Sparkassen Versicherung

Transcription

1 Sparkassen Versicherung The competence center for pension planning Annual Report 2006

2 Key Data to unfold >

3 Key Data Sparkassen Versicherung Balance sheet total (in mill. EUR) 5, , , Premiums written (in mill. EUR) - Life insurance, regular premium Life insurance, single premium Casualty insurance Total , Policies in force - Life insurance 837, , ,030 - Casualty insurance 134, , ,829 Total 972,351 1,058,038 1,127,859 Insured capital Life insurance (in mill. EUR) , , ,32 Technical provisions, net (in mill. EUR) 5, , , Investments (in mill. EUR) 5, , , Income on investments (in mill. EUR) Equity (in mill. EUR)

4 Owner and Publisher: Sparkassen Versicherung Aktiengesellschaft Wipplingerstrasse Vienna Editing and responsible for contents: Prok. Mag. Michael Deléglise (Sparkassen Versicherung) Prok. Hartwig Fuhs (Sparkassen Versicherung) Mag. Thomas Steiner (Sparkassen Versicherung) Photos: Peter Ehringer CD Archive Design and Layout: SPV-Druck A-1030 Vienna, Grimmelshausengasse 1 Translation: Donna J. Schiller-Margolis Sparkassen Versicherung, 2007 FN f Commercial Court Vienna DVR:

5 With our compliments With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts Our traditional close cooperation with the Austrian Savings Bank Group allowed us to maintain a leading position on the Austrian life insurance market in In order to provide you with a detailed overview of our activities during the past year and an outlook on 2007, we are pleased to send you our Annual Report 2006 The

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7 Thank You! With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts s Versicherung was able to maintain its long-standing position as one of the leading companies on the Austrian life insurance market during the past year because we as a member company of the Austrian Savings Bank Group are able to rely on the expertise of our employees, partners and friends to place the concept of pension planning at the forefront of their activities. We are very proud of each and every one of these men and women and value their performance. We would like to thank all our customers for their confidence in our products and our work the many employees of the Austrian Savings Bank Group for their commitment and motivation our own employees and all those who work with s Versicherung for their support in helping us to realize our goals. To all of you, an honest and heartfelt THANK YOU!

8 Introduction by the Dear Ladies and Gentlemen, s Versicherung was again able to position itself as one of the leading life insurers in Austria thanks to the outstanding cooperation with its sales partners the Austrian Savings Banks, s Bausparkasse and Erste Bank. The development of private and corporate pension planning in 2006 reflected the trend that has characterized previous years. Only the classical single-premium endowment insurance policies, which are viewed by customers as an alternative investment product, were unable to match the above-average growth in premiums recorded for One major reason for this situation was an increase in the interest rates on short-term bank products, which created an interesting option for consumers. The Company was able to continue the pursuit of its product policy during the reporting year, which calls for the expansion of business in the areas of regular-premium policies as well as unit- and index-linked life insurance. This allowed s Versicherung to outpace the overall growth of the market by a substantial margin. The introduction of specially designed new products created a broad-based offering that will support the Company s long-term and profitable development. In 2006 s Versicherung set a milestone with the launch of an index-linked life insurance policy and new products for statesubsidized retirement planning. We also met the changing needs of our customers by introducing product innovations that include an insurance policy for nursing care under the s Pflegevorsorge brand and an insurance policy for funeral costs under the s Bestattungsvorsorge brand, which also represent an attractive offering for new target groups. Manfred Rapf, Erwin Hammerbacher, Alfred Neimke of pension planning for many years. The key issue at this time is to provide sufficient government support for nursing care and thereby reduce the burden on the family nursing networks that have been weakened by demographic changes. Only in this way will it be possible to finance nursing care over the long-term. During the past year s Versicherung was also able to demonstrate its competence in Hungary, the Czech Republic, Slovakia and Croatia in an impressive manner. Our subsidiaries in the countries of Central and Eastern Europe were able to make optimal use of the growth potential in these markets and continue their expansion. We used the extensive public discussions on the important subject of nursing care as an occasion to publish a report on the costs of this treatment, which was prepared by the Economic University of Vienna at our request. The results of this study not only triggered a substantial response by the media but also formed the basis for our new nursing care product, which is marketed as s Pflegevorsorge. Through our informational programs, we have worked to increase the awareness and understanding of the Austrian population for the importance

9 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts The primary focus of our planning for 2007 is to utilize the opportunities created by the positive market environment for life insurance, in spite of the changing economic conditions. The Austrian population is well aware that the welfare state must react to the challenges created by an aging society and the new and steadily changing working world. Politicians must now work to establish a new balance between individual responsibility and collective security. The challenges for the insurance industry are to identify the correct procedures and develop suitable instruments for pension planning, nursing care and other important needs. s Versicherung intends to remain a competent partner for this process in the future. With best regards, Erwin Hammerbacher Alfred Neimke Manfred Rapf

