Erste Bank JPMorgan Merrill Lynch International

Information on the companies that are fully consolidated, proportionally consolidated, and
included at equity in the consolidated financial statements of 31 December 2006 is provided in Note 4
“Ownership interests” in the notes to the consolidated financial statements.
Classification of insurance contracts
Contracts under which a consolidated company assumes a significant insurance risk from another
party (the policyholder), by stipulating that the policyholder receives compensation if a specified
uncertain future event (the insured event) negatively affects the policyholder are treated as insurance
policies for the purposes of IFRS. A distinction is made between insurance risk and financial risk.
Financial risk is the risk of a possible future change in one or more specific interest rates, securities
prices, price indices, interest rate indices, credit ratings, or credit indices, or another variable, provided
that, in the case of a non-financial variable, the variable is not specific to one contracting party. In
many cases, in the life insurance area in particular, insurance policies as defined under IFRS also
transfer financial risk.
Contracts under which only an insignificant insurance risk is transferred from the policyholder to
the consolidated company are treated as financial investments (“financial insurance contracts”) for the
purposes of IFRS. Such contracts exist only to a minor extent in the personal insurance area.
Both insurance contracts and financial insurance contracts can have contract terms that qualify
as profit-dependent participation in net income (“profit participation”, “profit-dependent premium
refund”). Contractual rights under which, in addition to guaranteed benefits, the policyholder also
receives additional payments which are likely to represent a significant portion of the total payment
under the contract, and are contractually based on:
a) the profit from a certain portfolio of contracts or a certain type of contract, or
b) the realised and/or unrealised investment income from a certain portfolio of assets held by
the insurance company, or
c) the profit or loss of the company, the investment fund, or business unit (e.g. balance sheet
unit), holding the contract are considered profit-dependent participations in net income.
Contracts with profit participation related to result exist in all markets in the Vienna Insurance
Group, primarily in the life insurance area, and to a secondary extent also in the property and casualty,
and health insurance areas, and are treated as insurance contracts in accordance with IFRS 4.
The net income participation in life insurance exists essentially in the form of participation in the
adjusted net income of the balance sheet unit in question calculated according to national accounting
requirements. Net income or profit participation amounts that have already been allocated or committed
to policyholders are reported in the mathematical reserve. Amounts reported in the local annual
financial statements which have been committed or allocated to policyholders in the form of future net
income participation are reported on the balance sheet in the reserve for profit-dependent premium
refunds. In addition, by analogy to the treatment of deferred taxes under IAS 12, the profit-dependent
portion resulting from application of IFRS versus local valuation requirements (“deferred profit participation”)
is reported in the reserve for profit-dependent premium refunds. The rate used in Austria for
calculating deferred profit participation is 80% of the difference between the value recognised in the
local financial statements and the value recognised in the IFRS financial statements. The funding of
the reserve for deferred profit participations is also presented by analogy to IAS 12, with the “shadow
accounting” rules of IFRS 4 being applied. As a result, amounts for deferred profit participation relating
to transactions that are recognised directly in equity, are also recognised directly in equity.
Recognition and accounting methods for insurance contracts
WIENER STÄDTISCHE Versicherung AG VIENNA INSURANCE GROUP fully applies the rules of
IFRS 4 relating to the valuation of insurance contracts. Accordingly, the values recognised in the
consolidated financial statements prepared in accordance with applicable national commercial code
and insurance supervisory requirements were carried over to the IFRS consolidated financial
statements. Equalisation and catastrophe provisions are not recognised. There were no changes in
accounting rules as compared to the corresponding national accounting requirements. In individual
cases, the reserves formed locally by an insurance company for outstanding insurance claims are
increased in the consolidated financial statements based on appropriate analysis.
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