Erste Bank JPMorgan Merrill Lynch International

Concentration risk
Concentration risk is a single direct or indirect position or an associated group of positions with
the potential to significantly endanger the insurance company, core business or key performance
measures. Concentration risk is caused by an individual position, a collection of positions with
common owners, guarantors or managers, or by sector concentrations.
Regulatory environment
Vienna Insurance Group is subject to (insurance) regulations in Austria and abroad.
These regulations govern such matters as:
Capitalisation of insurance companies and groups;
Admissibility of investments as security for underwriting reserves;
Licences of the various companies of the Vienna Insurance Group;
Marketing activities and the sale of insurance policies; and
Cancellation rights of policyholders.
Changes to the statutory framework could make restructuring necessary, thereby resulting in
increased costs.
Investments
The Group invests in fixed-interest securities (bonds, loans/credits), shares, real estate, equity
interests, and structured investment products, taking into account the overall risk position of the Group
and the investment strategy provided for this purpose. Within the risk limits, the Chief Investment
Officer of the Vienna Insurance Group implements the strategy decided on by the strategic investment
committee. When determining exposure volumes and limits, the risk inherent in the specified categories
and the market risks are of fundamental importance. The capital investment strategy is laid down
in the form of investment guidelines, compliance with which is continuously monitored by the central
risk controlling and internal audit departments. Investment guidelines are laid down on a centralized
basis and are mandatory for all group companies, with a distinction made between investment
strategies for Austria, the CEE region and Germany.
The investment strategy for Austria can be summarised as follows:
Vienna Insurance Group practices a conservative investment policy designed for the longterm.
Vienna Insurance Group focuses on its asset mix as a way to ensure that cash flows match its
long-term liability profile and to create sustainable increases in value through the use of correlation
and diversification effects of the individual asset classes.
Investment management depends on the asset class in question or on the orientation within
asset classes, whether performed internally or by an outside manager. Decisions in this regard
are made by a committee set up for this purpose.
Management of market risk on securities is aimed at providing a transparent view of the risk
exposure arising from price, interest-rate, and currency fluctuations as they affect profitability
and the value of securities investments, and at limiting these risks. Risks are limited by setting
position limits and by means of a two-tier limit system for risk exposure.
Market developments are monitored continuously and the allocation of portfolio assets
managed actively.
About 60% of Wiener Städtische’s investment portfolio consists of direct holdings of fixed-interest
securities and loans. Direct holdings of shares and real estate amount to 6% and approximately 14%,
respectively, in each case measured by the book value of the total investment portfolio.
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