10 EXECUTIVE BOARD Erwin Hammerbacher Seyring Member of the Manfred Rapf Fischamend Member of the Alfred Neimke Vienna Member of the 6

11 Bodies of the Corporation With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts Erwin Hammerbacher, Seyring Member of the Manfred Rapf, Fischamend Member of the Alfred Neimke, Vienna Member of the Supervisory Board Chairman Andreas Treichl, Vienna First Vice-Chairman Günter Geyer, Vienna Second Vice-Chairman Gerhard Fabisch, Graz Andreas Almeder, Vienna Heinz Bednar, Vienna (as of July 5, 2006) Peter Bosek, Langenzersdorf (up to June 28, 2006) Manuela Deutsch, Untersiebenbrunn (as of December 19, 2006) Stefan Dörfler, Vienna (as of July 5, 2006) Ulrike Ebner, Vienna Rudolf Ertl, Vienna Friedrich Fuchs, Hartberg Martin Gschwentner, Kramsach Helmut Hager, Grosshöflein Friedrich Himmelfreundpointner, Neuhofen Wolfgang Just, St.Pölten Ernst Karner, Vienna Michael Kitzler, Vienna Gernot Mittendorfer (up to June 28, 2006) Otto Puschnig, St. Kanzian Ernst Raschhofer, Vienna (as of July 5, 2006) Helmut Rattinger, Vienna (up to June 28, 2006) Martin Simhandl, Purkersdorf (as of July 5, 2006) Heinz Schuster, Langenzersdorf (up to December 18, 2006) Robert Schweizer, Stockerau Anton Steinberger, Götzis Kurt Stöber, Bruck/Leitha Josef Tichler, Linz (as of March 15, 2006) Rudolf Warga, Graz Andreas Wecht, Gnadenwald (up to June 28, 2006) Ulrich Wedl, Neunkirchen Trustees Trustee Isabella Mammerler, Vienna Deputy Trustee Sabine Balogh-Preininger, Vienna (up to July 31, 2006) Deputy Trustee Peter Baumann, Vienna (as of August 1, 2006)

12 The Business Environment in 2006 MARKETS The year 2006 brought the long-awaited economic recovery in Europe. Growth of 2.8% provided the urgently needed impulses for development in the Euro zone, and was driven above all by strong increases in the areas of exports and capital investments. Japan, China and India served as the most important sources of growth in 2006, while the USA lost its status as a key economic motor in favor of a more equal distribution of development among the various regions. In Europe, the countries in the central and eastern regions recorded by far the most dynamic growth with a plus of roughly 5%. The Austrian economy was not only able to match the European trend during the past year, but also outperformed the regional average with GDP growth of 3.2%. The result was a positive impact on capital investment (+5.2%) and merchandise exports (+10.4%). In spite of these favorable effects, consumer spending rose by only 1.9% and lagged behind the sound development of the economy, even through employment grew by 1.5%. The increase in consumer spending was limited by weak growth of only 0.8% in net real income per capita. In contrast, the labor market reacted much more positively to the improvement in the economy during The average unemployment rate for the year totaled 6.8%, which reflects a decrease below the prior year level of 7.3%. Forecasts by the Austrian Institute for Higher Studies call for growth of 3% in 2007, which will be supported by a decline in the oil price and the mild winter as well as the robust condition of the German economy. Germany is still the most important market for Austrian exporters. Life insurance: cautious growth in 2006 The life insurance branch recorded an increase of 1.9% in total premiums to EUR billion in Although the awareness of the Austrian population for the importance of retirement planning remained high, the life insurance segment was characterized by subdued growth in Total premiums rose by only 0.8% to EUR 7.18 billion because of a noticeable decline in single-premium policies as well as higher payments for maturing life insurance policies. Premiums from single-premium policies totaled EUR 1.89 billion, which represents a decline of 12.2%. In contrast, regular premiums rose by 6.4% to EUR 5.29 billion and provided key support for the positive results generated by the life insurance segment. Sales of state-subsidized pension plans, which were introduced in 2003, again proved to be highly successful in With roughly 1 million contracts and a premium volume of approximately EUR 619 million (+36%), the Austrian life insurance companies were able to continue this success story in Supplementary pension insurance: potential remains high The potential for supplementary retirement insurance in Austria has been very high for many years. The awareness of the general public for retirement planning is steadily increasing and has become an important issue for the general public and with good reason: in addition to the certainty that government pensions will at some point not be sufficient to maintain the customary standard of living, expected demographic developments such as a longer calculation period for the determination of pensions have shifted the issue of supplementary retirement planning to the foreground. A study commissioned by s Versicherung on the value of private retirement planning confirms that this is not only a subjective opinion, but plain reality: The survey covered 2,000 persons between the ages of 15 and 54, and only 13% believe that their pensions will be guaranteed when they retire. In addition, 52% consider the subject of private retirement planning to be very important, 40% as important and only 5% as unimportant. This study also confirmed that the importance of retirement planning is not necessarily coupled with age and experience: 61% of the persons surveyed indicated that 30 years of age or younger would be the ideal starting point for retirement planning and 11% considered 20 years of age or younger to be optimal. Roughly 40% of the survey participants indicated that they would take steps to arrange for private pension planning

