves 14.0 1.5 0.0 0.8 16.3

Total 1,970.9 3,522.6 9,406.9 6,290.7 21,201.9

Total


Consolidated Financial Statements

Underwriting reserves –

reinsurers’ share

Maturities (financial year) €million

Up to

1 year

152 Gothaer Group Annual Report 2009

2009

1 to 5

years

More

than

5 years

Without

a fixed

term

Unearned premiums 34.8 54.9 0.0 0.0 89.7

Policy reserves 86.0 329.7 776.6 114.7 1,307.0

Reserves for unpaid claims 129.0 117.4 118.4 84.1 448.9

Other underwriting reserves

Reserves for premium refunds 0.2 0.0 0.0 0.0 0.2

Miscellaneous other underwriting reserves –8.8 0.0 0.0 0.0 –8.8

Total 241.2 502.0 895.0 198.8 1,837.0

Maturities (previous year) €million

2008

Up to

1 year

1 to 5

years

More

than

5 years

Without

a fixed

term

Unearned premiums 35.1 44.1 0.0 0.0 79.2

Policy reserves 90.0 326.4 800.1 110.5 1,327.0

Reserves for unpaid claims 148.4 123.3 132.8 97.2 501.7

Other underwriting reserves

Reserves for premium refunds 0.2 0.0 0.0 0.0 0.2

Miscellaneous other underwriting reserves –5.7 0.0 0.0 0.0 –5.7

Total 268.0 493.8 932.9 207.7 1,902.4

Maturities (opening balance sheet) €million

Opening balance sheet 2008

Up to

1 year

1 to 5

years

More

than

5 years

Without

a fixed

term

Unearned premiums 43.7 18.5 0.0 0.0 62.2

Policy reserves 98.6 331.3 822.3 105.0 1,357.1

Reserves for unpaid claims 136.7 120.4 141.5 117.2 515.9

Other underwriting reserves

Reserves for premium refunds 0.0 0.0 0.0 0.0 0.0

Miscellaneous other underwriting reserves 5.8 0.0 0.0 0.0 5.8

Total 284.8 470.2 963.8 222.2 1,941.0

Total

Total

Total


[18]

Unearned premiums

[19]

Policy reserves

Consolidated Financial Statements

Breakdown by segment* €million

Property/

Casualty**

2009

Life Health

Gross 464.7 431.3 0.0 0.0 0.2 0.2 464.9 431.5

Reinsurers’

share 89.7 79.2 0.0 0.0 0.0 0.0 89.7 79.2

Net 375.0 352.1 0.0 0.0 0.2 0.2 375.2 352.3

* Figures based on full consolidation

** Including insurance portfolio of Gothaer Finanzholding AG

Gothaer Group Annual Report 2009 153

Total

2008 2009 2008* 2009 2008 2009 2008

Breakdown by segment* €million

Property/

Casualty**

2009

Life Health

Gross 51.4 51.0 14,077.8 13,352.2 3,580.6 3,370.9 17,709.8 16,774.1

Reinsurers’

share 0.0 0.0 1,307.0 1,327.0 0.0 0.0 1,307.0 1,327.0

Net 51.4 51.0 12,770.8 12,025.2 3,580.6 3,370.9 16,402.8 15,447.1

* Figures based on full consolidation

** Including insurance portfolio of Gothaer Finanzholding AG

Total

2008 2009 2008 2009 2008 2009 2008


Consolidated Financial Statements

Life insurance

policy reserves

Health insurance

policy reserves

Developments in the financial year €million

2009 2008

Balance as of 1 Jan. 13,352.2 1,327.0 12,025.2 12,941.6 1,357.1 11,584.5

Allocations 2,444.5 0.5 2,444.0 1,550.9 0.7 1,550.2

Amount used 1,718.9 20.6 1,698.3 1,140.3 30.8 1,109.5

Reversals 0.0 0.0 0.0 0.0 0.0 0.0

Balance as of 31 Dec. 14,077.8 1,307.0 12,770.8 13,352.2 1,327.0 12,025.2

154 Gothaer Group Annual Report 2009

Gross

Re Net Gross Re Net

Developments in the financial year €million

2009 2008

Gross

Re Net Gross Re Net

Balance as of 1 Jan. 3,370.9 0.0 3,370.9 3,168.5 0.0 3,168.5

Allocations 209.7 0.0 209.7 202.4 0.0 202.4

Amount used 0.0 0.0 0.0 0.0 0.0 0.0

Reversals 0.0 0.0 0.0 0.0 0.0 0.0

Balance as of 31 Dec. 3,580.6 0.0 3,580.6 3,370.9 0.0 3,370.9


[20]

Reserves for

unpaid claims

Reserves for unpaid

property/casualty

insurance claims

Consolidated Financial Statements

Breakdown by segment* €million

Property/

Casualty**

2009

Life Health

Gross 2,044.1 2,078.9 54.3 52.8 136.2 130.7 2,234.6 2,262.4

Reinsurers’

share 446.9 500.9 1.4 0.4 0.6 0.4 448.9 501.7

Net 1,597.2 1,578.0 52.9 52.4 135.6 130.3 1,785.7 1,760.7

* Figures based on full consolidation

** Including insurance portfolio of Gothaer Finanzholding AG

Gothaer Group Annual Report 2009 155

Total

2008 2009 2008 2009 2008 2009 2008

Developments in the financial year €million

2009 2008

Balance as of 1 Jan.

Gross 2,078.9 2,145.1

Reinsurers’ share 500.9 515.2

Net 1,578.0 1,629.9

Plus losses incurred (net)

Financial year 925.8 1,553.7

Previous year –49.4 –763.8

Total 876.4 789.9

Less claims paid (net)

Financial year 458.7 1,118.3

Previous year 394.6 –273.0

Total 853.3 845.3

Currency translation 0.2 –1.2

Other changes –4.1 4.7

Balance as of 31 Dec.

Net 1,597.2 1,578.0

Reinsurers’ share 446.9 500.9

Gross 2,044.1 2,078.9


Consolidated Financial Statements

Gross reserves

for unpaid claims of

Gothaer Allgemeine

Versicherung AG

(primary business)

[21]

Other underwriting

reserves

Run-off €million

Year of occurrence

Financial year

2001

2002 2003 2004 2005 2006 2007 2008 2009

2001 Reserves 1 Jan. — 500.0 205.9 143.2 109.7 97.3 81.0 82.5 71.5

Payments 535.1 258.1 59.2 25.6 14.8 10.3 7.0 12.3 7.2

Reserves 31 Dec. 500.0 205.9 143.2 109.7 97.3 81.0 77.4 71.5 64.7

Run-off — 35.9 3.5 7.8 –2.3 5.9 –3.5 –1.3 –0.4

2002 Reserves 1 Jan. — — 498.0 199.1 129.7 109.0 87.3 85.1 72.1

Payments — 568.5 256.7 62.7 30.4 18.2 13.9 10.9 8.6

Reserves 31 Dec. — 498.0 199.1 129.7 109.0 87.3 76.9 72.1 63.7

Run-off — — 42.2 6.7 –9.7 3.4 –3.5 2.1 –0.1

2003 Reserves 1 Jan. — — — 407.4 171.3 122.3 92.7 81.7 67.0

Payments — — 449.5 204.0 58.3 23.9 13.3 7.5 13.0

Reserves 31 Dec. — — 407.4 171.3 122.3 92.7 80.6 67.0 54.6

Run-off — — — 32.0 –9.3 5.7 –1.2 7.2 –0.6

2004 Reserves 1 Jan. — — — — 399.9 170.8 116.0 93.0 79.3

Payments — — — 433.5 196.5 52.8 24.0 13.5 10.2

Reserves 31 Dec. — — — 399.9 170.8 116.0 93.0 79.3 66.2

Run-off — — — — 32.6 2.0 –0.9 0.2 2.9

2005 Reserves 1 Jan. — — — — — 385.1 171.2 128.7 84.9

Payments — — — — 403.9 209.8 53.6 24.0 10.3

Reserves31 Dec. — — — — 385.1 171.2 128.7 84.9 70.8

Run-off — — — — — 4.1 –11.1 19.8 3.8

2006 Reserves 1 Jan. — — — — — — 406.4 168.5 125.7

Payments — — — — — 396.8 218.5 58.6 25.6

Reserves31 Dec. — — — — — 406.4 168.5 125.7 95.7

Run-off — — — — — — 19.3 –15.8 4.4

2007 Reserves 1 Jan. — — — — — — — 421.1 188.1

Payments — — — — — — 469.1 206.8 56.7

Reserves31 Dec. — — — — — — 421.1 188.1 118.5

Run-off — — — — — — — 26.3 12.8

2008 Reserves 1 Jan. — — — — — — — — 447.1

Payments — — — — — — — 431.3 215.2

Reserves31 Dec. — — — — — — — 447.1 198.3

Run-off — — — — — — — — 33.6

2009 Reserves 1 Jan. — — — — — — — — —

Payments — — — — — — — — 402.1

Reserves31 Dec. — — — — — — — — 440.0

Run-off — — — — — — — — —

Breakdown by type of reserve €million

2009 2008

Opening balance

sheet 2008

Gross

Re Net Gross Re Net Gross Re Net

Reserve

for premium

refunds 1,773.7 0.2 1,773.5 1,579.4 0.2 1,579.2 2,326.3 0.0 2,326.3

Miscellaneous

other 8.1 –8.8 16.8 9.9 –5.7 15.6 16.3 5.8 10.5

Total 1,781.8 –8.6 1,790.3 1,589.3 –5.5 1,594.8 2,342.6 5.8 2,336.8

156 Gothaer Group Annual Report 2009


Other underwriting

reserves (net)

Consolidated Financial Statements

Breakdown by segment (financial year)* €million

Property/

Casualty**

Life Health

Gothaer Group Annual Report 2009 157

2009

Reserve for premium refunds 12.0 990.9 770.6 1,773.5

Miscellaneous other 16.1 0.7 0.0 16.8

Total 28.1 991.6 770.6 1,790.3

Breakdown by segment (previous year)* €million

2008

Property/

Casualty**

* Figures based on full consolidation

**Including insurance portfolio of Gothaer Finanzholding AG

Life Health

Reserve for premium refunds 12.2 864.9 702.1 1,579.2

Miscellaneous other 14.7 0.9 0.0 15.6

Total 26.9 865.8 702.1 1,594.8

Breakdown by segment (opening balance sheet)* €million

Opening balance sheet 2008

Property/

Casualty**

Life Health

Reserve for premium refunds 10.9 1,536.2 779.2 2,326.3

Miscellaneous other 7.8 2.7 0.0 10.5

Total 18.7 1,538.9 779.2 2,336.8

Reserves for premium refunds (bonus reserve) include on the one hand the performancerelated

and non-performance-related amounts credited to policyholders in compliance

with national or regulatory requirements, legal provisions or contractual conditions; on the

other hand, they also include the deferred premium refunds resulting from differences in

assets and liabilities between the German Commercial Code (HGB) and IFRS. In accounting

for deferred premium refunds, care is taken to ensure that they are no less – at each

legal entity – than the appropriated reserves for premium refunds.

