V.I.G. International

2008 Capital increase: issuance of 23 million new shares

In the spring of 2008, the Vienna Insurance Group carried out a capital increase of 23 million new shares, raising the total number of shares to 128 million. The capital increase was used to finance the acquisition of the insurance operations of the Erste Group, including the long-term mutual distribution partnership with the latter. The capital increase also makes it possible for the Vienna Insurance Group to finance additional activities aimed at continuing on its path of growth in CEE countries.

After a successful bookbuilding process, the Vienna Insurance Group set the subscription and offering price for the new shares at EUR 49.50 per share. Due to high demand, all 23 million of the new shares offered as part of the capital increase were placed. With a volume of around EUR 1.14 billion, this Vienna Insurance Group capital increase represents the largest share placement ever made by an insurance group on the Vienna Stock Exchange. The global offering was oversubscribed many times.

Demand by existing Vienna Insurance Group shareholders as well as a multitude of new private and institutional investors was particularly strong. The demand by institutional investors came primarily from Austria, Central and Eastern Europe, Great Britain, the U.S. and Asia. The new shares have full dividend rights for financial year 2008.

Issuance of a EUR 250 million hybrid bond

To increase its financial flexibility, the Vienna Insurance Group in June 2008 issued a EUR 250 million hybrid bond. The proceeds from the bond were used for general financing purposes and for further strengthening of the Company’s equity. The terms of the bond were set based on current market terms and the demand shown during the bookbuilding process. Following the placement with institutional investors, private investors in Austria were given an opportunity to subscribe (from 2 to 4 June 2008), which met with enormous interest.

Outstanding Standard & Poor’s rating

At the beginning of March 2009, the internationally recognised rating agency Standard & Poor’s explicitly confirmed its existing A+ rating for Wiener Städtische Versicherung AG Vienna Insurance Group. Standard & Poor’s expects that management will be able to continue successfully along the current growth path. In view of this highly positive performance, the Vienna Insurance Group was assigned an outlook of “Stable”. The Company therefore continues to enjoy a very good rating even in the current challenging economic environment.

Successful market entry – VIG RE start-up exceeds expectations

VIG RE zajišt’ovna, a.s. (VIG RE), established by the Vienna Insurance Group as the Group’s in-house reinsurance company, commenced business operations in Prague at the beginning of September 2008. As a regional reinsurer for the CEE region, VIG RE provides special solutions to the oftentimes young insurance companies in these up-and-coming markets. Reinsurance coverage is offered for property and casualty insurance as well as for life and health insurance. The Vienna Insurance Group can thereby further establish itself as a specialist in the CEE region and will also be a contact for other insurance companies in its defined core markets in this region.

VIG RE was off to an outstanding start in its founding year, almost reaching its premium targets for 2011 in 2009. Policies for around EUR 280 million were signed. There is already high demand from outside insurers as well. In view of the excellent business performance thus far – outside business has even reached half of the planned 2011 target already – upward revision of the premium target for 2011 can be envisioned. The Group’s expectations of a 20% RoE in 2011 can likewise be confirmed.

VIG RE was evaluated by the internationally recognised rating agency Standard & Poor’s (S&P), in 2008 receiving an excellent S&P rating of A+, with a stable outlook.

Cooperation with Erste Group in eight countries

The purchase of Erste Group’s insurance operations in Austria and Central and Eastern Europe, approved by the Vienna Insurance Group in the 1st quarter of 2008, was successfully concluded in the 4th quarter of last year. The transaction carried out included the acquisition of all of Erste Group’s insurance operations and the conclusion of a long-term distribution agreement.

As part of the transaction, the Vienna Insurance Group took over Erste Group’s insurance companies in Austria, the Czech Republic, Slovakia, Hungary, Croatia and Romania, for a purchase price of approximately EUR 1.44 billion. The long-term distribution agreement concluded by the two groups in connection with the acquisition gives Vienna Insurance Group access to Erste Group’s international distribution network, with more than 16 million customers and more than 2,900 branches. Individual national distribution agreements have been entered into for Austria, the Czech Republic, Slovakia, Hungary, Croatia, Romania, Serbia and Ukraine.

As part of a “preferred partnership”, both groups undertook to give preference to distributing the other partner’s products over their distribution networks. The Vienna Insurance Group, with its extensive expertise in bank distribution, is in an excellent position to develop additional products and services custom-tailored for this distribution channel in the future. It can be expected that bancassurance will increase in significance as a distribution channel for life insurance.