Erste Bank JPMorgan Merrill Lynch International

The Internal Fraud Unit of Wiener Städtische AG’s Department for Special Damages deals with
suspected cases of fraud. Many years of cooperation with domestic and foreign security authorities
have resulted in a high success rate in recent years, even when compared to international success
rates.
Reinsurance
The Vienna Insurance Group limits its liability arising from the insurance business by passing on,
to the extent necessary, a portion of the assumed risks to the international reinsurance market.
Previously, only some of the risks of smaller foreign Group companies were being reinsured within the
Vienna Insurance Group. These risks were in turn passed on at the Group level to reinsurers.
However, in February 2008, the Vienna Insurance Group decided to found its own reinsurance
company. This decision was based on the current situation in the reinsurance market, which is
characterized by a consolidation of large reinsurance companies.
According to the management, the size of the Vienna Insurance Group presents a great
advantage for the establishment of a Group-owned reinsurance company, as it can contribute to risk
diversification. Additionally, the in-depth know-how acquired by the Group as a result of its strong
presence in numerous markets presents good opportunities for offering suitable reinsurance solutions.
Furthermore, management expects that founding its own reinsurance company will strengthen the
Group’s negotiating position with external reinsurers.
The Group-owned reinsurance company is not intended to underwrite high-risk business, in
particular, coverage for natural disasters. Furthermore, in principle it is not intended to take over any
retrocession business from reinsurance companies. The company will be developed in several stages,
the first of which will run until 2009 or 2010, during which period it is expected to only underwrite
internal insurance business within the Vienna Insurance Group. Thereafter and only after the
organizational prerequisites have been established, will it also acquire external reinsurance business
within the CEE region and possibly other markets as well.
Reinsurance Guidelines
The Vienna Insurance Group’s Reinsurance Guidelines are updated annually by the Central
Reinsurance Department, in cooperation with the Management Board member in charge of
reinsurance, at the same time as the reinsurance strategy for the next fiscal year is being developed.
The Reinsurance Guidelines require that each Group company, in collaboration with the Central
Reinsurance Department, obtain appropriate reinsurance coverage. The following items are regulated
by the Reinsurance Guidelines:
Reinsurance is a Prerequisite for the Approval of Insurance Coverage. Specialized departments
may give binding approval for insuring a risk only when sufficient reinsurance coverage
has been secured from outside reinsurers.
Retentions. The maximum that can be put at risk on a probable maximum loss basis has been
fixed Group-wide at EUR 17.5 million per natural disaster event. The Group-wide maximum
retention per individual loss is approximately EUR 4 million.
Selection of Reinsurers – Diversification. Wiener Städtische AG and its Group companies
divide their reinsurance coverage across a large number of different international reinsurers
that, in the judgment of the Vienna Insurance Group, have an appropriate credit standing, so as
to minimize the risk arising from the possibility of any one reinsurer becoming insolvent. No
reinsurer has ever defaulted to a significant extent on its obligations to Vienna Insurance Group
in the Group’s history.
Selection of Reinsurers – Rating. In business segments where claims settlements can extend
over a long period, particularly motor vehicle liability and general liability, the Vienna Insurance
Group uses reinsurers with an excellent rating (a S&P’s rating of at least “A”, preferably “AA” or
higher), which, in all probability, will be maintained over the long-term.
For business segments with claims that are settled quickly (e.g., natural catastrophes, fire,
technology, transport, storms, burglary, household, water pipes, motor vehicle own-damage), for
which the number of reinsurers is larger, the preferred rating again is S&P’s “A” or higher.
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