Erste Bank JPMorgan Merrill Lynch International

Both insurance contracts and financial insurance contracts can have contract terms that qualify
as profit-dependent participation in net income (“profit participation”, “profit-dependent premium
refund”). Contractual rights under which, in addition to guaranteed benefits, the policyholder also
receives additional payments which are likely to represent a significant portion of the total payment
under the contract, and are contractually based on:
a) the profit from a certain portfolio of contracts or a certain type of contract, or
b) the realised and/or unrealised investment income from a certain portfolio of assets held by
the insurance company, or
c) the profit or loss of the company, investment fund, or business unit (e.g. balance sheet unit),
holding the contract are considered profit-dependent participations in net income.
Contracts with profit-dependent participation in net income exist in all markets in the Vienna
Insurance Group, primarily in the life insurance area, and to a secondary extent also in the property
and casualty, and health insurance areas, and are treated as insurance policies in accordance with
IFRS 4. The net income participation in life insurance exists essentially in the form of participation in
the adjusted net income of the balance sheet unit in question calculated according to national
accounting requirements. Net income or profit participation amounts that have already been allocated
or committed to policyholders are reported in the mathematical reserve. Amounts reported in the local
annual financial statements which have been committed or allocated to policyholders in the form of
future net income participation are reported on the balance sheet in the reserve for profit-dependent
premium refunds. In addition, by analogy to the treatment of deferred taxes under IAS 12, the profitdependent
portion resulting from application of IFRS versus local valuation requirements (“deferred
profit participation”) is reported in the reserve for profit-dependent premium refunds. The rate used in
Austria for calculating deferred profit participation is 80% of the difference between the value
recognised in the local financial statements and the value recognised in the IFRS financial statements.
The funding of the reserve for deferred profit participations is also presented by analogy to IAS 12,
with the “shadow accounting” rules of IFRS 4 being applied. As a result, amounts for deferred profit
participation relating to transactions that are recognized directly in equity, are also recognized directly
in equity.
Recognition and accounting methods for insurance contracts
WIENER STÄDTISCHE Versicherung AG VIENNA INSURANCE GROUP fully applies the rules of
IFRS 4 relating to the valuation of insurance contracts. Accordingly, the values recognised in the
consolidated financial statements prepared in accordance with applicable national code were carried
over to the IFRS consolidated financial statements. Equalisation and catastrophe provisions are not
recognised. There were no changes in accounting rules as compared to the corresponding national
accounting requirements. In individual cases, the reserves formed locally by an insurance company
for outstanding insurance claims are increased in the consolidated financial statements based on
appropriate analysis.
Detailed information on the valuation of underwriting items is available in the remarks for each
item.
Adequacy test for liabilities arising from insurance contracts
Liabilities from insurance contracts and financial insurance contracts are tested at each reporting
date for adequacy of the insurance liabilities recognised in the financial statements. During this
process, up-to-date estimates of current valuation parameters are examined, taking into account all
future cash flows associated with the insurance contracts, to determine whether the recognised
liabilities are adequate. If these tests determine that the book value of the insurance liabilities is
negative, taking into account capitalised acquisition costs and/or capitalised values of contract
holdings, the entire shortfall is immediately recognised in profit or loss.
Foreign currency translation
Transactions in foreign currency
The individual consolidated companies recognise transactions in foreign currency using the mean
rate of exchange on the date of each transaction. Monetary assets and liabilities in foreign currency
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