Erste Bank JPMorgan Merrill Lynch International

RISK REPORTING
The Vienna Insurance Group’s core competence is dealing professionally with risk. The Group’s
primary business is assuming risks from its customers using a variety of insurance packages. The
insurance business consists of deliberately assuming diverse risks and managing them profitably. One
of the primary responsibilities of risk management is to ensure that the obligations assumed under
insurance policies can be satisfied at all times.
The Vienna Insurance Group is exposed to a number of other risks in addition to the underwriting
risks of its insurance policy portfolio. A risk management process is used to identify, analyse, evaluate,
report, control and monitor these risks. The risk control measures used are avoidance, reduction,
diversification, transfer and acceptance of risks and opportunities.
The overall risk of the Group can be divided into the following risk categories:
Underwriting risks: The core business of Vienna Insurance Group is the risk transfer from
the insurance holders to the insurance company.
Credit risk: This risk quantifies the potential loss due to deterioration of the situation of a
contracting party owing receivables.
Market risk: Market risk is taken to mean the risk of changes in the value of investments
caused by unforeseen fluctuations in interest rate curves, share prices and currency rates,
and the risk of changes in the market value of real estate and ownership interests.
Strategic risks: These can arise due to changes in the economic environment, case law,
and the regulatory environment.
Operational risks: These may result from deficiencies or errors in business processes,
controls and projects caused by technology, staff, organisation or external factors.
Liquidity risk: Liquidity risk depends on the goodness of fit between the investment portfolio
and insurance commitments.
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.
As a rule, the local companies in the Vienna Insurance Group are responsible for managing their
own risks, while at the same time strict requirements are set in terms of investments and capital
assets, as well as for reinsurance.
Effective risk and opportunities management requires ERM (Enterprise Risk Management) and a
risk policy and risk strategy set by management. ERM enables managers to deal effectively with
uncertainty and the risks and opportunities it involves, and strengthens their ability to create value.
Taking all relevant potential future events into account improves the utilisation and proactive realisation
of opportunities. Reliable information on risks improves the allocation of capital. ERM provides a
procedure for identifying and selecting alternative reactions to risks. The Vienna Insurance Group risk
management department is an independent organisational unit whose responsibilities and functions
are specified in detail. Every employee contributes to the effectiveness of risk management in the
Vienna Insurance Group. The attention needed for effective risk management is increased by
anchoring risk management universally throughout the Group. Great importance is placed on the
day-to-day implementation of a suitable risk monitoring culture. Transparent and verifiable processes
form an essential element of this Group-wide risk culture. Deviations from set target values and the
admission and reporting of errors can take place in our Company, and are used to promote the active
problem solving abilities of our employees.
Risk management in the Vienna Insurance Group is governed by a number of internal guidelines.
Underwriting risks in property and casualty insurance are primarily managed using actuarial models
for setting tariffs and monitoring the progress of claims, and guidelines for the assumption of
insurance risks. The most important underwriting risks in life and health insurance are primarily
biometric ones, such as life expectancy, occupational disability, illness and the need for nursing care.
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