Erste Bank JPMorgan Merrill Lynch International

In connection with endowment insurance, there is a minimum guaranteed amount that is
documented in the policy. The minimum interest guaranteed by law is currently 2.25% per
year. In addition, there is a right to profit participation and a final bonus, so that actual total
interest currently amounts to 4.0% per year. The amount paid out upon maturity is composed
of the guaranteed and the non-guaranteed parts combined. The profit shares distributed are
composed of an interest profit share (from capital investments) and cumulative profit participation
(composed of expenses/risk profits). The profit participation estimates are reviewed
annually. They form part of the basis for competition among the individual life insurance
companies. Endowment insurance made up 44% of the gross premiums written in fiscal year
2007, 49% in fiscal year 2006 and 47% in fiscal year 2005.
Annuity insurance. Traditional annuity insurance offers the policyholder the choice of capital
redemption or annuity payments when the policy matures. Policyholders also have a choice
between a life-long guaranteed annuity and a temporary annuity. In the case of a life-long
guaranteed annuity, it can be agreed in advance that unused redemption capital will be
returned. Payment of the annuity will commence either immediately or after the expiration of
a particular period. Similar to endowment insurance, annuity insurance includes elements of
guaranteed minimum interest and profit participation. Annuity insurance made up 19% of
gross premiums written in fiscal years 2007 and 2006 and 23% in fiscal year 2005.
Unit- and index-linked life insurance. The policyholder’s premiums are invested in securities
funds or in structured bonds. This provides the customers with higher potential returns, but at
the same time represents a higher risk. The Vienna Insurance Group does not provide any
guarantees in connection with unit- and linked life insurance, which has been rather popular
recently. Depending on the product, the risk is borne by the fund provider or the bond issuer.
State-subsidized pension plan. The state-subsidized pension plan is a special form of
annuity insurance. Premiums are paid regularly and are subsidized by the government
(currently, the government makes a matching payment of 9.5% of the premiums paid in any
year). The subsidy is restricted to an annual insurance premium, currently EUR 2,164.64. In
accordance with the law, 40% is invested in shares (principally Austrian shares and shares of
companies in the Eastern European Union countries) and 60% in traditional premium reserve
funds in accordance with the VAG. Pension payments may be claimed as early as the age of
40, after a 10-year term. The state-subsidized pension plan is not subject to taxation, i.e.,
there is no insurance tax, no taxation of investment income, and no income tax during the
pension payout phase. State subsidized pension plans made up 10% in fiscal year 2007, 9%
in fiscal year 2006 and 8% in 2005.
The customer has advantages (opportunities for returns) comparable to unit-linked life
insurance, as 40% is invested in shares. At the same time, he receives a capital guarantee
on paid-in premiums and the state subsidy. This applies in the event of annuitization, death
and withdrawal of capital and in case a statutory retirement pension is received. The pension
is paid for life at a guaranteed amount. Early capital redemption has disadvantages for the
customer, e.g. lapse of the capital guarantee, repayment of half the government subsidy and
the incurrence of capital gains tax on the profits earned.
Competition
With a 27.9% market share as measured by gross premiums written in 2007, the Vienna
Insurance Group was ranked first in the overall Austrian life insurance market (single-premium policies
and regular payment of premiums) (Source: Internal analysis based on preliminary data 2007 of the
VVO). Other players in life insurance are the UNIQA Group (market share: 20.8%), the Generali
Group (market share: 11.8%) and Allianz 6.1% (Source: as measured by gross premiums written for
2007 and internal analysis based on preliminary data 2007 of the VVO). The Target Companies with
their particular focus on products distributed through the retail organization of the Target Companies’
parent group achieved a market share of 11.0%. They primarily compete with UNIQA Group (which
distributes its products through the associated retail banking organization of Raiffeisen), Generali
Group (which distributes through the associated BAWAG-P.S.K retail outlets and the post-offices) and
BA-CA Versicherung (with distribution through the Bank Austria retail organization).
In the area of life-insurance products with saving and pension character, the Vienna Insurance Group
is in direct competition with players from the financial services industry for customers that seek wealth
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