13 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts in A further 40% of those who have already made arrangements for supplementary retirement insurance want to complete this planning during the coming year. Life insurance remained the preferred method for retirement insurance in Austria during 2006 with a share of 44%. The share held by state-subsidized pension insurance rose from 18% in 2005 to 27% for the reporting year, and is now the second most popular form of pensions. Moreover, 32% of the survey participants who have not yet made any plans for pension insurance (and here primarily persons under 30 years of age) indicated they will select a state-subsidized pension plan. An interesting detail: the trend toward the purchase of retirement planning products at financial institutions continues to grow, with 63% of those surveyed indicating this segment as their preferred contact. Insurance companies ranked second with 31%, followed by financial and asset managers with 11% and brokers with only 5%. S VERSICHERUNG IN 2006 Leading position on the Austrian life insurance market A competitive product offering and a strong network of sales partners above all the Austrian savings banks, Erste Bank and s Bausparkasse as well as a market share of nearly 12% in the life insurance segment make s Versicherung one of the leading life insurance companies on the Austrian market. Success with product innovations In addition to outstanding results in the unit-linked life insurance area, state-subsidized pension plans provided additional support for the development of business in 2006 with roughly 26,000 new policies sold. Major product innovations such as an indexlinked life insurance policy and the s Pflegevorsorge nursing care policy or the s Bestattungsvorsorge funeral cost policy represent successful answers by s Versicherung to the changing needs of customers in Significant expansion of business activities In 2006 s Versicherung continued to pursue its strategy for the further development of regular-premium policies. Regular policy premiums as a percentage of total premium income rose by 10.3% to EUR million, while the market reported growth of only 6.4% for this period. New single-premium products have been created together with the experts in the Austrian Savings Bank Group, and combine the security provided by life insurance with the earnings opportunities offered by internationally diversified investment instruments. Attractive investment alternatives in the short-term segment made traditional single-premium insurance policies with a guaranteed actuarial interest rate of 2.25% and based on tax regulations a minimum lock-in period of ten years the temporary second best choice for investors. Supported by initial market successes with the launch of index-linked life insurance policies, s Versicherung was able to generate premiums of EUR million in the single-premium life insurance segment. In the casualty segment, s Versicherung recorded respectable growth during the 2006 Business Year. Premiums totaled EUR 15.4 million, which represents an increase of 6.3% in comparison with Comprehensive approach to the subject of nursing care In connection with the intensive public discussions on the nursing care emergency in Austria, s Versicherung commissioned the Institute for Social Policy at the Economic University of Vienna to prepare a comprehensive study on the cost structure and financing of nursing care in this country. The results showed the actual expenditures for this treatment in Austria, and also underscored the need to finance suitable private nursing care. The new and flexible s Pflegevorsorge nursing care policy gives customers an opportunity to close the financing gap according to their own discretion. The s Pflegevorsorge policy is based on the legally defined levels of government nursing care subsidies and can be concluded as an add-on to all retirement products. The s Pflegevorsorge policy offers all the advantages of term insurance. In addition, the benefits provided by the s Pflegevorsorge policy are indexed, e.g. the annuity payment carries rights to profit distribution and increases with the annual distribution of profit. Together with the Hilfswerk Austria s Versicherung also published The autumn of life,

