Erste Bank JPMorgan Merrill Lynch International

Underwriting provisions
Unearned premiums
According to the current revision of IFRS 4, figures included in annual financial statements
prepared in accordance with national requirements may be used in the presentation of figures relating
to insurance contracts in the consolidated financial statements. In Austria, a cost discount of 15% is
used when calculating unearned premiums in the property and accident insurance area (10% for
motor vehicle liability insurance), corresponding to EUR 28,256 million (EUR 25,139 million). No
acquisition costs in excess of this figure are capitalised. For foreign companies, a portion of acquisition
costs calculated according to the ratio of earned premiums to written premiums is recognised in the
property/casualty insurance area. To ensure uniform presentation within the Group, these capitalised
acquisition costs are also shown in the consolidated financial statements as a reduction in unearned
premiums. In the life insurance area, acquisition costs are calculated using the rates set out in the
business plans and included by zillmerisation when calculating the actuarial reserve. Negative
actuarial reserves are set to zero for Austrian companies. For foreign companies, negative actuarial
reserves are included and netted with actuarial reserves. No additional acquisition costs are capitalised.
In general, no capitalisation of acquisition costs is performed for health insurance.
Actuarial reserve
Actuarial reserves in the life insurance business segment are calculated using the prospective
method as the actuarial present value of the obligations (including declared and allocated profit shares
and an administrative cost reserve) less the present value of all future premiums received. The
calculation is based on factors such as expected mortality, costs, and the discount rate. As a rule, the
actuarial reserve and related tariff are calculated using the same basis, which is applied uniformly for
the entire tariff and during the entire term of the policy. An annual adequacy test of the calculation
basis is performed in accordance with IFRS 4 and applicable national accounting requirements
(see section titled “Adequacy test for liabilities arising from insurance contracts”). As a rule, the official
mortality tables of each country are used. If current mortality expectations differ to the benefit of
policyholders from the calculation used for the tariff, leading to an insufficient actuarial reserve, the
reserve is increased as part of the insurance liability adequacy test of insurance liabilities.
In life insurance, acquisition costs are included by zillmerisation as a reduction of actuarial
reserves. In accordance with national requirements, negative actuarial reserves resulting from zillmerisation
are set to zero for Austrian insurance companies. Negative actuarial reserves are not set to
zero for Group subsidiaries domiciled outside of Austria. These negative actuarial reserves are
recognised in the actuarial reserve item in the consolidated financial statements. The following
average discount rates are used to calculate actuarial reserves:
as of 31.12.2005:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.27%
as of 31.12.2004:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.26%
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 31.12.2005: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
as of 31.12.2004: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3%
Reserve for outstanding claims
According to national insurance law and regulations (the Austrian Commercial Code 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
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