Total

Total

Total


Consolidated Financial Statements

Reserves for

life insurance

premium refunds

Reserves for

health insurance

premium refunds

Developments in the financial year €million

2009 2008 Opening

balance sheet

2008

Amounts transferred pursuant to national

requirements (gross)

Balance as of 1 Jan. 721.0 741.2 663.6

Allocations 42.6 107.7 159.0

Amount used 109.9 127.9 81.4

Balance as of 31 Dec. 653.7 721.0 741.2

Deferred premium refunds

Balance as of 1 Jan. 143.9 795.0 959.7

Change in unrealized gains and losses

on investments available for sale 270.7 –353.5 –216.1

Other changes –77.4 –297.6 51.4

Balance as of 31 Dec. 337.2 143.9 795.0

Gross 990.9 864.9 1,536.2

Reinsurers’ share 0.0 0.0 0.0

Net 990.9 864.9 1,536.2

Developments in the financial year €million

2009 2008 Opening

balance sheet

2008

Amounts transferred pursuant to national

requirements (gross)

Balance as of 1 Jan. 592.1 572.0 539.7

Allocations 101.1 131.1 153.4

Amount used 83.8 111.0 121.1

Balance as of 31 Dec. 609.4 592.1 572.0

Deferred premium refunds

Balance as of 1 Jan. 110.0 207.2 180.0

Change in unrealized gains and losses

on investments available for sale 46.4 –98.6 –19.3

Other changes 4.8 1.4 46.5

Balance as of 31 Dec. 161.2 110.0 207.2

Gross 770.6 702.1 779.2

Reinsurers’ share 0.0 0.0 0.0

Net 770.6 702.1 779.2

158 Gothaer Group Annual Report 2009


Reserves for

property/casualty

insurance

premium refunds

[22]

Provisions for pension

benefits and similar

obligations

Defined benefit plans

Actuarial

assumptions

Consolidated Financial Statements

Developments in the financial year €million

2009 2008

Opening

balance sheet

2008

Amounts transferred pursuant to national

requirements (gross)

Balance as of 1 Jan. 12.4 10.9 12.1

Allocations 2.6 3.8 0.9

Amount used 1.2 1.4 1.4

Reversals 1.6 0.9 0.7

Balance as of 31 Dec. 12.2 12.4 10.9

Gross 12.2 12.4 10.9

Reinsurers’ share 0.2 0.2 0.0

Net 12.0 12.2 10.9

The companies of the Gothaer Group provide pension benefits for their employees and

insurance agents. Both defined benefit and defined contribution plans are used. Total

obligations arising from provisions for pension benefits came to €306.3 million in the

financial year (PY: €299.4 million).

In case of defined benefit plans, beneficiaries are promised specific benefits through

the company or a pension scheme. The contributions of the company are not fixed in

advance. Pension schemes are pension funds and benefit associations and societies that

insure mainly employees of domestic enterprises.

Defined benefit plans are based on the use of actuarial estimates and assumptions.

The assumptions described below were used in the financial year 2009.

The basic biometric values for both years are based on the Prof. Dr. Heubeck 2005 G

Mortality Tables. Anticipated yields are mostly at the level of anticipated bonuses for

Gothaer Lebensversicherung AG’s life insurance policies.

Parameters

2009 2008

Discount rate 5,10 %–5,30 % 5,70 %–6,00 %

Expected rate of return on plan assets 4,50 % 4,50 %

Expected salary increase 2,20 % 2,50 %

Expected increase of pensions 1,90 % 2,00 %

Expected average remaining working lifetime (in years) 16 18

Fluctuation probability 6,00 % to age 35 6,00 % to age 35

3,00 % to age 45 3,00 % to age 45

Gothaer Group Annual Report 2009 159


Consolidated Financial Statements

Defined benefit

obligations (DBO)

Plan assets

The present value of provisions for pension benefits as of 31 December 2009 represents

total estimated obligations as of that time less plan assets and unrecognized actuarial

gains. The individual steps involved in calculation are presented below in tabular form.

Developments in the financial year €million

Present value of defined benefit obligations as of 1 Jan. 610.4 618.4

Current service cost including interest 9.7 10.5

Interest cost 33.9 32.0

New actuarial gains/losses on liabilities 19.8 –20.3

Pension benefits paid from plan assets –14.9 –14.4

Pension benefits paid by employer –15.1 –14.5

Transfers in 0.0 0.0

Transfers out 0.0 –1.3

Present value of defined benefit obligations as of 31 Dec. 643.9 610.4

Capital cover comes to 54.5 % (PY: 56.5 %).

2009 2008

Developments in the financial year €million

2009 2008

Plan assets as of 1 Jan. 344.9 332.3

Expected return on plan assets 15.3 14.7

Actuarial gains/losses on plan assets –1.1 6.3

Employer contributions to plan assets 6.7 6.1

Pension benefits paid from plan assets –14.9 –14.5

Plan assets as of 31 Dec. 350.9 344.9

Reinsurance and direct insurance account for 4.6 % (PY: 4.3 %) of plan assets and assets

of the pension funds for 95.4 % (PY: 95.7 %).

160 Gothaer Group Annual Report 2009


Actuarial

gains/losses

Provisions

for pension benefits

Expected defined

benefit obligations

(DBO)

Consolidated Financial Statements

Developments in the financial year €million

2009 2008

Unrecognized gains/losses as of 1 Jan. –33.9 –7.4

Actuarial gains/losses on liabilities as of 31 Dec. 19.8 –20.3

Actuarial gains/losses on plan assets as of 31 Dec. 1.1 –6.2

Amortization of actuarial gains/losses –0.2 0.0

Unrecognized gains/losses as of 31 Dec. –13.3 –33.9

Developments in the financial year €million

2009 2008

Present value of defined benefit obligations as of 31 Dec. 643.9 610.4

Plan assets as of 31 Dec. –350.9 –344.9

Net obligations as of 31 Dec. 292.9 265.5

Unrecognized actuarial gains/losses as of 31 Dec. 13.3 33.9

Unrecognized past service costs as of 31 Dec. 0.0 0.0

Provisions for pension benefits as of 31 Dec. 306.3 299.4

Developments in the financial year €million

2009 2008

Present value of defined benefit obligations as of 1 Jan. 610.4 618.4

Current service cost including interest 9.7 10.5

Interest cost 33.9 32.0

Transfers in 0.0 0.0

Transfers out 0.0 –1.4

Pension benefits paid –31.1 –30.0

Expected defined benefit obligations as of 31 Dec. 622.9 629.5

Experience-based adjustments came to €–21.1 million in the financial year (PY: €19.1

million). Of this amount, €1.1 million (PY: €–12.1 million) is accounted for by changes in

the portfolio and €–22.2 million (PY: €31.2 million) by changes in parameters. Experiencebased

adjustments in plan assets came to €0.5 million in the financial year (PY: €8.0

million).

Gothaer Group Annual Report 2009 161


Consolidated Financial Statements

Actuarial gains/losses

on liabilities

Expected plan assets

Actuarial gains/losses

on plan assets

Developments in the financial year €million

2009 2008

Present value of defined benefit obligations as of 31 Dec. 643.9 610.4

Expected defined benefit obligations as of 31 Dec. 622.9 629.5

Actual payments of pension benefits –29.9 –28.9

Expected payments of pension benefits –31.1 –30.1

Actuarial gains/losses on liabilities as of 31 Dec. 19.8 –20.3

Developments in the financial year €million

2009 2008

Plan assets as of 1 Jan. 344.9 332.2

Expected return on plan assets 15.3 14.7

Expected employer contributions to plan assets 6.1 5.1

Expected pension benefits paid from plan assets –15.8 –15.1

Expected plan assets as of 31 Dec. 350.5 336.9

Developments in the financial year €million

2009 2008

Plan assets as of 31 Dec. 350.9 344.9

Expected plan assets as of 31 Dec. 350.5 336.9

Actual employer contributions to plan assets –6.7 –6.1

Actual pension benefits paid from plan assets 14.9 14.4

Expected employer contributions to plan assets –6.1 –5.1

Expected pension benefits paid from plan assets 15.8 15.1

Actuarial gains/losses on plan assets as of 31 Dec. –1.1 6.3

162 Gothaer Group Annual Report 2009


Pension costs

Provisions for

pension benefits

Amortization amount

Breakdown by type of expense

Consolidated Financial Statements

€million

2009 2008

Current service cost including interest 9.7 10.5

Interest cost 33.9 32.0

Expected return on plan assets –15.3 –14.7

Amortization of actuarial gains/losses 0.2 0.0

Amortization of past service cost of plan amendments

For vested benefits 0.0 0.0

For non-vested benefits 0.0 0.0

Pension costs 28.5 27.8

Developments in the financial year €million

2009 2008

Provisions for pension benefits as of 1 Jan. 299.4 293.6

Pension cost for financial year 28.5 27.8

Transfers in 0.0 0.0

Transfers out 0.0 –1.4

Actual pension benefits paid by employer –15.1 –14.5

Actual employer contributions to plan assets –6.7 –6.1

Provisions for pension benefits as of 31 Dec. 306.3 299.4

Expected income from plan assets came to €15.3 million (PY: €14.7 million) and actual

income from plan assets to €14.5 million (PY: €21.0 million). Plan assets are invested

exclusively in fixed-income securities.

€million

2009 2008

Present value of defined benefit obligations as of 31 Dec. 643.9 610.4

Plan assets as of 31 Dec. 350.9 344.9

Unrecognized cost of plan amendments for financial year 0.0 0.0

Provisions for pension benefits as of 31 Dec. 306.3 299.4

Unrecognized gains/losses as of 31 Dec. –13.3 –33.9

Corridor pursuant to IAS 19.92 64.6 62.2

Gains/losses outside of corridor 0.8 0.1

Amortization for subsequent years 0.2 0.1

Amortization period in years 0–16 0–18

Gothaer Group Annual Report 2009 163


Consolidated Financial Statements

Expected

pension costs

Expected provisions

for pension benefits

Defined contribution

pension plans

The estimate of provisions for pension benefits as of 31 December 2010 which is required

for compliance with IAS 19 is based on the following assumptions about the volume of

anticipated pension costs as well as the future amortization payable.