14 an extensive nursing care advisory brochure with numerous tips, information and contacts for nursing patients and their families. Continued success with corporate pension planning s Versicherung was able to expand its activities in the area of corporate pension planning during 2006, with all products providing support for the development of business. The new s Betriebspension product established a firm position in the corporate group insurance area and set key impulses for the market. More and more companies are turning to the lower risk system of corporate group insurance instead of pension funds as a means to finance their pension plans, presumably as a result of the volatile stock market development during the first quarter of Pension solutions for small businesses and the transfer of existing pension commitments also contributed to the positive development of this new product. Social commitment In addition to the financial aspects of retirement planning, s Versicherung is also well aware of its social and sociopolitical responsibility. A major part of the Company s activities in this area were again directed in 2006 to providing support for people who are in poor health and in need of nursing care. s Versicherung has entered into partnerships with Caritas, the Caritas Hospice and Hilfswerk Austria and meets its responsibility to society in part by providing support for these competent organizations. Hilfswerk Austria and Caritas Hospice In 2006 s Versicherung again joined together with Erste Bank and the Austrian Savings Banks as partners of the Hilfswerk Austria: the campaign that was started in 2003 under the motto Grow older, but remain part of life was continued with great success during the past year through directed lobbying, information and other activities to increase the awareness of the general public for the subject of nursing care. A seminar for experts and an information tour throughout Austria, combined with media support from the Austrian Broadcasting Corporation and the Kronen Zeitung newspaper, was designed to raise the consciousness of society for protecting the quality of life for older men and women. s Versicherung also provided key support for Caritas in 2006: under the motto Live up to the last minute, the Caritas hospice helps terminal patients remain in their homes during the last stage of life with full pain relief and appropriate care, and thereby guarantee a humane environment together with family members until the end. s Versicherung supports these efforts, in particular for the development of mobile hospice and palliative teams. Partnership with the Austrian National Library s Versicherung has been a committed partner of the Austrian National Library for many years, and has played an important role in supporting the maintenance and restoration of the world s valuable cultural heritage. The highlights of recent years include the digitalization of the card catalogue with 260,000 entries, which was completed in 2005, as well as the restoration of objects in the world s only globe museum and their transfer to the baroque Mollard Palace. Support for music: Camerata Salzburg The connection between s Versicherung and the Camerata Salzburg, which began in 1997 under the title Partnership for Pension Planning and Culture, also proved to be successful in The highlight of the year was an exclusive performance at the Vienna concert hall. In the context of this cooperation, s Versicherung also provides special pension and casualty insurance for all members of this world famous chamber orchestra. OUTLOOK ON 2007 The demographic changes in our society will not only continue but accelerate over the coming years. It is important to counter this development and construct a suitable financial foundation for the later years of life above and beyond the scope of government pension plans. In this connection, the frequently discussed subject of nursing care should finally receive the necessary legislative attention during the next few months as well as appropriate support through government regulations. For the key area of corporate pension planning, we expect the new government will expand corporate group insurance to also include members of professional associations and legal entities 10

15 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts as well as civil servants and government employees at the federal, provincial and local levels. Another necessary step would be the tax-free treatment of up to 10% of salaries and additional contributions by employees to corporate pensions plans. In line with the Erste Bank Group, we plan to expand our product offering during the coming year to include additional innovative and flexible elements and thereby meet the wishes of our customers for better service. We will also set a new focal point this year, which concentrates on women. In autumn s Versicherung will issue a further edition in its long-standing free of charge book series, this time with the title Woman in Society. We intend to follow the strategy pursued by the Erste Bank Group and also continue our expansion into the CEE countries during Our goal is to utilize the many opportunities for growth that are provided by the markets in Hungary, the Czech Republic, Slovakia and Croatia, where s Versicherung has been successfully active for many years, in order to realize the same outstanding results as in our home market of Austria. 11

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17 Management Report and Report on the Annual Financial Statements for 2006 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts The business of the Company is the provision of life and casualty insurance. The life and casualty insurance policies issued by the Company developed as follows during the 2006 Business Year: New Policies In the life insurance segment (endowment insurance, annuity insurance and state-subsidized supplementary pension insurance), new policies with a total sum insured of TEUR 1,487,505 (2005: TEUR 2,059,458) were concluded during This figure represents an increase of 27.8% over the previous year (2005: increase of 10.8%). The average sum insured of the regular-premium policies concluded in 2006 totaled EUR 13,928 (2005: EUR 15,815) for endowment insurance, EUR 37,285 (2005: EUR 44,377) for pure endowment insurance, EUR 21,348 (2005: EUR 23,907) for private pensions and EUR 23,548 (2005: EUR 26,246) for single-premium policies. In the term insurance segment (term insurance), new policies with a total sum insured of TEUR 1,408,044 (2005: TEUR 1,527,470) were concluded during This figure represents a decline of 7.8% (2005: increase of 3.2%). In the unit-linked and index-linked life insurance segment (pension plans with subsidized premiums), new policies with a total sum insured of TEUR 889,315 (2005: TEUR 815,354) were concluded in This figure represents an increase of 9.1% (2005: decrease of 7.4%). Contracts in Force As of the balance sheet date, s Versicherung managed 995,030 life insurance policies (2005: 922,980 policies) and 132,829 casualty insurance policies (2005: 135,058 policies). With these results, s Versicherung was able to increase the number of policies managed from 1,058,038 to 1,127,859, or by 6.6%, after passing the 1 million-level for the first time in The insured volume for life insurance policies totaled TEUR 26,301,320 (2005: TEUR 24,307,732). In the casualty insurance segment, annual premiums equaled TEUR 15,573 (2005: TEUR 14,548). (see table on page 14) Premiums Premiums written for life insurance declined by 23.1% or TEUR 253,081 to TEUR 844,813 (2005: TEUR 1,097,894). However, this development reflects our expectations because of the above-average increase in single-premium life insurance policies during the previous year (+31.1%). Direct premiums for regular-premium life insurance rose by TEUR 17,101 or 6.4% to TEUR 282,834 (2005: TEUR 265,733). The premiums for single-premium life insurance (including single premiums for annuity insurance) decreased by TEUR 330,803 or 47.4% to TEUR 367,621 (2005: TEUR 698,424). Premiums written for unit-linked and index-linked life insurance rose by TEUR 31,570 or 23.7% to TEUR 165,053 (2005: TEUR 133,483). In this segment, the premiums for regular-premium policies increased 19.2% to TEUR 135,964 (2005: TEUR 114,005) and single-premium policies totaled TEUR 29,089 (2005: TEUR 19,478) which represents an increase of 49.34%. s Versicherung markets the new state-subsidized pension plans under the product name s Privatpension mit Prämienplus NEU as unit-linked life insurance policies. Premium income for the 2006 Business Year totaled TEUR 87,808 (2005: TEUR 73,007), for a plus of 20.3%. The first segment of unit-linked life insurance, the s Garantie- Concept, was introduced to the market during the second half of The premium volume for the reporting year totaled TEUR 28,972. Premiums written for casualty insurance rose by TEUR 914, or 6.3%, from TEUR 14,493 in 2005 to TEUR 15,407 for

