Erste Bank JPMorgan Merrill Lynch International

not set to zero for Group subsidiaries domiciled outside of Austria. These negative mathematical
reserves are recognised in the mathematical reserve item in the consolidated financial statements.
The following average discount rates are used to calculate mathematical reserves:
As of 31.12.2007: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.41%
As of 31.12.2006: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.15%
In health insurance, actuarial reserves are also calculated according to the prospective method
as the difference between the actuarial present value of future policy payments less the present value
of future premiums. The loss frequencies used to calculate the actuarial reserve derive primarily from
analyses conducted on the Group’s own insurance portfolio. As a rule, the mortality tables used
correspond to published mortality tables.
The following discount rates are used for the great majority of transactions when calculating
actuarial reserves:
As of 31.12.2007: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
As of 31.12.2006: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
Reserve for outstanding claims
According to national insurance law and regulations in Austria (the Austrian Corporation Code
(UGB) and Insurance Supervision Act (VAG)), Wiener Städtische AG and its operating subsidiaries
are required to form reserves for outstanding insurance claims for each business segment. These
reserves are calculated for payment obligations from insurance claims which have occurred up to the
balance sheet reporting date but whose basis or size has not yet been established, as well as all
related claims handling costs expected to be incurred after the balance sheet reporting date, and as a
rule are formed at the individual policy level. These policy-level reserves are marked up by a flat-rate
allowance for unexpected additional losses. Except for the reserves for pension obligations, no
discounting is performed. Insurance losses that have occurred up to the balance sheet reporting date
but were not known at the time that the balance sheet was prepared are included in the reserve
(incurred but not reported reserves, “IBNR”). Separate reserves for claims handling expenses are
formed for internally incurred costs attributable to claims handling. Collectible recourse claims are
deducted from the reserve. Where necessary, actuarial estimation methods are used to calculate the
reserves. The methods are applied consistently, with both the methods and calculation parameters
tested continually for adequacy and adjusted if necessary. The reserves are affected by economic
factors, such as the inflation rate, and by legal and regulatory developments, which are subject to
change over time. The current version of IFRS 4 provides for reserves formed in accordance with
applicable national requirements to be carried over into the consolidated financial statements.
Reserve for profit-independent premium refunds
The reserves for profit-independent premium refunds relate in particular to the “property and
casualty insurance” and “health insurance” segments, and pertain to premium refunds in certain
insurance classes that are contractually guaranteed to policyholders in the event that there are no
claims or a low level of claims. These reserves are formed at the individual policy level with no
discounting.
Reserve for profit-dependent premium refunds
Profit shares that are guaranteed to policyholders in local policies based on the business plans
but have not been allocated or committed to policyholders as of the balance sheet reporting date are
shown in the reserve for profit-dependent premium refunds (“discretionary net income participation”).
The reserve for deferred profit participation, which is recognised by analogous application of the
provisions for deferred taxes, is also shown in this item. Please see the section entitled “Classification
of insurance contracts”.
Other underwriting provisions
The other underwriting reserves item primarily shows cancellation reserves. Cancellation reserves
are formed for the cancellation of premiums that are already billed, but not yet paid by the
policyholder, and therefore represent a liabilities-side value adjustment to receivables from
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