Breakdown by type of expense €million

2010 2009

Current service cost including interest 9.5 9.7

Interest cost 33.3 33.9

Expected return on plan assets –15.6 –15.3

Amortization of actuarial gains/losses 0.1 0.2

Expected pension costs 27.3 28.5

Developments €million

2010 2009

Provisions for pension benefits as of 1 Jan. 306.3 299.4

Expected pension cost 27.3 28.5

Expected pension benefits paid by employer –15.6 –15.4

Expected employer contributions to plan assets –6.7 –6.0

Expected provisions for pension benefits as of 31 Dec. 311.2 306.5

Breakdown by type of plan €million

2009 2008

Pension benefit plans by the use of deferred compensation 0.7 0.8

Direct insurance paid by employers 0.1 0.1

Direct insurance paid by employees 0.2 0.2

Lump-sum taxes 0.1 0.1

Total 1.1 1.2

Defined contribution pension plans involve either direct commitments or direct insurance.

In this case, predetermined amounts are paid, for example, as a function of compensation,

and the rights of the recipient exist in the form of a pledge or title against an

insurance company and the obligation of the employer is fulfilled upon payment of

premiums.

164 Gothaer Group Annual Report 2009


[23]

Other accruals

Consolidated Financial Statements

Developments in the financial year €million

2009 2008

Balance as of 1 Jan 110.0 122.4

Amount used 15.0 19.7

Reversals 3.6 12.6

Allocations 22.5 19.9

Balance as of 31 Dec. 113.9 110.0

Breakdown by type of reserve and maturity €million

Accruals for

Jubilee

obligations

2009

Part-time

pre-retirement/

early

retirement

Social plan

Litigation Miscellaneous

other

2008 2009 2008 2009 2008 2009 2008 2009 2008

Up to 1 year 1.6 1.1 1.9 1.9 1.9 0.6 2.1 11.5 4.4 3.4

1 to 5 years 5.6 5.5 25.7 24.7 2.6 8.0 30.9 15.8 2.5 4.7

After 5 years 12.8 12.6 21.7 19.6 0.1 0.2 0.0 0.0 0.0 0.2

Total 20.0 19.2 49.3 46.3 4.6 8.8 33.1 27.3 6.9 8.3

While uncertainty about both the extent and maturity of the anticipated obligation is

relatively low in the case of accruals for jubilee obligations, the remaining accruals are

marked by a higher degree of uncertainty.

Gothaer Group Annual Report 2009 165


Consolidated Financial Statements

[24]

Liabilities

Breakdown by type of liability €million

2009 2008 Opening

balance sheet

2008

Participation certificates 35.0 35.0 96.4

Subordinate liabilities 264.7 264.7 264.7

Bonds and loans 187.6 199.7 223.4

Other liabilities

Deposits received from reinsurers 1,384.5 1,409.4 1,434.8

Liabilities in connection with

primary insurance business

towards policyholders 805.0 859.2 987.5

towards intermediaries 32.1 32.0 26.7

Liabilities in connection with reinsurance business 37.2 37.3 52.4

Liabilities toward affiliated and associated companies 7.0 3.2 4.0

Miscellaneous other 301.0 395.4 310.6

Total 3,054.1 3,235.9 3,400.5

The liabilities in connection with primary insurance business mainly include accumulated

interest-bearing surpluses and premium deposits from life insurance. Aside from derivative

financial instruments with negative fair values, miscellaneous liabilities include

social security liabilities, trade payables and sundry liabilities.

The interest payable on participation certificates and subordinate liabilities as well

as bonds and loans is recognized separately in the statement of income as financing

expenses and amounted to €25.1 million in the financial year (PY: €30.9 million).

Participation certificates had a fair value of €40.3 million (PY: €39.1 million) and subordinate

liabilities a fair value of €246.4 million (PY: €224.7 million). The fair value of the

remaining liabilities was equal to the balance sheet value.

166 Gothaer Group Annual Report 2009


Liabilities

Consolidated Financial Statements

Breakdown by residual term (financial year) €million

Up to

1 year

1 to

5 years

After

5 years

Gothaer Group Annual Report 2009 167

2009

Without

a fixed

term

Participation certificates 0.0 15.0 20.0 0.0 35.0

Subordinate liabilities 0.0 0.0 264.7 0.0 264.7

Bonds and loans 1.1 121.4 65.0 0.0 187.6

Derivatives with negative fair value 11.8 1.1 99.7 23.7 136.4

Liabilities 1,104.1 40.7 1,315.5 0.0 2,460.3

Total 1,117.0 178.3 1,764.8 23.7 3,084.0

Breakdown by residual term (previous year) €million

2008

Up to

1 year

1 to

5 years

After

5 years

Without

a fixed

term

Participation certificates 0.0 0.0 35.0 0.0 35.0

Subordinate liabilities 0.0 0.0 264.7 0.0 264.7

Bonds and loans 1.4 133.2 65.0 0.0 199.7

Derivatives with negative fair value 76.8 27.5 79.1 1.5 184.9

Liabilities 1,202.8 30.8 1,344.0 0.0 2,580.0

Total 1,281.0 191.5 1,787.8 1.5 3,261.8

Breakdown by residual term (opening balance sheet) €million

Opening balance sheet 2008

Up to

1 year

1 to

5 years

After

5 years

Without

a fixed

term

Participation certificates 61.4 0.0 35.0 0.0 96.4

Subordinate liabilities 0.0 0.0 264.7 0.0 264.7

Bonds and loans 2.9 53.8 166.7 0.0 223.4

Derivatives with negative fair value 0.2 27.4 3.4 4.2 35.2

Liabilities 1,411.0 23.1 1,372.0 0.0 2,806.1

Total 1,475.5 104.4 1,841.8 4.2 3,425.8

Total

Total

Total


Consolidated Financial Statements

[25]

Tax debts

The presentation of other liabilities by maturity includes tax liabilities in the amount of

€29.9 million (2008: €25.9 million; 2007: €25.3 million) that are shown under item F.I. on

the face of the statement of financial position.

The financial instruments with negative fair values included in other liabilities are shown

separately here. Derivative financial instruments are generally not rated and have no cost.

Current tax debts consist of accruals for taxes of €137.7 million (PY: €125.2 million;

opening balance sheet in PY: €129.2 million) and current tax liabilities of €29.9 million

(PY: €25.9 million; opening balance sheet in PY: €25.3 million).

Deferred tax liabilities are mainly due to higher carrying amounts under IFRS than under

the tax balance sheet in the case of investments and lower carrying amounts for underwriting

reserves.

168 Gothaer Group Annual Report 2009


Consolidated Financial Statements

Notes to the Consolidated Statement of Comprehensive Income

[26]

Premiums

Breakdown by segment* €million

Property/

Casualty**

2009

Premiums

written***

Gross 1,628.0 1,642.2 1,847.0 1,614.5 773.5 782.7 4,248.6 4,039.4

Reinsurers’

share 287.5 301.5 87.4 94.6 5.6 4.8 380.6 400.9

Net 1,340.5 1,340.7 1,759.6 1,519.9 767.9 777.9 3,868.0 3,638.5

Change in unearned

premiums

Gross –33.5 –52.0 0.0 0.0 0.0 –0.1 –33.5 –52.0

Reinsurers’

share –10.6 –16.9 0.0 0.0 0.0 0.0 –10.6 –16.9

Net –22.9 –35.1 0.0 0.0 0.0 –0.1 –22.9 –35.1

Savings

components

Gross 0.0 0.0 483.1 562.2 0.0 0.0 483.1 562.2

Reinsurers’

share 0.0 0.0 0.1 2.0 0.0 0.0 0.1 2.0

Net 0.0 0.0 483.0 560.2 0.0 0.0 483.0 560.2

Net premiums

earned 1,317.6 1,305.6 1,276.6 959.7 767.9 777.8 3,362.0 3,043.2

* Figures based on full consolidation

** Including insurance portfolio of Gothaer Finanzholding AG

*** Including premiums from the reserve for premium refunds

Life Health

Gross premiums in the amount of €4,199.4 million (PY: €3,996.8 million) were written in

primary insurance business in the financial year. Reinsurance assumed accounted for

gross premiums in the amount of €49.2 million (PY: €42.6 million).

In the case of unit-linked life insurance policies, only that part of the premium used to

cover risks and expenses is shown. Savings components are therefore not included in

premiums earned.

Gothaer Group Annual Report 2009 169

Total

2008 2009 2008 2009 2008 2009 2008


Consolidated Financial Statements

[27]

Investment result

Breakdown by segment and type of income or expense* €million

Property/

Casualty

2009

* Figures based on full consolidation

** Comparatives after restatement

Life Health

Other

Activities

The result from investments held for unit-linked life insurance policies consists of €239.2

million (PY: €6.8 million) unrealized gains and €60.0 million (PY: €375.3 million) unrealized

losses.

The result from investments includes an expense of €3.3 million (PY: €–9.3 million)

resulting from exchange rate differences recognized in the statement of income. Fees

pursuant to IFRS 7.20(c) were not paid.

Expenses and income in connection with shares in associated companies are shown

below.