18 Development of policies in the life insurance segment during 2006 Number Endowment insurance (incl. annuities and unit-linked) Insured amount/ 10-times annual annuity Term insurance Total Number Insured amount Number Insured amount/ 10-times annual annuity Policies at end of ,200 14,965,403, ,780 8,727,015, ,980 23,692,418,908 Additions in New production 95,783 1,920,453,755 37,873 1,367,127, ,656 3,287,580, Changes 7, ,366, ,917,209 8, ,283,944 Total 103,755 2,376,820,491 38,484 1,408,044, ,239 3,784,864,718 Decreases in Death -1,828-41,977, ,674,474-2,192-50,651, Surrender -13, ,198,922-1,432-32,348,094-15, ,547, Non-redemption/ cancellation -6, ,011,634-11, ,892,663-18, ,904, Expiration -4,679-90,104,371-11, ,455,685-16, ,560, Changes -7, ,197,919-11, ,534,667-18, ,732,586 Total -33,879-1,009,490,174-36, ,905,583-70,189-1,869,395,757 Policies at end of ,076 16,332,734, ,954 9,275,153, ,030 25,607,887,868 Absolute change 69,876 1,367,330,316 2, ,138,644 72,050 1,915,468,960 Change in % Total premiums written in the two areas of business declined TEUR 252,167, or 22.7%, from TEUR 1,112,387 in 2005 to TEUR 860,220 for Information on premiums earned and recorded is provided in the notes to the financial statements. Claims Claims in the life insurance segment (including expenses for claim processing) totaled TEUR 323,662 (2005: TEUR 263,574). These figures also include TEUR 36,553 (2005: TEUR 27,880) of profit sharing distributions to policyholders. During the reporting year, TEUR 96,955 (2005: TEUR 61,700) of endowment expiration and TEUR 130,339 (2005: TEUR 112,912) of regular annuity payments formed the major part of total claims. Death benefits totaled TEUR 37,045 (2005: TEUR 32,440) and surrender equaled TEUR 56,661 (2005: TEUR 48,446). Claims of TEUR 7,954 (2005: TEUR 5,250) were recorded in the casualty segment (earned claims), which represents an increase of TEUR 2,704. Disability claims equaled TEUR 4,317 (2005: TEUR 3,402). The claims equalization reserve decreased by TEUR 401 in 2006 (2005: addition of TEUR 26). The reserve for future policy benefits to policyholders was increased by TEUR 695,665 during 2006 (2005: TEUR 1,027,673). 14

19 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts Of the total declared profit distributions as of December 31, 2006, TEUR 73,834 (2005: TEUR 65,820) was allocated to our policyholders and transferred to the reserve for future policy benefits. Expenses Investments and deposits with banks The balance sheet value of investments rose by TEUR 620,719 or 10.1% from TEUR 6,146,144 in the previous year to TEUR 6,766,863 for New investments were made almost exclusively in securities and time deposits. Total expenses for insurance operations (excluding reinsurance commissions) declined by 9.6% to TEUR 85,740 (2005: TEUR 94,876). Acquisition costs totaled TEUR 76,055 (2005: TEUR 86,511), which represents a decrease of 12.1%. This figure includes TEUR 62,495 of commissions, which were 15.4% lower than in the previous year (TEUR 73,849). Other expenses for insurance operations equaled TEUR 9,685 (2005: TEUR 8,365), which reflects a decline of TEUR 1,320 or 15.8%. In the life insurance segment, other operating expenses rose by TEUR 992 to TEUR 8,114 (2005: TEUR 7,122). In the casualty insurance segment, expenses for insurance operations (excluding reinsurance commissions) totaled TEUR 6,281 (2005: TEUR 5,851). Of this amount, TEUR 4,710 (2005: TEUR 4,608) represent acquisition costs. Information on premiums ceded and the indirect business is provided in the notes to the financial statements. Taxes Corporate income tax totaled TEUR 5,923 for the 2006 Business Year. The assessments for corporate income tax payable for 2003 and 2005 resulted in a credit of TEUR 985. Tax expense for the reporting year was reduced by deferred tax assets of TEUR 731. The Company therefore reported tax expense of TEUR 4,207 for Total tax expense as a percentage of income before tax and minority interests was 18.7%. 15

