Litigation
Wiener Städtische AG and its affiliated companies are involved in a number of legal disputes arising from the normal course of business. A description of certain pending and threatened legal proceedings is provided below. Unless discussed below, the management of Wiener Städtische AG does not expect legal disputes and legal proceedings to which the companies of the Vienna Insurance Group are a party or which are being threatened against them will have a material adverse effect on the business or consolidated financial position of the Vienna Insurance Group.
Coverage-related proceedings
In its capacity as an insurance company, the Vienna Insurance Group and its affiliated companies are involved as a defendant in a number of court proceedings or have been threatened with legal actions. In addition, there are proceedings to which the companies of the Vienna Insurance Group are not a party, but whose outcome could have an effect on them due to agreements with other insurers concerning participation in losses. In the opinion of the Vienna Insurance Group, adequate provisions have been formed to all claims of the Austrian Group companies, based on the amount in dispute.
Threatened and Pending Judicial and Arbitration Proceedings
Legal action by the Association for Consumer Information (Verein für Konsumenteninformation, VKI)
In a class action suit filed in 2005, the Association for Consumer Information objected to some of the clauses contained in Wiener Städtische AG’s standard contract terms (AVB) for traditional life insurance due, among other things, to a violation of the transparency requirement, and has demanded that Wiener Städtische AG omit these clauses in the future. Since that time, the suit has also been extended to Wiener Städtische AG’s standard contract terms for unit-linked life insurance. The objection is aimed specifically against the following traditional life insurance provisions:
- Allocation of the full costs of writing a policy right at the start of the policy (“zillmerisation”);
- Deduction of a charge against the surrender value of a policy;
- Restriction of valid declarations made by the insurer to those made in writing;
- Deemed delivery of a declaration made by the insurer to the policyholder when the declaration is sent to the last address of the policyholder known to the insurer.
With respect to unit-linked life insurance, VKI objects to the following provisions of the standard contract terms:
- The way in which the costs of the policy are allocated against the insurance premium and the manner in which these costs are presented;
- Deduction of a death risk premium from the actuarial reserve;
- Specification of a direct debit procedure as the only possible way to make premium payments;
- Charges for policy set-up costs and a processing fee in the case of policy surrender;
- Allocation of the costs of writing a policy to the start of the policy term.
In addition to Wiener Städtische AG, the other Austrian companies in the Group and most other large Austrian insurance companies have comparable clauses in their standard contract terms. VKI has also filed similar legal actions against UNION (which in the mean-time has merged with BA-CA Versicherung) and other Austrian insurance companies. Wiener Städtische AG und BA-CA Versicherung are disputing the legitimacy of VKI’s action. They also consider the action to be without merit, particularly in view of the fact that the contract clauses criticized by VKI as non-transparent and/or unlawful are either specified in individual agreements or reflect statutory provisions. The claim against Wiener Städtische AG was granted in all forums (most recently on 15 November 2007). VKI waived publication of the decision. The challenged clauses were replaced with new ones – with the substantive approval of the Financial Market Authority – which are also legal from the standpoint of this judicial decision. Similarly, the claim against BA-CA Versicherung was granted in the courts of first and second instance (most recently on 12 October 2007). However, an extraordinary appeal from the appellate court’s ruling was filed, and the decision of the Supreme Court of Justice is still pending. The Vienna Insurance Group has already formed provisions against the consequences of the judicial decisions which it regards as adequate given the current status of the proceedings. The management of the Vienna Insurance Group does not believe that the decisions will have a material impact on the Vienna Insurance Group’s net assets, financial position or results of operations.
Off-balance sheet commitments
The following table shows the off-balance sheet commitments as at 31 December 2007, 2006 and 2005.
The liabilities and assumed liabilities, as well as the letters of comfort for the individual financial years were primarily related to loans from holding companies. The guarantee bond was in relation to an operating company.
No off-balance sheet financing structures via special purpose vehicles (SPVs) or other similar corporate structures exist.