170 Gothaer Group Annual Report 2009

Total

2008 2009 2008 2009 2008 2009 2008** 2009 2008

Current income 109.4 125.4 732.7 854.6 195.0 240.8 26.7 41.8 1,063.8 1,262.4

Write-ups 6.7 38.4 61.2 206.3 6.1 78.3 4.0 1.0 78.0 324.2

Gains on

disposals 230.2 42.4 446.9 326.4 68.9 35.1 18.5 171.4 764.4 575.3

Current expenses 8.6 6.3 125.3 179.7 12.2 57.0 6.9 5.6 153.0 248.6

Write-downs 25.2 100.9 247.7 527.5 44.3 134.8 26.3 41.4 343.5 804.5

Losses on

disposals 224.3 54.4 419.4 299.6 90.1 31.6 4.6 11.6 738.4 397.2

Total 88.2 44.6 448.4 380.5 123.4 130.8 11.4 155.6 671.4 711.6

Expense and income €million

2009 2008

Write-ups 36.0 35.4

Gains on disposals 0.0 2.8

Write-downs 14.4 15.8

Losses on disposals 0.0 0.0

Total 21.6 22.4


Investment

result

Consolidated Financial Statements

Breakdown by segment and type of investment* €million

Property/

Casualty

2009

* Figures based on full consolidation

** Comparatives after restatement

Life Health

Other

Activities

Gothaer Group Annual Report 2009 171

Total

2008 2009 2008 2009 2008 2009 2008** 2009 2008

Investment

property

Shares in

affiliated and

associated

0.0 0.9 0.2 2.3 0.0 0.9 3.3 5.2 3.5 9.3

companies

Investments

8.6 8.2 4.6 15.4 3.6 7.3 –12.5 27.9 4.3 58.8

held to maturity 10.3 16.6 22.7 85.3 2.2 27.5 0.2 0.5 35.4 129.9

Loans

Investments

23.7 28.4 166.0 197.7 57.2 64.7 8.6 –6.9 255.5 283.9

available for sale

Investments

measured at

fair value

through profit

240.3 –9.1 336.8 279.4 81.3 73.2 18.2 121.2 676.6 464.7

or loss

Other

–188.7 –4.2 7.8 –53.0 –11.0 8.6 –0.3 9.5 –192.3 –38.9

investments

Less cost

of portfolio

2.6 10.1 35.6 33.1 2.3 5.6 0.8 3.8 41.3 52.6

management 8.6 6.2 125.3 179.7 12.2 57.1 6.9 5.7 153.0 248.7

Total 88.2 44.6 448.4 380.5 123.4 130.8 11.4 155.6 671.4 711.6


Consolidated Financial Statements

Investment

result

Breakdown of net profit by type of investment €million

2009

Income Expenses Net

profit

Current

income

Write-ups Gains on

disposals

Writedowns

Losses on

disposals

Investment property 8.3 0.3 0.0 5.1 0.0 3.5

Shares in affiliated

and associated companies 60.4 1.6 3.9 60.8 0.7 4.3

Investments held to maturity 128.0 1.5 3.3 21.0 76.4 35.4

Loans 302.1 5.1 17.4 1.6 67.4 255.5

Investments available for sale

Non-fixed-income 139.3 0.0 281.1 117.8 84.2 218.4

Fixed-income 389.0 15.9 147.1 21.9 71.9 458.2

Investments measured at

fair value through profit or loss

Held for trading 13.6 51.4 292.6 115.2 437.7 –195.4

By designation 0.2 0.9 2.2 0.1 0.1 3.1

Other investments 23.0 1.3 16.9 0.0 0.0 41.2

Total 1,063.8 78.0 764.4 343.5 738.4 824.4

Portfolio management expenses (current expenses) came to €153.0 million (PY: €248.5

million).

Current income includes interest in the amount of €29.2 million (PY: €40.5 million) from

impaired fixed-income securities.

172 Gothaer Group Annual Report 2009


Investment

result

[28]

Other income

Consolidated Financial Statements

Breakdown of net profit by type of investment €million

2008

Income Expenses Net

profit

Current

income

Write-ups Gains on

disposals

Writedowns

Losses on

disposals

Investment property 8.2 0.0 5.0 3.9 0.0 9.3

Shares in affiliated

and associated companies 105.1 2.6 29.7 74.4 4.2 58.8

Investments held to maturity 145.2 5.4 3.7 22.0 2.4 129.9

Loans 312.0 3.3 9.1 36.5 3.9 283.9

Investments available for sale

Non-fixed-income 300.8 0.0 221.5 280.4 138.4 103.5

Fixed-income 342.4 14.7 51.9 13.2 34.8 361.0

Investments measured at

fair value through profit or loss

Held for trading 4.3 298.2 198.0 370.5 167.5 –37.5

By designation 0.3 0.0 0.1 1.1 0.7 –1.4

Other investments 44.0 0.0 56.3 2.5 45.2 52.6

Total 1,262.4 324.2 575.3 804.5 397.2 960.1

Breakdown by type of income €million

2009 2008

Income from commissions and services 24.2 23.9

Interest and similar income 16.1 17.4

Sales revenues 31.5 34.7

Miscellaneous other 72.2 60.4

Total 144.0 136.4

Gothaer Group Annual Report 2009 173


Consolidated Financial Statements

[29]

Policyholder benefits

(net)

Property/casualty insurance */** €million

* Figures based on full consolidation

** Including insurance portfolio of Gothaer Finanzholding AG

2009 2008

174 Gothaer Group Annual Report 2009

Gross

Re Net Gross Re Net

Claims paid 1,037.8 184.4 853.4 1,031.8 186.5 845.3

Changes in reserves

for unpaid claims –39.9 –55.6 15.7 –71.0 –15.4 –55.6

Changes in policy reserves

and other underwriting reserves –0.9 –3.2 2.3 –3.5 –11.4 7.9

Premium refunds 3.7 0.2 3.5 5.4 0.4 5.0

Other underwriting income(–)/

expenses(+) 8.9 4.4 4.5 9.2 5.3 3.9

Total 1,009.6 130.2 879.4 971.9 165.4 806.5

Life insurance* €million

* Figures based on full consolidation

** Comparatives after restatement

2009 2008**

Gross

Re Net Gross Re Net

Claims paid 1,329.9 145.0 1,184.9 1,195.0 153.8 1,041.2

Changes in reserves

for unpaid claims 1.6 1.0 0.6 -0.7 0.1 –0.8

Changes in policy reserves

and other underwriting reserves 459.3 –20.0 479.3 –322.1 –32.8 –289.3

Premium refunds

Due to national regulations 139.7 0.0 139.7 96.6 0.0 96.6

Deferred premium refunds –114.3 0.0 –114.3 –116.5 0.0 –116.5

Premium refunds total 25.4 0.0 25.4 –19.8 0.0 –19.8

Other underwriting income (–)/

expenses(+) –25.2 –46.5 21.3 25.0 –47.3 72.3

Total 1,791.0 79.6 1,711.4 877.3 73.8 803.5


[30]

Underwriting expenses

(net)

Consolidated Financial Statements

Health insurance* €million

* Figures based on full consolidation

** Comparatives after restatement

2009 2008**

Gothaer Group Annual Report 2009 175

Gross

Re Net Gross Re Net

Claims paid 485.1 5.3 479.8 456.6 3.6 453.0

Changes in reserves

for unpaid claims 5.5 0.2 5.3 9.7 0.0 9.7

Changes in policy reserves

and other underwriting reserves 249.7 0.0 249.7 202.4 0.0 202.4

Premium refunds

Due to national regulations 61.0 0.0 61.0 131.1 0.0 131.1

Deferred premium refunds –3.7 0.0 –3.7 29.6 0.0 29.6

Premium refunds total 57.3 0.0 57.3 160.7 0.0 160.7

Other underwriting income (–)/

expenses(+) 0.4 0.0 0.4 0.4 0.0 0.4

Total 798.0 5.5 792.5 829.8 3.6 826.2

Breakdown by segment* €million

Property/

Casualty **

2009

* Figures based on full consolidation

**Including insurance portfolio of Gothaer Finanzholding AG

Life Health

Total

2008 2009 2008 2009 2008 2009 2008

Acquisition costs 118.4 105.9 144.2 183.6 65.1 52.8 327.7 342.3

Change in deferred acquisition

costs –12.2 7.3 6.8 –20.0 –10.5 1.7 –16.0 –11.0

Administrative expenses 375.3 389.7 47.8 43.2 23.6 22.7 446.7 455.5

Underwriting expenses (gross) 481.5 502.9 198.8 206.8 78.2 77.2 758.4 786.8

Commissions and profit sharing

received on reinsurance

business ceded 105.8 82.2 2.3 4.3 0.0 0.5 108.1 87.0

Change in deferred acquisition

costs –9.1 –3.3 11.1 12.4 0.0 0.0 2.0 9.0

Underwriting expenses

(reinsurers’ share) 96.7 78.9 13.4 16.7 0.0 0.5 110.1 96.0

Total 384.7 424.0 185.4 190.1 78.2 76.7 648.3 690.8


Consolidated Financial Statements

[31]

Other expenses

[32]

Taxation

Breakdown by type of expense €million

2009 2008*

Expenses for commissions and services 23.9 21.9

Interest and similar expense 30.8 27.8

Personnel expenses 67.4 63.7

Other amortization and depreciation 21.7 18.6

Miscellaneous other 115.6 122.3

Total 259.4 254.3

* Comparatives after restatement

Personnel expenses do not comprise expenses of the insurance companies. Those costs

are distributed to investment expenses, policyholder benefits and underwriting expenses

through cost unit accounting.

Other amortization and depreciation mainly include amortization of intangible assets

and depreciation of operating and office equipment. This item does not contain amortization

and depreciation of the insurance companies. As in the case of personnel expenses,

the latter are allocated to functional areas.

Taxes on income €million

* Comparatives after restatement

2009 2008*

Current tax expenses for the financial year 43.3 64.4

Current tax expenses for other periods

Deferred taxes as a result of the occurrence or reversal

–5.2 –3.0

of temporary differences

Deferred taxes as a result of the occurrence or

–88.1 –41.2

use of tax loss carryforwards 12.7 23.6

Deferred taxes as a result of the write-down of a deferred tax claim 1.6 3.0

Deferred taxes as a result of the write-up of a deferred tax claim 0.0 –1.0

Taxes on income –35.7 45.8

176 Gothaer Group Annual Report 2009


Taxation

Consolidated Financial Statements

The taxes shown in the statement of income also include change in deferred taxes as well

as the current taxes to be paid by the individual Group companies. The current taxes to

be paid essentially resulted from the minimum taxation of Gothaer Versicherungsbank

VVaG and the companies grouped with it for tax purposes.

Deferred taxes take account of the deferred taxation for differences in valuation between

the IFRS balance sheet and the tax balance sheet as well as differences due to consolidation

processes. In addition to tax expenses recognized in the statement of income,

a deferred tax liability of €29.3 million (PY: deferred tax liability €45.2 million) was

recognized directly in equity in the financial year.

The difference in valuation between the IFRS balance sheet and the tax balance sheet

for shares in partnerships is due partly to estimates. Changes were noted here in the

financial year, resulting in deferred tax income of €25.0 million. This income also needed

to be covered by reserves for deferred premium refunds of €–23.5 million. The effect of

the change of estimate on the result thus amounted to €1.5 million.

The expected tax expense was calculated on the basis of the German income tax rate.

This was an unchanged 32 % and took account of 15 % corporation tax, the solidarity

surcharge of 5.5 % on the corporation tax and an average trade tax rate.