20 The development of the individual categories of investments in 2006 is shown below: Life 2006 in TEUR Casualty 2006 in TEUR Balance on in TEUR Balance on in TEUR Absolute change Change in % Land and buildings 26, ,726 27, % Shares in subsidiaries, affiliates and associates 94,539 1,283 95,822 79,315 16, % Securities 5,567,335 20,000 5,587,335 5,445, , % Loans granted 237, , ,852-97, % Deposits with banks 367, ,213 46, , % Demand deposits with banks 451,126 1, , , , % 6,744,097 22,766 6,766,863 6,146, , % Investment funds for unit-linked life insurance 897, , , % The returns in 2006 were as follows: Balance on in TEUR Share in % Return in % Balance on in TEUR Share in % Land and buildings 26, % 1.92% 27, % Shares in subsidiaries, affiliates and associates 95, % 0.23% 79, % Securities 5,587, % 5.14% 5,445, % Loans granted 237, % 7.60% 334, % Deposits with banks 367, % 3.14% 46, % Demand deposits with banks 452, % 2.79% 212, % 6,766, % 4.98% 6,146, % 16

21 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts The returns shown in the above table were calculated in accordance with the following procedure: The net total of the positions investment income including interest less investment expenses including interest for each class of investment (excluding costs for asset management) as a percent of average invested capital (= balance at the beginning of the year less balance at the end of the reporting year / 2). Income from investments increased by TEUR 27,023 or 7.6% from TEUR 357,264 to TEUR 384,287. Expenses for investments rose from TEUR 26,341 in 2005 to TEUR 57,755 for 2006, or by TEUR 31,414. This figure includes interest expense on the supplementary capital bonds, recognized foreign exchange losses and required write-downs as well as a pro rata share of personnel and operating expenses for asset management. Income from and expenses for investments Life 2006 in TEUR Casualty 2006 in TEUR Total 2006 in TEUR Total 2005 in TEUR Absolute change in TEUR Change in % Income from investments Income from investments in other companies 3, ,535 1,411 2, Income from land and buildings 1, ,102 1, Income from other investments 310,975 1, , ,042 7, Gains on the disposal of investments 54, ,465 43,795 10, Other income from investments and interest income 13, ,108 5,478 7, ,120 1, , ,264 27, Expenses for investments Expenses for asset management 2, ,445 2, Write-downs to investments 25, ,160 6,299 18, Interest expense 6, ,461 5,366 1, Losses on the disposal of investments 14, ,637 11,976 2, Other expenses for investments 8, , , , ,755 26,341 31, Net total 325, , ,923-4,

22 The majority of investments represent variable interest rate instruments for which the issuers have generally provided a capital guarantee. Therefore, the strong increase in interest rates during the reporting year led to a related decline in the fair value of these assets. A table with information on the fair value of investments by category is provided in the notes to the financial statements. Equity Equity as shown on the balance sheet, including subordinated liabilities, totaled TEUR 280,797 as of December 31, 2005 and increased by TEUR 60,851 during the reporting year to equal TEUR 341,348 as of December 31, Capital stock remained unchanged at TEUR 14, Additions totaling TEUR 14,550 were made to available reserves. The individual components of equity developed as follows: Balance on in TEUR Balance on in TEUR Capital stock 15,000 15,000 Capital surplus 66,743 66,743 Revenue reserves 71,649 57,098 Reserve as per 73 a VAG, taxed portion 36,421 36,421 Retained earnings 3,750 3,750 Reserve as per 73 a VAG 5,250 5,250 Supplementary capital as per 73 c VAG 142,535 96, , ,797 Change 21.6% 2.0% Development of equity Capital stock TEUR Capital surplus TEUR Revenue reserves TEUR Contingency reserve TEUR Retained earnings TEUR Total TEUR Balance on Jan. 1, ,000 66,743 43,113 29,903 18, ,509 Dividend -18,750-18,750 Additions 0 Allocation to/reversal of reserves 13,986 6,518 20,504 Net income 3,750 3,750 Balance on Dec ,000 66,743 57,099 36,421 3, ,013 Dividend -3,750-3,750 Additions 0 Allocation to/reversal of reserves 14,550 14,550 Net income 3,750 3,750 Balance on Dec ,000 66,743 71,649 36,421 3, ,563 18

