Erste Bank JPMorgan Merrill Lynch International

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion and analysis below is based on the Wiener Städtische AG’s audited consolidated
financial statements for the fiscal years ended December 31, 2007, 2006 and 2005, all of which are
included elsewhere in this Prospectus and it should be read in conjunction with them. The consolidated
financial statements were prepared in accordance with International Financial Reporting Standards
(IFRS), as applied in the EU. The Company’s consolidated financial statements for the fiscal years
ended December 31, 2007, 2006 and 2005 were audited by KPMG Austria GmbH Wirtschaftsprüfungsund
Steuerberatungsgesellschaft, which issued an unqualified auditor’s report. See “General Information
on Wiener Städtische AG – Auditors”. Definitions of specific terms from the insurance industry and from
the annual and interim financial statements can be found in the section entitled “Glossary”. Unless
otherwise indicated, all financial data contained in this section has been audited.
Introduction
Overview of the Vienna Insurance Group
With approximately 17 million customers, the Vienna Insurance Group is among the largest
international insurance groups in the CEE region based on gross premiums written, which amounted
to EUR 6,911.9 million in 2007 (2006: EUR 5,881.5 million) (Source: Internal analysis based on data
for the first three quarters of 2007 of the national insurance associations and supervisory authorities).
It has life and non-life insurance business operations in Austria and in 22 other countries, primarily in
the CEE region. In the CEE region, the Group is active in Albania, Bulgaria, Georgia, Croatia,
Macedonia, Poland, Romania, Russia, Serbia, Slovakia, Slovenia (through a branch of Wiener
Städtische AG), the Czech Republic, Turkey, Ukraine, Hungary, Lithuania, Latvia, Estonia and Belarus.
The Vienna Insurance Group operates independent companies in Germany and Liechtenstein and
also operates in Italy through a branch of Wiener Städtische AG.
In addition to its solid position in its home market Austria, the Vienna Insurance Group is primarily
growing into the emerging countries of the CEE region. The insurance business outside Austria is
gaining increasing importance for the Group (share of overall gross premiums generated outside
Austria: 2007 – 46.5%; 2006 – 41.6%; 2005 – 36.7%). Based on its internal analysis of the local data
of national insurance authorities, the Vienna Insurance Group believes that, with a market share of
approximately 12.1%, it is the second largest insurance group based on gross premiums written
among Western publicly traded insurance companies operating in the Core CEE markets (excluding
Serbia). Based on the same analysis, the Vienna Insurance Group believes that no other Western
publicly traded insurance group generates a higher percentage of its group premiums from operations
in the CEE countries.
In fiscal year 2007, the Vienna Insurance Group employed on average 20,307 employees
(including 100% of the employees of proportionally consolidated companies) compared to an average
18,587 employees in fiscal year 2006 (including 100% of the employees of proportionally consolidated
companies).
Vienna Insurance Group segments
The range of activities conducted by the Vienna Insurance Group includes both the life and nonlife
insurance business. In Liechtenstein it is only active in the life insurance business. Health
insurance products are marketed to a significant extent only by Wiener Städtische AG and only in
Austria. In Austria, the Vienna Insurance Group is a main player in all three business areas. Measured
by gross premiums written, as of December 31, 2007, the Vienna Insurance Group ranked first in the
property and casualty insurance business, second in the health insurance business and first in the life
insurance business (Source: Internal analysis based on preliminary data 2007 of the VVO).
In Austria, the Vienna Insurance Group held a market share of 6.0% in 2006 in wealth-creation
products (of which savings and pension-oriented life insurance products form a part) (Source:
Estimate based on VVO and data of the Austrian National Bank), whereas in the market of life
insurance products for personal risk insurance the market share of the Vienna Insurance Group was
15.0% in 2006 (Source: Internal analysis based on preliminary data 2006 of the VVO).
In the Czech Republic and Slovakia, the Vienna Insurance Group holds second place in the
market in both countries for life and non-life insurance. Measured by gross premiums written, the
55