Reconciliation of taxes on income €million

2009 2008*

Operating result less net interest 40.6 110.5

x Expected tax rate 32 % 32 %

= Expected tax expenses 13.0 35.4

Adjusted to correct for:

Tax-exempt income/expense –24.0 –23.7

Non-deductible withholding taxes 15.1 7.5

Other tax attributions or deductions –47.6 –20.6

Effects of tax losses 3.3 12.7

Effects of policyholders’ profit sharing 6.9 38.5

Taxes for other periods –5.2 –3.0

Other effects 2.8 –1.0

= Taxes on income –35.7 45.8

* Comparatives after restatement

Gothaer Group Annual Report 2009 177


Consolidated Financial Statements

[33]

Other comprehensive

income

Reconciliation €million

Unrealized gains and losses on investments available for sale

Recognized in equity 430.0 –683.1

Transferred to the statement of income 66.1 –192.2

496.1 –875.3

Less:

Provision for premium refund 413.4 661.1

Deferred tax 30.9 –45.2

444.3 –706.3

The unrealized gains and losses transferred to the statement of income resulted partly

from the disposal of securities and realization of the related reserves or losses and partly

from the reversal of the “hidden” losses shown as write-downs in the statement of

income in the event of impairment. In the financial year an expense of €11.1 million

(PY: €171.2 million) was incurred due to impairment losses. In addition, the separate

reserves resulting from reclassification of securities were amortized.

The unrealized gains and losses recognized in the statement of comprehensive income

result from investments available for sale that remained in the Group portfolio.

178 Gothaer Group Annual Report 2009

2009

2008

Total 51.7 –169.0


Representatives of Members

Dr. Martin Willich Chairman

Managing Director Studio Hamburg GmbH, Hamburg

Konrad Kraft Vice Chairman

Diplom-Kaufmann, Krailling

Gesine Rades Vice Chairwoman

Diplom-Kauffrau, Auditor/tax accountant, Noer

Heiner Alck Physical therapist, Warendorf

Peter Arndt Diplom-Ingenieur, Berlin

Consolidated Financial Statements

Georg Behre Diplom-Ingenieur, Authorized Officer of TÜV Rheinland Kraftfahrt GmbH,

TÜV Rheinland Group, Gelsenkirchen

Helmut Berg Albig

Klaus Bronny Diplom-Betriebswirt, Corporate consultant, Essen

Prof. Dr. Helmut Cox Professor of Economics, Economic Policy and Public Economy at the University

of Duisburg-Essen, Ratingen

Werner Dacol Managing Director of Aachener Siedlungs- und Wohnungsgesellschaft mbH, Cologne

Dr. Heinz Dräger Chairman of the Board of VdZ, Remagen

Sabine Engler Diplom-Kaufmann, Vermessungsbüro Engler, Saarbrücken

Andreas Formen Diplom-Betriebswirt, Oberursel

Prof. Dr. Klaus Goder Specialist in General Medicine, Neuss

as of 26 June 2009

Gerhard Groß Independent wholesaler, Mannheim

Bernd Grubel Diplom-Kaufmann, Darmstadt

Horst Horrmann Minister of Education (Retd.), Peine

Walter Hüglin Master Painter, Weilheim

Norbert D. Hüsson Betriebswirt, Master Painter, Managing Partner of Hüsson FGB GmbH, Düsseldorf

Bernhard John Diplom-Ingenieur, Consultant BJ consult + support, Mannheim

Heinz Kiesel Master Plumber, Munich

Gothaer Group Annual Report 2009 179


Consolidated Financial Statements

Bernd Kieser Managing Partner of ms.conect S.L., Madrid (Spain)

Dr. Ing. Hans-Herbert Consulting engineer VBI, Sulzbach

Klein

Wolfgang Klemm Chamber musician, Raesfeld

Peter Ködderitzsch Textile merchant, Werther

Elke Köhler Specialist in General Medicine, Vice President of Landesärztekammer Brandenburg,

Executive Officer of Hartmannbund-Verband der Ärzte Deutschlands e. V.,

Chairwoman of Hartmannbund, State of Brandenburg Section,

Executive Officer of Ärzte-Union Brandenburg e. V., Jüterbog

Hans-Otto Kromberg Diplom-Kaufmann, Managing Partner of Kromberg & Schubert KG, Wuppertal

Dr. Hans-Werner Lange Chief Executive Officer of TUPAG-Holding-AG, Effelder

Wolfgang Leibnitz Notary (Retd), Essen

Aribert Lieske Tax consultant, Düsseldorf

Dr. Johannes Ludewig Executive Director Community of European Railways (CER), Alfter bei Bonn

up to 4 May 2009

Prof. Dr. Professor at the Catholic Unversity of Eichstätt-Ingolstadt, Ingolstadt

Claus Luttermann

Hans Mauel Chairman of the Board of Stiftung der Cellitinnen zur hl. Maria, Erftstadt

Dr. med. Peter Nagel General practitioner (Retd), Goslar/Hahnenklee

Eckhard Netzmann Diplom-Ingenieur, Consultant, Berlin

Siegfried Nimsch Diplom-Verwaltungswirt, Erster Polizeihauptkommissar a.D., Witten

Rudolf Nüllmeier Diplom-Finanzwirt, Tax accountant, Essen

Christian Oelting Diplom-Bau-Betriebs-Ingenieur, Managing Partner of DTW Deponie-,

Tief- und Wasserbau GmbH & Co., Pinneberg

Eberhard Pamberg Proprietor/Director of EMONT AG, Unternehmensbeteiligungen-Vermögensverwaltung,

Porrentruy (Switzerland)

up to 26 June 2009

Uwe von Padberg Diplom-Kaufmann, President Verband Creditreform, Cologne

as of 26 June 2009

Ilse Peiffer Secretary, Witten

180 Gothaer Group Annual Report 2009


Consolidated Financial Statements

Dr. Angelika Prehn Specialist in General Medicine, President of Kassenärztliche Vereinigung Berlin,

President of Berufsverband der Allgemeinärzte Berlin und Brandenburg, Berlin

Dr. Roland Reistenbach Dentist, Siegburg

Jürgen Scheel Chairman of the Board of Kieler Rückversicherungsverein a.G., Mühbrook

as of 26 June 2009

Uwe Schumacher Oberstudienrat (Retd), Usingen/Taunus

Walter Stelzl Göttingen

Christian Sutter Diplom-Kaufmann, Managing Partner of A. Sutter GmbH, Essen

Prof. Dr. jur. Judge (Retd), Member of the Landtag of Bavaria,

Jürgen Vocke President of Landesjagdverband Bayern e.V., Ebersberg

Axel F. Waschmann Executive Officer of EWE Aktiengesellschaft (Retd), Oldenburg

Albrecht Wendenburg Lawyer and Notary, Celle

Lutz Wittig Diplom-Physiker, Schwanewede

Spokesman

Albrecht Wendenburg Lawyer and Notary, Celle

Honorary chairman

Dr. Karlheinz Gierden Oberkreisdirektor and Bankdirektor (Retd), Frechen-Königsdorf

Honorary member

Prof. Dr. A. Wilhelm Klein General Director (Retd),

Honorary Chairman of the Supervisory Board of Gothaer Versicherungsbank VVaG,

Cologne

Gothaer Group Annual Report 2009 181


Consolidated Financial Statements

Supervisory Board

Dr. Roland Schulz Chairman

Former Managing Partner, Düsseldorf

Dr. Heiko Lange Vice Chairman

Member of Executive Board of Lufthansa (Retd), Bad Soden

Carl Graf von Hardenberg Chairman of the Supervisory Board of Hardenberg-Wilthen AG, Nörten-Hardenberg

Jürgen Wolfgang Diplom-Ingenieur, Managing Partner and COO of Kirchhoff Automotive GmbH & Co.,

Kirchhoff Iserlohn

Eberhard Pothmann Fully Authorized Representative, Member of Corporate Management

of Vorwerk & Co. KG Group, Düsseldorf

Dr. Gerd G. Weiland Lawyer, Hamburg

as of 20 June 2008

Honorary Chairmen

Hansgeorg Klanten Director (Retd), Cologne

Prof. Dr. A. Wilhelm Klein General Director (Retd), Cologne

Dr. Hans Vossloh Diplom-Kaufmann, Honorary Chairman of the Supervisory Board of Vossloh AG,

Werdohl

up to 22 September 2009

182 Gothaer Group Annual Report 2009


Management

Dr. Werner Görg Chairman

Cologne

Dr. Helmut Hofmeier Bergisch Gladbach

Michael Kurtenbach Bornheim

Thomas Leicht Cologne

Jürgen Meisch Cologne

Dr. Hartmut Cologne

Nickel-Waninger

Dr. Herbert Schmitz Cologne

up to 28 February 2010

Consolidated Financial Statements

The list of names of members of the Supervisory Board and Management consists of information to be provided in

the Notes to the Financial Statements pursuant to section 314(1) No. 6 of the German Commercial Code (HBG).