23 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts At the end of December 2002, Erste Bank der oesterreichischen Sparkassen AG acquired a majority stake in s Versicherung AG. In accordance with the relevant legal regulations, s Versicherung is therefore classified as a subsidiary of Erste Bank. The shareholder structure of s Versicherung is as follows: Untaxed Reserves Untaxed reserves totaled TEUR 5,250 as of the balance sheet date (2005: TEUR 5,250). Shareholder structure Erste Bank der oesterreichischen Sparkassen AG 33.3% Immorent AG 22.2% Donau Allgemeine Versicherungs-AG 10.0% Steiermärkische Bank und Sparkassen AG 9.4% NÖ-Sparkassen Beteiligungsges.m.b.H. 4.8% Kärntner Sparkasse AG 4.7% Allgemeine Sparkasse OÖ Bank-AG 4.7% Salzburger Sparkasse Bank-AG 4.7% 7-Tiroler-Sparkassen Beteiligungsges.m.b.H. 3.5% Tiroler Sparkasse Bank-AG Innsbruck 2.3% Shareholders with stake < 1% 0.4% As of December 31, 2006 s Versicherung fulfilled the equity requirements defined in the Austrian Insurance Company Supervisory Act (liquidity) by 134.6%. The liquidity of the Company equaled 127.4% of the requirements for equity as defined in 86 e to l of the Austrian Insurance Company Supervisory Act (group liquidity). 19

24 Technical Reserves The technical reserves, after the deduction of reinsurers shares, developed as follows during 2006: Balance on in TEUR Balance on in TEUR Absolute change in TEUR Change in % Unearned premiums 18,591 18, Reserve for future policy benefits 6,223,763 5,659, , Reserve for unpaid claims 30,935 28,477 2, Reserve for profit distribution to policyholders 115, ,277 4, Equalization reserve 4,354 4, Other technical reserves total 6,393,745 5,822, , % of balance sheet total 82.28% 83.72% Technical reserve for unit-linked life insurance 880, , , % of balance sheet total, including technical reserves for unit-linked life insurance 93.61% 93.49% Of technical reserves totaling TEUR 6,393,745, TEUR 16,195 (2005: TEUR 15,272) are related to the casualty segment. Of this amount, TEUR 11,407 (2005: TEUR 9,893) represent provisions for unpaid claims. 20

25 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts Reserve for profit distribution to policyholders The reserve for future policy benefits includes accumulated profits of TEUR 521,793 (2005: TEUR 450,809). The addition to the reserve for profit distribution to policyholders totaled TEUR 78,500 for the reporting year. This reserve had a balance of TEUR 115,943 on December 31, 2006 (2005: TEUR 111,277). Profit distribution 2006 in TEUR Balance on January 1 111,277 Transfer to reserve for future policy benefits -73,834 37,443 Requirements in , ,853 Addition 10,090 Balance on December ,943 Reinsurance A total of TEUR 15,746 (2005: TEUR 16,634) in premiums written for life insurance and TEUR 4,220 (2005: TEUR 3,935) in premiums written for casualty insurance were ceded to reinsurers in These reinsurers carried TEUR 10,871 (2005: TEUR 9,325) of claims for life insurance and contributed TEUR 4,352 (2005: TEUR 6,528) to the reserve for future policy benefits during the reporting year. In the casualty insurance segment, their share of claims equaled TEUR 1,522 (2005: TEUR 1,113). Information on the major risks and uncertainties to which the Company is exposed in accordance with IFRS fair valuation rules The overall risk situation of the Company is comprised of technical risks, risks arising from the default of receivables in the insurance business and the risk associated with investments as well as operating and other risks. Diversification effects must also be taken into account. Technical risk is defined as the possibility that major payment flows in the insurance business may deviate from their expected value. This is explained by the fact that premiums are received at the start of an insurance period, but the contractually agreed services (claims) are determined by coincidence. The individual categories of technical risks are described below: The premium/damage risk represents the risk associated with casualty insurance, which arises from the obligation to pay claims in the future from premiums that are defined in advance. The amount of these claims is not known with certainty when the premiums are determined because the occurrence of a claim situation is determined by coincidence. The premium/claim risk is the risk associated with life insurance, which arises from the obligation to make constant insurance payments over a longer period of time whereby these payments are dependent on future developments from a constant premium that is defined in advance. Interest guarantee risk reflects the risk for insurance branches that is linked to guaranteed interest payments. Reserve risk is the risk associated with technical reserves. Risks arising from the default of receivables in the insurance business are comprised of the risks associated with receivables due from reinsurers as well as receivables due from policyholders and insurance brokers. The risks associated with investments cover the following areas: 21

