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has also remained between 9.5 and 11.1 per 100 insurance risks assumed and slightly below this
range when foreign business is included.
The number of motor third-party liability and collision losses has remained constant in Austria
since 2005. The rising number of foreign insured risks increases these numbers accordingly. Total loss
frequency has not increased.
The storm and other natural catastrophe class was affected by the exceptional hurricane Kyrill in
2007. More than 55,000 loss events resulted from this event alone, with loss frequency increasing by
approximately 5%-points above the long-term average. In the previous year, snow-load and flood
losses, particularly in Austria and the Czech Republic, caused the number of loss events to double,
which also affected this class.
The number of loss events in the household class increased from just under 100,000 to
approximately 102,000 between 2005 and 2007. However, loss frequency only rose slightly from
14.7% to 14.8%.
Property and casualty insurance provisions
According to national legal regulations in their respective countries (in Austria, the Corporate
Code (“UGB”) and Insurance Supervision Act (“VAG”), Wiener Städtische AG and its operating
subsidiaries are required to establish provisions for outstanding insurance claims in the property and
casualty area. These provisions are calculated for payment obligations due to insurance losses which
have been incurred up to the balance sheet reporting date but whose cause or size has not yet been
established, as well as all associated claims handling costs expected to be incurred after the balance
sheet reporting date. This provision is to include insurance losses that have occurred up to the
balance sheet reporting date but were not known at the time that the balance sheet was prepared
(“IBNR”). Collectible recourse claims are deducted from the provision. When required, actuarial
estimation methods are used to calculate these provisions. These methods are applied continuously,
with both the methods and calculation parameters examined continuously for appropriateness and
adjusted if necessary. The provisions are affected by economic factors, such as the inflation rate, and
by legal and regulatory developments which may change over time. The current version of IFRS 4
provides for provisions made in accordance with applicable national regulations to be included in the
consolidated financial statements. Additions and/or reversals of property and casualty provisions are
entered in the “Changes in provisions for outstanding insurance claims” account.
Life insurance claims and provisions
Classic life insurance
As a rule, provisions for future claims by life insurance policyholders are calculated using the
parameters used to calculate premiums. These parameters are to be examined by the appointed
actuary to determine that they have been chosen with due care. In accordance with the provisions of
the VAG, the size of the provision must be sufficient to ensure that policyholders’ claims can be
satisfied at any time.
Changes in mortality, in particular an increase in life expectancy, can lead to an increase in the
actuarial value calculated for these obligations due to a change in the corresponding parameter and
therefore to additional expenses in the year of adjustment.
Changes in cost structure can also result in an adjustment of the expense ratio used in this
calculation.
In 2005, new mortality tables for calculating pension insurance provisions were published in
Austria. Use of these tables has resulted in an increase in provisions in the individual financial
statements prepared in accordance with the UGB.
A change in the Austrian Insurance Contract Act (Versicherungsvertragsgesetz) that provides for
increased surrender values to be paid to policyholders in the event of a premature end to a life
insurance contract within the first five years has come into effect for new insurance policies written
starting January 1, 2007. The increase in surrender value also creates an obligation on the part of the
broker to pay back a prorated portion of the insurance commission in such cases. Overall, it is
expected that these new provisions will lead to a reduction in cancellation profit and an increase in
receivables from brokers.
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