Gothaer Group Annual Report 2009 183


Consolidated Financial Statements

Advisory Board Gothaer Versicherungsbank VVaG

Peter Adler Co-Owner of Hans Adler oHG, Bonndorf

Klaus Michael Baur Publisher and Editor-in-Chief Badische Neueste Nachrichten Badendruck GmbH,

Karlsruhe

Dieter Bettels Diplom-Volkswirt, Managing Director and Partner of Hermann GmbH & Co. KG,

Hildesheim

up to 7 August 2009

Richard Borek Owner and Chief Executive Officer of Richard Borek GmbH & Co. KG, Braunschweig

Holger Diplom-Kaufmann, Managing Director HBT Holdings GmbH, Cologne

Brückmann-Turbon up to 7 December 2009

Dr. Hans Bücken Chairman of Vereinigte Postversicherung VVaG, Cologne

as of 1 April 2009

Willm-Hendric Managing Partner of Julius Cronenberg o. H., Arnsberg

Cronenberg

Peter Ditsch Managing Partner of Brezelbäckerei Ditsch GmbH, Mainz

Rolf Ehrhardt Diplom-Betriebswirt, Managing Partner of Ehrhardt & Hellmann

Bauunternehmung GmbH, Homburg (Saar)

up to 31 December 2009

Prof. Dr. Dr. h.c. Medical Director/Managing Director of Unfallkrankenhaus Berlin, Heidesee

Axel Ekkernkamp

Dr. Johannes Evers Chief Executive Officer of Landesbank Berlin AG, Berlin

Dr. Hubert Fexer Lawyer, Regensburg

up to 31 December 2009

Dr. Theodor Gräbener Diplom-Kaufmann, Managing Partner of Theodor Gräbener GmbH & Co. KG,

Wilnsdorf-Rödgen

Werner Hanf Managing Director of NetCologne Gesellschaft für Telekommunikation GmbH, Cologne

Dieter Härthe Honorary Consul

Chief Executive Officer of BWA Bundesverband für Wirtschaftsförderung

und Außenwirtschaft/Dt. Wirtschaftsverband e.V., Bonn

Andreas Helbig Diplom-Kaufmann, Chief Executive Officer of Städtische Werke AG, Kassel

Matthias Engineer, Baumeister, MHR Hoch- und Tiefbau, Schneeberg

Hentschel-Röber up to 31 December 2009

Hans Jürgen Hesse Managing Partner of Hesse GmbH & Co. KG, Drensteinfurt

as of 1 April 2009

Peter Hoffmann Diplom-Betriebswirt, Managing Director of Albatros Versicherungsdienste GmbH,

Büttelborn

184 Gothaer Group Annual Report 2009


Consolidated Financial Statements

Erhard Hoffmeyer Obermeister der Maler- und Lackiererinnung, Partner and Managing Director

of Farbe und Raum GmbH, Heiligenstadt

up to 31 December 2009

Karl Friedrich Erbprinz Fully Authorized Representative of Fürst von Hohenzollern Group, Sigmaringen

von Hohenzollern

Willi Hullmann Chairman of Kölner Wohnungsgenossenschaft eG, Köln

as of 1 October 2009

Hans-Dieter Kettwig Managing Director of Enercon GmbH, Grosse Fehn

Dr. Karsten Kölsch Executive Officer of Ahlers AG, Herford

Hans Jürgen Kulartz Executive Officer of Landesbank Berlin AG, Berlin

Andreas Mosler Diplom-Betriebswirt, Diplom-Wirtschaftsinformatiker,

Spokesman of the Management of Frank Walz- und Schmiedetechnik GmbH, Tornesch

Goetz Neumann Head Legal, Taxation and Insurance of Wacker Chemie AG, Vaterstetten

Ralf Oelßner Diplom-Volkswirt, Member of Supervisory Board of Albatros Versicherungsdienste GmbH,

of Delvag Luftfahrtversicherungs-AG, of Delvag Rückversicherungs-AG, Lohmar

up to 31 December 2009

Dr. med. President of Bundesverband der Freien Berufe, Dortmund

Ulrich Oesingmann

Andreas Pieper Diplom-Betriebswirt, Managing Director of Erste APB Beteiligungen GmbH, Gelsenkirchen

Hermann Reichenecker Managing Partner of Storopack Hans Reichenecker GmbH, Metzingen

Christof Renz Diplom-Ingenieur, Managing Director of Reuther Verpackung GmbH & Co. KG,

Krefeld

as of 1 February 2010

Dr. Bernhard Reuther Managing Partner of Reuther Verpackung GmbH & Co. KG, Neuwied

up to 31 December 2009

Peter Riegelein Diplom-Kaufmann, Hans Riegelein + Sohn GmbH & Co. KG, Cadolzburg

Klaus Riemenschneider Chairman of Administrative Board of Endress + Hauser Holding AG, Wehr

Herbert Rohkohl Corporate Officer, Head Finance and Accounting of Uhl Kiesund

Baustoffgesellschaft mbH, Steinach

Gert Rohrseitz Managing Director of ECKA Granulate GmbH & Co. KG, Zirndorf

Christian Sander Diplom-Ingenieur, Managing Director of frisch menü GmbH, Kassel-Harleshausen

Gothaer Group Annual Report 2009 185


Consolidated Financial Statements

Dr. h.c. Klaus Schmidt Diplom-Kaufmann, President of DEKRA e.V./AG, Böblingen

up to 31 December 2009

Dr. Christoph Schug Merchant, Mönchengladbach

Göran Sjöstrand Mangaging Director, Chief Financial Officer of IKEA Deutschland Service GmbH,

Königstein

Erich Staake Diplom-Kaufmann, Chief Executive Officer of Duisburger Hafen AG, Düsseldorf

F. Michael Stallmann Diplom-Kaufmann, Managing Director of FMS Capital GmbH, Marl-Polsum

Dr. Eugen Trautwein Majority Shareholder and Chairman of Advisory Board of E/D/E GmbH, Wuppertal

up to 31 December 2009

Dr. Notker Wolf OSB Abbott Primate of Benedictine Confederation, Rome

Hans-Joachim Zinser Managing Partner of Modehaus Zinser GmbH & Co., Tübingen

186 Gothaer Group Annual Report 2009


Social Policy Advisory Board (up to 31 December 2009)

Prof. Dr. Dr. h.c. Chairman

Bert Rürup Executive Officer of MaschmeyerRürup AG, Darmstadt

Dr. Hans Jürgen Ahrens Königswinter

Heinz-Werner Bonjean Diplom-Volkswirt, Master Painter, Managing Director of

Bonjean Maler und Lackierer GmbH, Cologne

Heinrich Breitbach Chairman of Group Works Council of DEKRA AG, Stuttgart

Dr. Claus-Michael Dill Member of Supervisory Board of Damp Holding AG, Berlin

Dominique Döttling Managing Partner of Döttling & Partner Beratungsgesellschaft mbH, Mainz

Michael Hennrich Lawyer, Member of Bundestag, Chairman of Ausschuss für Wohnungswirtschaft

und Wohnungspolitik im Zentralverband von Haus & Grund Deutschland,

Kirchheim unter Teck

Eike Maria Hovermann Lippstadt

Dr. Heinrich L. Kolb Member of Bundestag, Social Policy Speaker of the FDP parliamentary group,

Managing Director of Kolb Zulieferungen GmbH, Babenhausen

Arno Metzler Lawyer, Managing Director of Bundesverband der Freien Berufe (BFB),

Member of the European Economic and Social Committee Brussels, Berlin-Frohnau

Ralf Oelßner Diplom-Volkswirt, Member of Supervisory Board

of Albatros Versicherungsdienste GmbH, Delvag Luftfahrtversicherungs-AG,

Delvag Rückversicherungs-AG, Lohmar

Annette Widmann-Mauz Parliamentary State Secretary at the Federal Ministry of Health, Balingen

up to 28 October 2009

Prof. Dr. Klaus-Peter Professor at the Leibniz University Hannover, Burgwedel

Wiedmann

Consolidated Financial Statements

Christian Zahn Chairman of Sponsor Committee of Deutsche Rentenversicherung Bund,

Chairman of Verband der Ersatzkassen e.V., Hamburg

Gothaer Group Annual Report 2009 187


Consolidated Financial Statements

Directorships of Members

of the Supervisory Board and Management

Supervisory Board Membership on other Comparable domestic and

Supervisory Boards foreign directorships and officerships

Dr. Roland Schulz Gothaer Finanzholding AG,

(Chairman) Chairman

ASSTEL Lebensversicherung AG,

Chairman

Gothaer Krankenversicherung AG,

Chairman

Gothaer Allgemeine Versicherung AG,

Chairman

Gothaer Lebensversicherung AG,

Vice Chairman

Stüttgen & Haeb AG,

Vice Chairman

Dr. Heiko Lange Gothaer Finanzholding AG

(Vice Chairman) Lufthansa LSG Sky Chefs AG

Carl Graf von Gothaer Finanzholding AG

Hardenberg Gothaer Allgemeine Versicherung AG

Hardenberg Wilthen AG, Chairman

m3Team AG

Volksbank Göttingen

Jürgen Wolfgang Gothaer Finanzholding AG Märkische Bank eG

Kirchhoff

Eberhard Pothmann Gothaer Finanzholding AG Vescore Solutions AG, Switzerland,

Administrative Board

Frowein & Co. Beteiligungs AG,

Chairman since 2009

Dr. Gerd Gustav Gothaer Finanzholding AG Reset Consultants AG, Chairman

Weiland Gothaer Allgemeine Versicherung AG

ASSTEL Lebensversicherung AG

188 Gothaer Group Annual Report 2009


Consolidated Financial Statements

Management Membership on other Comparable domestic and

Supervisory Boards foreign directorships and officerships

Dr. Werner Görg ASSTEL Sachversicherung AG, Eurapco AG

Chairman

Roland Rechtsschutz-Versicherungs-AG

Gothaer Pensionskasse AG, Chairman

Zweite Gothaer Vermögensverwaltungs AG,

Chairman

Dr. Helmut Hofmeier A.S.I. Wirtschaftsberatung AG Versorgungskasse Gothaer

Fingro AG Versicherungsbank VVaG, Chairman,

Gothaer Asset Management AG Pensionskasse BERLIN-KÖLNISCHE

Janitos Versicherung AG Versicherungen VVaG, Chairman

Michael Kurtenbach A.S.I. Wirtschaftsberatung AG, Gothaer Systems GmbH,

Vice Chairman Chairman up to 28 February 2010,

Vice Chairman as of 1 March 2010,

Pensionskasse BERLIN-KÖLNISCHE

Versicherungen VVaG,

as of 1 March 2010, Vice Chairman

Thomas Leicht Janitos Versicherung AG,

Chairman

A&O Vertriebs-AG

Jürgen Meisch Gothaer Pensionskasse AG Versorgungskasse Gothaer

Zweite Gothaer Vermögensverwaltungs AG, Versicherungsbank VVaG

Vice Chairman Pensionskasse BERLIN-KÖLNISCHE

Gothaer Asset Management AG, Versicherungen VVaG,

Chairman Vice Chairman

CG Car-Garantie Versicherungs-AG

Aachener Bausparkasse AG, Chairman

ROLAND Rechtsschutz-Versicherungs-AG

Dr. Hartmut Janitos Versicherung AG, Vice Chairman

Nickel-Waninger ASSTEL Sachversicherung AG, Vice Chairman

A&O Vertriebs-AG, Chairman

A.S.I. Wirtschaftsberatung AG, Chairman

Fingro AG, Chairman

Dr. Herbert Schmitz ASSTEL Sachversicherung AG Gothaer Systems GmbH,

up to 28 February 2010 Zweite Gothaer Vermögensverwaltungs AG Vice Chairman,

ROLAND Schutzbrief-Versicherung AG Versorgungskasse

Gothaer Versicherungsbank VVaG,

Vice Chairman

Deutsche BKK, Administrative Board

Gothaer Group Annual Report 2009 189


Consolidated Financial Statements

Other information

Personnel expenses

Number of employees (average for the year)

Remuneration of members of the Supervisory Board and Management

Disclosure pursuant

to section 314(1)

No. 6 of the German

Commercial Code (HGB)

Disclosures pursuant

to IAS 24.16

Breakdown by type of expense €million

Wages and salaries 279.4 271.6

Social security contributions and employee benefits 45.9 46.1

Expenses for employees’ pensions 15.4 13.9

Total 340.7 331.6

Breakdown by group of employee

2009 2008

2009 2008

In house 4,281 4,402

Field 679 695

4,960 5,097

Apprentices 191 193

Employees of joint-venture undertakings 199 176

Total 5,350 5,466

In the financial year Management received remuneration in the amount of €5.0 million

(PY: €4.1 million). Retirement and survivors’ benefits for former members of Management

came to €2.1 million (PY: €2.1 million). Further accruals in the amount of €21.3 million

(PY: €21.1 million) exist for current pensions and pension entitlements for this group of

individuals.

