Erste Bank JPMorgan Merrill Lynch International

Financial investments
Financial instruments reported as capital assets are divided into the following categories in
accordance with the requirements of IAS 39:
Loans and other receivables
Financial instruments held to maturity
Financial instruments available for sale
Financial instruments held for trading
Financial instruments at fair value through profit and loss
The corresponding investments are valued upon initial recognition at the cost of acquisition, which
equals fair value at the time of acquisition. Two valuation measures can be applied to financial
investments for subsequent valuation. Adjusted cost acquisition is used for subsequent valuation of
loans and other receivables. The adjusted cost of acquisition is determined using the effective interest
rate of the loan in question. In the case of permanent impairment, a write-down is recognised reflected
on the income statement.
Adjusted cost of acquisition is used for subsequent valuation of financial investments held to
maturity. The adjusted cost of acquisition is determined using the effective interest rate of the financial
instrument in question. In the case of permanent impairment, a write-down is recognised on the
income statement.
Financial instruments available-for-sale and trading securities are recognised at fair value on the
balance sheet. If available-for-sale financial instruments are sold, the difference between the adjusted
cost of acquisition carried forward and fair value is directly recognised in other reserves (“unrealised
gains and losses”). No separate calculation of adjusted cost of acquisition is performed for financial
investments held for trading; changes in fair value are recognised as profit or loss on the income
statement. The financial investments held for trading are predominantly structured investments
(“hybrid financial investments”) which Vienna Insurance Group has elected under IAS 39.11A and IAS
39.12 to assign to the category of “financial assets valued at fair value reported through profit or loss”.
For clarity, however, this item is referred to as “financial investments held for trading” on the balance
sheet. Structured investments are assigned to this category if the derivatives embedded in the host
contract (as a rule securities or loans) are not closely related to the host contract so that the
requirement under IAS 39 of isolating them from the host contract and valuing them separately at fair
value does not apply.
De-recognition of financial instruments is performed when the Group’s contractual rights to cash
flows from the financial instruments expire.
Information on the recognition of impairment losses is provided in the section entitled “General
information on the accounting and valuation of investments”.
Investments of unit- and index-linked life insurance
The investments of unit- and index-linked life insurance provide cover for the underwriting
provisions of unit- and index-linked life insurance. The survival and surrender payments from these
policies are linked to the performance of the associated investments of unit- and index-linked life
insurance, with the income from these capital assets also fully credited to policyholders. As a result,
policyholders bear the risk associated with the performance of the investments of unit- and indexlinked
life insurance.
These investments are held in separate cover funds, and managed separately from the other
investments of the Group. Since the changes in value of the unit- and index-linked life insurance
investments are equal to the changes in value of the under-writing provisions, these investments are
valued using the provisions in IAS 39.9. Investments of unit- and index-linked life insurance are
therefore valued at fair value, and changes in value are recognised in the income statement.
Reinsurers’ share of underwriting provisions
The reinsurers’ share of the underwriting provisions is valued in accordance with the contract
provisions.
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