Erste Bank JPMorgan Merrill Lynch International

in the same currency as the obligations to policyholders. With regard to its bond portfolio, the Vienna
Insurance Group is currently not planning any changes to its investment strategy.
According to the Group’s investment guidelines for Austria, bond investments are made almost
exclusively in investment grade bonds with a Standard & Poor’s rating of AAA to BBB. Investments in
non-investment grade bonds are only made in individual cases and in accordance with decisions to
this effect by the Management Board. The goal is to achieve the greatest possible diversification
among individual issuers, to avoid accumulation risks, to ensure good average credit quality, to control
foreign currency effects, and to make the majority of investments in mid- to long-term maturities.
Equities
As of 31 December 2007, Vienna Insurance Group’s directly held equity investments represented
approximately 6% of the book value of the total investment portfolio, and if indirect shareholdings
through funds are taken into account, total equity investments were approximately 9%. In accordance
with the investment guidelines for Austria, management is performed using the “top-down” approach,
subject to the constraint that diversification be used to minimize the market price risk of the equities.
Key elements are diversification by markets or regions, sectors or industries, capitalisation (large,
medium and small caps), business cycle (value, growth), and valuation allocations (fundamental or
quantitative models). For the Group’s companies in CEE countries, the overall equity component is
very small.
Risk diversification within the Vienna Insurance Group equity portfolio is achieved by geographic
diversification. In addition to investments in sound international blue-chip securities, the portfolio also
contains a variety of blocks of liquid shares in listed Austrian companies. Highly restrictive investment
rules apply to subsidiaries in the CEE-region, such that equities play no, or only a secondary, role in
their portfolios.
Loans/ Lending
Vienna Insurance Group loans had a book value of EUR 1,187.4 million on 31 December 2007,
and a book value of EUR 1,057.4 million on 31 December 2006. Investments in loans and credits
used to create long-term positions for the insurance business are made only in mortgage loans and in
instruments of first-class credit quality, particularly those of public institutions and nonprofit housing
development companies. In the CEE region, investments in loans and credits have much less
importance. Loans in this region are made almost exclusively to the Group’s own real estate
subsidiaries. The loan portfolio is declining in overall importance compared to the total investment
portfolio. This development is due to the fact that the floating of loans has become less important to
the federal government and local authorities in Austria, with public institutions instead increasingly
obtaining financing through bonds.
Decrease in value of loans
in EUR ’000
Gross book
value
Decrease
in value
Net book
value
Not value reduced Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,186,656 0 1,186,656
Value reduced Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,099 3,317 782
Total .............................................. 1,190,755 3,317 1,187,438
A portfolio analysis and an analysis of remaining time to maturity for the Vienna Insurance
Group’s loan portfolio are provided in Note 5, “Loans and other investments”, in the notes to the
consolidated financial statements.
Land and buildings
As of 31 December 2007, the Vienna Insurance Group’s real estate portfolio had a book value of
EUR 2,868.7 million (market value: EUR 3,200.8 million) and a book value of EUR 2,175.6 million as
of 31 December 2006 (market value: EUR 2,447.9 million). The real estate portfolio is used primarily
to create highly inflation-resistant long-term positions for the insurance business, and to create silent
reserves. The real estate portfolio represents approximately 14% of the total investment portfolio of
the Vienna Insurance Group. To date, real estate has not represented a strategic asset class for
companies in the CEE countries.
F-31