Remuneration paid to the Supervisory Board came to €0.7 million (PY: €0.7 million).

Remuneration paid to members of the Advisory Board came to €0.2 million (PY: €0.3

million). No amount were paid to former members of the Supervisory Board and the

Advisory Board or deferred.

Loans in the amount of €0.2 million (PY: €0.3 million) were granted to members of

Management and the Supervisory Board in the financial year. The interest rate was 2.5 %

or 3.5 % and the remaining term 4 or 6 years.

Key management personnel, i.e. Management of Gothaer Finanzholding, received remuneration

in the amount of €5.0 million (PY: €5.5 million) in the financial year.

Provisions in the amount of €11.1 million (PY: €5.9 million) were established for pension

benefits to be paid to this group of individuals upon termination of the employment

relationship.

190 Gothaer Group Annual Report 2009


Auditors’ fees

Provisions and contingent liabilities

Contingent assets

Other financial commitments

Consolidated Financial Statements

Breakdown by type of service €million

2009 2008

Auditing of financial statements

Group auditors 1.7 2.1

Non-Group auditors 0.3 0.4

Tax consulting services

Group auditors 0.0 0.0

Non-Group auditors 0.0 0.1

Other services

Group auditors 0.0 1.8

Non-Group auditors 0.0 0.0

Total 2.0 4.4

The information on provisions and contingent liabilities provided herein goes beyond that

required by IAS 37, according to which disclosure is required only in cases in which an

outflow of funds is not improbable. Although this does not apply in the case of the

Gothaer Group, information is disclosed pursuant to sections 251 and 285 No. 3 German

Commercial Code (HGB).

The Group has contingent liabilities in the amount of €49.6 million (PY: €69.4 million).

This amount is accounted for virtually completely by surety insurance of the former

Gothaer Credit Versicherung AG.

The Group has a contingent asset of €1.1 million (PY: €0.0 million). This relates to the

purchase price receivable from the sale of a participation, which has been deposited in

a trust account. The receipt of this receivable is considered very likely.

The Group has liabilities in the amount of €417.1 million (PY: €642.8 million) arising from

commitments to make payments in connection with investments. In addition, there are

other obligations of €1,0 million (PY: €0.0 million).

ASSTEL Sachversicherung AG, Gothaer Allgemeine Versicherung AG and Janitos Versicherung

AG are members of “Verkehrsopferhilfe e.V.”. Membership entails an obligation to

contribute to the funds this association requires to carry out its activities. Contributions

are based on the respective shares of the premium income generated by member

companies from direct automotive and liability insurance in the year prior to the past

calendar year. Group companies also belong to insurance pools such as Deutsche

Kernreaktor-Versicherungs-Gemeinschaft and Pharma-Rückversicherungsgemeinschaft.

Gothaer Group Annual Report 2009 191


Consolidated Financial Statements

Underwriting pools and coinsurance

In the event of default on the part of any of the other members, the respective Group

company is obligated to assume its pro rata share of any such default. Shares are also

held in EXTREMUS Versicherungs-AG.

In accordance with sections 124 et seq. of the German Insurance Supervision Act (VAG),

the life insurance companies of the Group are members of the guarantee fund for life

insurers (Sicherungsfonds für die Lebensversicherer). In addition to the obligatory current

contributions, the fund can levy special contributions up to 1 ‰ of the sum of net

underwriting reserves on the basis of the Guarantee Fund Financing Ordinance (Life).

Furthermore, the companies have committed to make financial resources available to the

guarantee fund – or alternatively to Protektor Lebensversicherungs-AG – in the event of

the fund not having the resources needed to handle an rescue case. This commitment

amounts to 1 % of the sum of net underwriting reserves less contributions already made

to the guarantee fund. The total commitment to the guarantee fund at balance sheet date

was €127.7 million.

On the basis of statutory amendments to sections 124 et seq. VAG, health insurers are

also required to become members of a guarantee fund. After the assumption of insurance

contracts, the fund can levy special contributions up to 2 ‰ of the sum of net underwriting

reserves for the fulfilment of its duties. The commitment in the area of health

insurance is €8.8 million.

In the area of syndicated life insurance, data are used as reported by the lead manager

of the syndicates. In the case of syndicated business under our management, proportionate

values are used; such business is otherwise accounted as primary business.

In the area of health insurance, a coinsurance arrangement is in place that involves a

group of private insurance companies that provide long-term care coverage under the

Long-Term Care Insurance Act of 26 May 1994 for members of the health insurances for

postal and railway civil servants (Postbeamtenkrankenkasse and Krankenversorgung der

Bundesbahnbeamten (GPV), respectively). The association of private health insurers

(PKV) prepares financial statements and settles accounts with the individual member

insurance companies on a pro rata basis, and the results of these accounts flow into the

consolidated financial statements.

192 Gothaer Group Annual Report 2009


Basis for allocation of interest to policyholders

Consolidated Financial Statements

In the case of conventional products, interest is allocated to policyholders in the area of

life insurance in the form of a guaranteed interest credit on the one hand and a surplus

sharing on the other hand. The bonus is determined by Management on the basis of legal

provisions. In the case of unit-linked products, policyholders assume the risk of any

investment losses. No interest credits are made in this case.

The distribution of any surplus in connection with private health insurance is subject to

the provisions of national legislation, in particular the German Insurance Supervision Act

(VAG) and an ordinance that governs the determination and distribution of surplus

interest and profit for health insurance plans (ÜbSchV).

Pursuant to section 12b VAG, any transfer of funds from reserves for premium refunds is

essentially subject to the approval of an independent trustee. The trustee must verify in

particular that the interests of the insured and especially of older insured are adequately

protected.

Section 12a(1) VAG stipulates that holders of health insurance policies and voluntary longterm

care insurance (care cost and daily allowance) that resemble life insurance are

entitled to an annual credit for interest on the total positive balance of the ageing reserve

for the respective insurance as of the end of the previous financial year. This credit is

equal to 90% of the average investment result in excess of the basic actuarial interest rate

used (surplus interest). The funds accumulated in this manner are used for the most part

to partially or completely finance increases in premium payments resulting from premium

increases in the case of insureds who have reached the age of 65 and also to reduce

premiums in the case of insureds who have reached the age of 80.

Section 12a(1) VAG requires that at least 80 % of the surplus determined on the basis of

the respective regulatory requirements be allocated to the reserve for premium refunds

(with separate accounts for health insurance organized along the lines of life insurance

and for private compulsory long-term care insurance).

Gothaer Group Annual Report 2009 193


Consolidated Financial Statements

Related party disclosures

GSC Gothaer

Schaden-Service-Center

GmbH

In Gothaer’s claims settlement department, a framework agreement exists for handling

legal proceedings relating to automotive processes and liability events involving parties

related to the Group. Remuneration was based at most on the statutory provisions of the

German Lawyers’ Remuneration Act. Fees of €0.3 million (PY: €0.2 million) were paid by

Gothaer in the year under review.

In addition, business relationships with non-consolidated companies that are considered

by the Gothaer Group to be of significant importance are reported below.

GSC Gothaer Schaden-Service-Center GmbH carries out communication-intensive business

processes (call centers) and other services and also adjusts claims for Gothaer

Allgemeine Versicherung AG and Gothaer Versicherungsbank VVaG.

Revenues in the amount of €11.8 million (PY: €12.8 million) in 2009 were received exclusively

from companies of the Gothaer Group, with Gothaer Allgemeine Versicherung

AG accounting for 97.9 % of the total. At €6.6 million (PY: €6.5 million), personnel

expense represented the most important expense item in the statement of income.

Receivables from affiliated companies amounted to €11.9 thousand (PY: €66.7 thousand).

Liabilities towards affiliated companies in the amount of a total of €4.1 million (PY: €2.8

million) consist to 89.7 % of liabilities towards Gothaer Allgemeine Versicherung AG,

including a loan in the amount of €1.7 million to Gothaer Schaden-Center-Service GmbH.

194 Gothaer Group Annual Report 2009


GKC Gothaer

Kunden-Service-Center

GmbH

Pensus

Pensionsmanagement

GmbH

Consolidated Financial Statements

GKC Gothaer Kunden-Service-Center GmbH performs services involving communicationintensive

business processes (call centers) as well as other services such as policy

processing and sales support for the insurance companies of the Gothaer Group. Its

principal client is Gothaer Allgemeine Versicherung AG but services are increasingly

performed for ASSTEL Sachversicherung AG, ASSTEL Lebensversicherung AG and Gothaer

Lebensversicherung AG.

63.7 % of the revenues in the amount of €31.7 million (PY: €31.5 million) recorded in 2009

resulted from the processing of contractually defined business transactions and the handling

of telephone queries in connection with the private customer business of Gothaer

Allgemeine Versicherung AG. Revenues were offset in particular by personnel expense in

the amount of €13.8 million (PY: €10.9 million) and other operating expenses in the

amount of €15.1 million (PY: €18.1 million). The latter amount includes mainly start-up

costs for EDP and communication systems.

Receivables from affiliated companies amounted to €2.6 million (PY: €2.3 million) in

the financial year, the lion’s share relating to Gothaer Allgemeine Versicherung AG.

Liabilities towards affiliated companies totalled €19.7 million (PY: €20.1 million), €17.4

million of which related to a loan granted by Gothaer Finanzholding AG.

Pensus Pensionsmanagement GmbH is responsible for the administration of pension

plans for private and public sector companies and customer support. Revenues received

from companies of the Gothaer Group, in particular Gothaer Lebensversicherung AG,

Gothaer Allgemeine Versicherung AG and Gothaer Versicherungsbank VVaG, accounted for

€0.8 million (PY: €0.7 million) of total revenues in the amount of €1.7 million for 2009

(PY: €1.9 million). As in the previous year, personnel expenses came to €1.1 million.

