Erste Bank JPMorgan Merrill Lynch International

existing on the balance sheet reporting date are translated to EUR using the mean rate of exchange
on the balance sheet reporting date. Any resulting foreign currency gains and losses are recognised
with no effect on the income statement.
Foreign currency translation of individual financial statements
For purposes of the IFRS, the functional currency of Wiener Städtische AG subsidiaries located
outside of the Euro zone is the currency of the country where they are located. All assets and
liabilities reported in the individual financial statements are translated to EUR using the mean rate of
exchange on the balance sheet reporting date. Items in the income statement are translated using the
average month-end mean rate of exchange during the reporting period. Foreign exchange gains and
losses incurred since 1 January 2004, are recognised in equity under “Differences arising from foreign
exchange translation” with no effect on the income statement.
Impairment of assets
Assets are tested at least on each balance sheet reporting date for indications of impairment.
Intangible assets with an indefinite useful life (primarily goodwill) are tested even if there are no
indications of impairment. Since the scheduled amortisation of goodwill resulting from mergers is not
permitted according to IAS 36 (Impairment of assets), the Vienna Insurance Group conducts impairment
tests at least once annually. For this purpose, the subsidiaries in a given country are
consolidated into an economic unit. An impairment arises only if there is a need to write down the
entire economic unit. The value in use of the economic units is calculated using the capitalised
earnings method. The capitalised earnings value is calculated using budget projections for the next
three years. Earnings following the three year period are extrapolated using an annual growth rate.
Discount rates are calculated using a base rate equal to the average annual return on Austrian
government bonds adjusted for sector and market risk. The discount rates used for the impairment
test were between 8.60% and 11.10%.
Information on the impairment testing of financial assets is provided in the section entitled
“General information on the accounting and valuation of capital assets”.
Estimates
The preparation of the IFRS consolidated financial statements requires that management make
discretionary assessments and specify assumptions concerning future developments which could have
significant effects on the recognition and value of assets and liabilities, the disclosure of other
obligations on the balance sheet reporting date, and the reporting of income and expenses during the
fiscal year. There is a not insignificant risk that the following items could lead to a significant
adjustment of assets and liabilities in the next fiscal year:
Underwriting provisions
Pension reserves and similar obligations
Other non-underwriting reserves
Fair values of capital assets not based on stock market prices or other market prices
Goodwill
Valuation adjustments for receivables and other (accumulated) impairment losses
Deferred tax assets from the capitalisation of tax loss carryforwards
Accounting policies for specific items in the annual financial statements
Intangible assets
Goodwill
The goodwill shown in the balance sheet is essentially the result of applying the purchase method
of accounting for companies acquired since 1 January 2004 (date financial reporting was converted to
IFRS). For companies acquired before 1 January 2004, the difference between the cost of acquisition
and the value of the net assets acquired is deducted directly from equity. Using the option afforded by
IFRS 1, no adjustments were made. Goodwill is valued at cost of acquisition less accumulated
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