26 Market risk is defined as the potential loss arising from unfavorable changes in market prices or parameters that may influence market prices. Market risk includes the risk of changes in interest rates, risks associated with stocks and other equity instruments as well as foreign currency risks. Credit risk is the risk of a loss or lost profit resulting from default by a debtor. Liquidity risk reflects the inability to meet payment obligations, in particular obligations arising from insurance contracts, at any time. Operating risks comprise the risks associated with systems or processes used by the Company, especially in the form of operating risks that can arise from human error, technical failure or external factors, as well as legal risks that may result from contractual agreements or legal regulations. s Versicherung established a corporate risk management department in This department carried out an assessment of the general risk situation during the reporting year, which led to the identification and definition of the major risks to which the Company is exposed. A professional asset-liability management (ALM) program was successfully implemented during the reporting year, which makes it possible to actively manage all individual risks within the context of the Company s overall risk position as part of a newly established risk management process. Determinant and stochastic ALM analyses permit the identification and valuation of investment and interest guarantee risks. The reserves for future policy benefits and assets that are held to cover technical liabilities are invested in accordance with the overall risk situation and strategy of s Versicherung. These investments may include bonds, stocks, structured bonds, loans, property and derivative financial instruments. The volume and limitation of open transactions were determined based on the increasing risk of the planned categories of investment as well as market risk. s Versicherung has defined its investment strategy in guidelines and regulations for derivative financial instruments, and compliance with these rules is monitored regularly by the internal audit department. The internal audit department reports to the on the results of its examinations. The Company has implemented a hierarchical decision structure that incorporates the risk content of the individual investments and investment volumes, and ranges up to investments that must be approved by the Supervisory Board in accordance with the articles of association of s Versicherung. The documents prepared for decision-making include an explanation of all related risks and the possible negative effects on liquidity, and relevant existing values are provided where available. The investment guidelines call for the maintenance of a generally low level of risk, which reflects the requirements for profit distribution based on a steady and safe return over the long-term. A major function of risk analysis is to achieve a diversified portfolio that will minimize risk through an appropriate mix and distribution of investments. During the reporting year, the asset management area was reorganized to separate market and post-market activities. The newly created mid-office reports directly to the responsible member of the and oversees risk management for investments. Work has also started to implement a suitable software solution to support the entire workflow. In order to minimize the credit risk associated with investments, the Company focuses on investment-grade bonds and the broadest possible diversification of issuers. The rating structure of directly held annuities and loans on December 31, 2006 is shown below: Rating classe: AAA AA A BBB Not Rated As a % of investments 5.7% 20.6% 35.7% 1.1% 0.3% As of December 31, 2006, no debtor had a lower rating than BBB- (in this list the ratings AA+, AA and AA- are combined into class AA; a similar combined group is reported for A and BBB.) Liquidity planning incorporates expected premium payments, income on investments and the repayment of principal from 22

27 With our compliments Thank you Introduction by the Boards The Business Environment in 2006 Management Report and Report on the Annual Financial Statements Balance Sheet Income Statement Notes to the Annual Financial Statements Report of the Supervisory Board Contacts loans or bonds as well as the development of claims. As a rule, the major part of income on investments is reinvested. The Company s risk position is evaluated periodically, among others, based on the stress test required by the Austrian Financial Market Supervisory Authority. Outlook s Versicherung further strengthened its leading position on the Austrian life insurance market during In its function as the competence center for pension planning in the Austrian Savings Bank Group, s Versicherung can look to the development of business in 2007 with great optimism. The restructuring of the social security system and related steady growth in private insurance will create a range of new opportunities for s Versicherung in the coming years. The Company sees a sizeable potential for market development, above all in the areas of nursing care, unit-linked life insurance and retirement products with a capital guarantee. The Company s established products combined with the continuous introduction of new and innovative models for retirement planning will allow s Versicherung to maintain a leading position on the Austrian market in the future. In order to meet a frequent wish of customers and complete our offering of retirement-related services, we developed an insurance policy for funeral costs. This product was introduced to the market in 2006 and is marketed through our proven sales channel in the Austrian Savings Bank Group. The ongoing discussion of nursing care in Austria underscores the fact that in addition to financing for retirement benefits and the future of the national health care system the financing of these services will represent a major challenge for the aging population. This will also open a new and important market for s Versicherung in addition to traditional retirement planning, and the Company is well equipped to utilize these opportunities. In September 2006 s Versicherung presented an insurance product for nursing care, which can be added to all categories of private pension policies as supplementary term insurance. The introduction of single-premium insurance for nursing care is also planned. In contrast to products currently offered on the market and the government subsidy for nursing care, this insurance will have additional advantages that include the indexing of benefits and vested claims if premium payments are discontinued as the result of a financial crisis. s Versicherung also took a new approach to customer and service orientation through its cooperation with the Caritas hospice organization, which also provides free professional care for terminally ill patients. The High fix Concept that was introduced in 2006 is a unit-linked life insurance policy with a maximum balance guarantee. It will provide support, above all, for the expansion of our sales activities to also include cooperation partners in the credit brokerage sector. A decisive factor for the success of s Versicherung is formed by the recognized high standard of services provided by the employees of the Austrian Savings Bank Group. In order to continue to provide customers with the best possible advice on the many issues related to financial and pension planning, s Versicherung will continue the training program that was started in 2005 together with the Austrian Savings Bank Group. s Versicherung is well aware that the commitment of its employees represents the foundation for the successful development of business, and therefore places substantial value on the creation of a working climate that encourages motivation. That includes measures such as the design of workstations in accordance with the latest industrial medicine and technical standards, protection against passive smoking and help for employees who decide to quit smoking. The Company has also worked for many years to meet the training needs of its workforce with individually designed programs, which are continuously adjusted to meet the needs of the market. During the second half of 2006, s Versicherung and the Employees Council developed a pension plan for the Company s employees based on the collective insurance program. This plan took effect at the start of