Liabilities amounted to €1.1 million (PY: €1.1 million) and receivables to €0.5 million

(PY: €0.6 million) of which €0.1 million (PY: €0.1 million) from affiliated companies.

Gothaer Group Annual Report 2009 195


Consolidated Financial Statements

Leasing

Minimum lease

payments

Minimum lease

payments

Finance leases are used exclusively for DP hardware with a net carrying amount of €3.8

million (PY: €9.2 million). These lease agreements have a residual term of three years.

This results in minimum lease payments in the amount of €5.6 million (PY: €10.1 million).

This amount is shown below by residual term.

Finance leases €million

2009 2008

Up to 1 year 1.9 2.6

1 to 2 years 1.9 2.6

2 to 3 years 1.8 2.6

3 to 4 years 0.0 2.2

4 to 5 years 0.0 0.0

5 to 10 years 0.0 0.0

After 10 years 0.0 0.0

Total 5.6 10.1

Operating leases are used mainly for DP software and hardware as well as company

vehicles. The lease contracts were concluded under normal market conditions. Total

future minimum lease payments in connection with operating leases come to €80.5

million (PY: €93.9 million). This amount is shown below by residual term.

Operating leases €million

2009 2008

Up to 1 year 46.1 38.9

1 to 2 years 24.5 24.2

2 to 3 years 9.3 27.4

3 to 4 years 0.6 3.0

4 to 5 years 0.0 0.4

5 to 10 years 0.0 0.0

After 10 years 0.0 0.0

Total 80.5 93.9

196 Gothaer Group Annual Report 2009


Post-balance sheet events

Consolidated Financial Statements

No events occurred after the reporting date that would require separate disclosure.

The Management of Gothaer Versicherungsbank VVaG approved the consolidated

financial statements for submission to the Supervisory Board on 23 April 2010. The

Supervisory Board is responsible for examining the consolidated financial statements

and issuing a statement as to whether or not it approves the consolidated financial

statements.

Cologne, 23 April 2010

Management

Dr. Görg Dr. Hofmeier Kurtenbach

Leicht Meisch Dr. Nickel-Waninger

Gothaer Group Annual Report 2009 197


Auditors’ Report

We audited the consolidated financial statements prepared by Gothaer Versicherungsbank

VVaG, Cologne – consisting of the statement of financial position, statement of

comprehensive income, statement of changes in equity, statement of cash flows and

notes to the consolidated financial statements – and the Group Management report for

the financial year from 1 January to 31 December 2009. In accordance with the International

Financial Reporting Standards (IFRS) as applied in the EU and the complementary

provisions of commercial law pursuant to Section 315a(1) of the German Commercial

Code (HGB), Management of the parent company is responsible for the preparation of the

consolidated financial statements and the Group Management report. Our responsibility

is to provide an opinion on the consolidated financial statements and the Group Management

report on the basis of our audit.

We conducted our audit of the consolidated financial statements in compliance with

section 317 HGB and the German generally accepted principles for the audit of annual

financial statements issued by the Institut der Wirtschaftsprüfer (IDW). Accordingly, an

audit is to be planned and performed to obtain reasonable assurance of detecting

material misstatements or non-compliance with laws and regulations in the presentation

of the net assets, financial position and results of operations in the consolidated financial

statements and the Group Management report in accordance with applicable accounting

principles. Auditing procedures are determined to take into account knowledge of

the business activities as well as of the economic and legal context of the Group and an

evaluation of possible misstatements. The audit includes an assessment of the efficacy

of the internal system of control procedures and, primarily on a test basis, examination

of evidence supporting amounts and disclosures in the consolidated financial statements

and the Group Management report. The audit includes assessment of the annual financial

statements of consolidated companies, the scope of consolidation, the accounting

and valuation principles applied and significant estimates made by the Management of

the company as well as evaluation of the overall presentation of the consolidated financial

statements and the Group Management report. We believe that our audit provides a

sufficiently reasonable basis for our opinion.

Our audit resulted in no reservations.

In our opinion, based on the findings of our audit, the consolidated financial statements

comply with IFRS, as applied in the EU, and the complementary provisions of commercial

law pursuant to section 315a(1) HGB and give a true and fair view of the net assets,

financial position and results of operations of the Group in accordance with these requirements.

The Group Management report is consistent with the consolidated financial

statements, conveys a true and fair view of the situation of the Group and accurately

presents the opportunities and risks of future developments.

Cologne, 30 April 2010

KPMG AG

Wirtschaftsprüfungsgesellschaft

(Dr. Ellenbürger) (Dr. Dahl)

Wirtschaftsprüfer Wirtschaftsprüfer

198 Gothaer Group Annual Report 2009


Report of the Supervisory Board

The Supervisory Board monitored the conduct of business by Management in the course

of the reporting period in fulfilment of its duties under the law and the bylaws of the

Company. Management regularly submitted written reports on business developments

and the situation of the Company and reported orally to the Board at six meetings.

The committees of the Board were also involved in informational and oversight activities.

The Investment Committee and the Executive Committee each met three times.

The issues addressed regularly included developments as regards premiums, losses

incurred and underwriting expenses as well as the effect thereof on the financial statements.

The Supervisory Board also monitored the development of membership figures

and the measures taken to raise the standard of service and advice for the exclusive

organization as well as the development of types of future-compliant agency and processes.

Management regularly informed the Supervisory Board of its mid-term corporate

planning, the solvency developments, the risk strategy and the risk situation of Group

companies. Management reported to the Supervisory Board in depth on developments

on the capital markets and the resultant effects on investments and investment result,

and discussed the possible effects of the financial market crisis on the macroeconomic

developments with its implications for the insurance industry. Reports also covered the

performance of strategic holdings, the distribution channels used by the Group companies

and the measures adopted to promote structural change processes and optimize

cost structures. On the basis of the resolution to enhance our growth strategy by

launching an initiative in the growth markets of Eastern Europe, Management regularly

informed the Supervisory Board about the outcomes of the studies conducted and

potential acquisition options.

The Supervisory Board continued to pay particular attention to the activities aimed at

implementing and thus anchoring the mission statement both in internal and external

communications and in organizational and operational structures. Another major focus

of reporting was the large number of new regulations and their implications. Triggered by

the financial market crisis, the risk management and transparency requirements that need

to be met by companies operating in the financial market, their Managements and their

Supervisory Bodies have significantly increased. Against this backdrop, the Supervisory

Board resolved to create an audit committee to address the tasks set out in Section 107 (3)

of the latest version of the German Stock Corporation Act (AktG). Accordingly, the audit

committee engaged in in-depth discussions with the Management and auditors with a

focus on the accounting process and the valuation of investments in the statement of

financial position presented.

The Chief Risk Officer briefed the Supervisory Board on the risk Management report for

2008 and progress in the area of risk management. The Group Audit Manager reported to

the Supervisory Board on the results of audits carried out 2008 and the audit plan for

2009.

Gothaer Group Annual Report 2009 199


The financial strength ratings carried out for Group companies in 2009 also resulted in -

positive findings. The ratings document the continued security and financial strength

of the Group. Gothaer Allgemeine Versicherung AG and Gothaer Lebensversicherung AG

again confirmed the ratings received in the past from Standard & Poor’s (A-) and

FitchRatings (A). Gothaer Krankenversicherung AG confirmed both its Assekurata rating (A)

and its rating by Standard & Poor’s (A-).

The financial statements for the 2009 financial year with the Management report and the

consolidated financial statements for 2009 prepared in accordance with IFRS and the

Group Management report were audited, including in each case assessment of the earlywarning

system, by the auditor appointed pursuant to section 341k HGB, KPMG AG

Wirtschaftsprüfungsgesellschaft, Cologne.

Both sets of financial statements received an unqualified audit opinion from the audit

firm. The auditors attended the corresponding meetings of the Supervisory Board and

reported on the material results of the audit.

The Supervisory Board received the audit reports submitted and took note of and

approved the results of the audits.

After examination of the presented financial statements and Management report for the

2009 financial year and the consolidated financial statements and Group Management

report for the 2009 financial year, the Supervisory Board raised no objections. The Supervisory

Board approved the financial statements and the consolidated financial statements

for the year 2009. The financial statements are therefore adopted pursuant to section 172

of the German Stock Corporation Act (AktG).

The Supervisory Board approves Management’s proposal for the use of retained profit.

The Supervisory Board thanks Management and all employees of the Gothaer Group for

their work in the course of the past year.

Cologne, 17 May 2010

The Supervisory Board

Dr. Roland Schulz

Chairman

200 Gothaer Group Annual Report 2009


Addresses of Major Group Companies

Gothaer Versicherungsbank VVaG

Arnoldiplatz 1 Telephone 0221 308-00

50969 Cologne Internet www.gothaer.de

Gothaer Finanzholding AG

Arnoldiplatz 1 Telephone 0221 308-00

50969 Cologne Internet www.gothaer.de

Gothaer Allgemeine Versicherung AG

Gothaer Allee 1 Telephone 0221 308-00

50969 Cologne Internet www.gothaer.de

Gothaer Lebensversicherung AG

Arnoldiplatz 1 Telephone 0221 308-00

50969 Cologne Internet www.gothaer.de

Gothaer Krankenversicherung AG

Arnoldiplatz 1 Telephone 0221 308-00

50969 Cologne Internet www.gothaer.de

Gothaer Pensionskasse AG

Arnoldiplatz 1 Telephone 0221 308-00

50969 Cologne Internet www.gothaer.de

ASSTEL Lebensversicherung AG

Schanzenstr. 28 Telephone 0221 9677-677

51063 Cologne Internet www.asstel.de

ASSTEL Sachversicherung AG

Schanzenstr. 28 Telephone 0221 9677-677

51063 Cologne Internet www.asstel.de

Janitos Versicherung AG

Im Breitspiel 2–4 Telephone 06221 709-1000

69126 Heidelberg Internet www.janitos.de

CG Car-Garantie Versicherungs-AG

Gündlinger Str. 12 Telephone 0761 4548-0

79111 Freiburg Internet www.cargarantie.com

Gothaer Group Annual Report 2009 201


Gothaer

Versicherungsbank VVaG

Arnoldiplatz 1

50969 Cologne/Germany

Phone +49(0)221 308-00

Fax +49(0)221 308-103

www.gothaer.de

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