Dealing professionally with risk is part of the core competence
of the Vienna Insurance Group.

Risk management

The Vienna Insurance Group’s risk management system is firmly anchored in the management culture of the Company, and is based on a clearly defined, conservative risk policy, extensive risk expertise, a highly developed set of risk management tools, and risk-based Managing Board decisions.

The risk management tools used by the Vienna Insurance Group consist of risk capital models for the different areas and countries in the Group. For example, an integrated model for calculating European embedded values has been used in the area of actuarial practice for years. The reinsurance and investment management departments in turn use quantitative state-of-the-art models designed for their particular requirements, such as value-at-risk or probable maximum loss calculation, to examine the current situation and limit earnings risk. Development of an integrated internal state-of-the-art model to be used for calculating economic risk capital and for future solvency requirements was begun in 2008.

The quantitative foundation provided by the various risk management tools is perfectly complemented in qualitative terms by our organisational structure. Internal guidelines, limit systems, minimum requirements and the use of a balanced scorecard in sales controlling provide clear risk specifications for management. In addition, our organisational structure also enables efficient communication between departments, resulting in a continuous exchange of relevant and easily understandable parameters. For example, the product design, underwriting, reinsurance and claims management departments regularly exchange information on claims frequency, claim sizes and cancellation rates. This communication between the departments is also used to develop continuous improvements and review original planning parameters.

Economic developments

2008 was a very tense year for capital markets and the financial sector. The largest bankruptcies in history, such as Lehman Brothers in September or the crisis in Iceland, created significant difficulties in the financial world. However, the credit and real estate crisis is also having a strong impact on large corporate groups, such as AIG or Citigroup, which have been rescued by government aid packages or taken over by other banks. For example, Bank of America took over the third-largest investment bank, Merrill Lynch.

The worldwide financial crisis, which will continue to play a role in 2009, caused share volatility to rise to new highs and many capital markets to become illiquid. The lack of liquidity led, among other things, to panic prices, which in turn caused balance sheets to deteriorate further. The financial crisis painted a similar picture in England and Germany.

As a result of its conservative investment guidelines and strict limit system, the Vienna Insurance Group was early to identify and reduce the risk arising from investments. Vienna Insurance Group’s cover fund contains hardly any of the speculative credit derivatives that banks were trading in unbelievable quantities, and which represented one of the factors triggering and accelerating the crisis. The active portfolio management practiced by the Vienna Insurance Group (reduction of the equity weighting, increase in the cash weighting) allowed it to effectively reduce the effects of the financial market crisis.

Outlook for 2009

The Vienna Insurance Group will continue to follow a conservative risk policy to the benefit of all interested parties, and this promises to be an important factor in 2009. A high level of diversification, both regional diversification as well as the diversification resulting from a broad product portfolio (property/casualty insurance, life insurance, health insurance), also creates stability in the Vienna Insurance Group during times of crisis. Our ALM model simultaneously analyses both the asset and liability sides of the balance sheet at a high level of detail in order to ensure the long-term security of our customers. The detailed risk report for the Vienna Insurance Group is provided in the notes to the consolidated financial statements.


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