Business development of the Group in 2010

The approximately 50 insurance companies belonging to the Vienna Insurance Group operate in the property and casualty insurance, life insurance and, in some countries, the health insurance business as well. These three insurance classes are explained in the Group report structured by segments.

To show the Group’s business development by geography, the 24 countries to which the Group’s activities extend are divided into the six geographical segments Austria, Czech Republic, Slovakia, Poland, Romania and Remaining markets. This classification differs from the presentation last year which distinguished between Other CEE markets and Other markets in addition to the individual countries listed. The newly introduced segment Remaining markets combines the two. This reflects the ongoing diversification within the Group. The markets Russia and Belarus were not included in the VIG consolidation circle in 2010 due to their secondary significance. The launch of Montenegro operations will only take place in 2011. Details on changes in the scope of consolidation appear in the notes starting on page 112 (see PDF).

The split-off of the insurance operations in Austria from the holding functions of the Group became final effective 3 August 2010. Thus, WIENER STÄDTISCHE VERSICHERUNG AG Vienna Insurance Group is continuing to manage the property and casualty, life and health insurance business in Austria, as the largest single entity in the Group. In addition to the normal international management tasks of a listed corporate group, VIENNA INSURANCE GROUP AG Wiener Versicherung Gruppe devotes itself to the reinsurance and the international corporate customer business. However, this measure has no effect on the consolidated financial statements.

To avoid duplicate information, reference will be made to appropriate data in the notes. The development of the major balance-sheet and income statement items is also presented in the segment reporting in the notes. Additional information in the management report will explain these data in more detail.

Premium volume

A brief presentation of the premium development is included under item 28 (Net earned premiums) of the notes to the consolidated financial statements.

In 2010, the Vienna Insurance Group generated premium volume of EUR 8,593.01 million. This represents an increase of EUR 573.73 million, or 7.2%, compared with the previous year. Of the gross premiums written, EUR 7,870.92 million were retained by the Vienna Insurance Group, and EUR 722.09 million ceded to reinsurers. The significant growth in the Czech Republic (+9.6%) and in Poland (+36.4%) were primary contributors to the development of premiums. In Austria, premium income showed a gratifying increase of 4.3%.

Overall, the Group generated around 53.0% of its premiums outside Austria in 2010. For property and casualty insurance, the share represented by companies outside Austria was 64.0%. In the area of life insurance, 45.0% of the premiums were attributable to the companies outside Austria.

Net earned premiums managed an 8.5% rise, from EUR 7,242.28 million in 2009 to EUR 7,860.37 million in 2010. Deferred reinsurance cessions amounted to EUR 722.80 million.

Expenses for claims and insurance benefits

A brief presentation of expenses for claims and insurance benefits is included under item 32 (Expenses for claims and insurance benefits) of the notes to the consolidated financial statements.

In 2010 expenses for claims and insurance benefits, less the portions reinsured (EUR 466.44 million), amounted to EUR 6,541.35 million. This represents an increase of EUR 664.19 million, or 11.3%, mainly due to the effects of natural disaster year 2010, which was marked by heavy losses.

Operating expenses

A brief presentation of operating expenses is included under item 33 (Operating expenses).

Total operating expenses for all consolidated companies of the Vienna Insurance Group were EUR 1,759.88 million in 2010, including acquisition expenses and less reinsurance commissions received, representing an increase of 6.7% over the year before. Acquisition expenses amounted to EUR 1,509.05 million in 2010, thereby increasing 8.6% over the previous year.

Profit before taxes

In 2010, the Vienna Insurance Group realised a profit before taxes of EUR 507.79 million, equal to an increase of EUR 66.54 million, or 15.1%, over 2009.

Earnings per share

Earnings per share is a key figure which shows the consolidated net income divided by the average number of shares outstanding. In 2010, earnings per share amounted to EUR 2.97.

Combined ratio significantly below 100%

The Group’s combined ratio (after reinsurance, but without taking into account investment income) amounted to 98.4% in 2010 and thus – despite an increase owing to natural disasters – continued to be below the 100% mark.

The combined ratio is calculated from all underwriting income and expenses and the net payments for claims and insurance benefits, including the net change in technical provisions, divided by the net earned premiums in the property/casualty area.

Financial results increase by almost 20%

A brief presentation of the financial results (excluding equity-accounted companies) is included under item 29 (Financial result) of the notes to the consolidated financial statements.

In 2010, the Vienna Insurance Group achieved a financial result of EUR 1,111.42 million. Here, the Group was able to exploit the positive momentum of the financial market to post a gain of 19.5%, or EUR 181.46 million. Once again, this development confirmed the correctness of the long-term conservative investment policy which the Group pursues.

Investments rise above EUR 28 billion

A brief presentation of the investments is included on page 135 of the notes (see PDF) to the consolidated financial statements.

The total investments of the Vienna Insurance Group amounted to EUR 28,159.52 million as of 31 December 2010. Compared with the previous year, this indicates an increase of EUR 2,265.47 million, or 8.7%.

These investments include all land and buildings of the Vienna Insurance Group, all shares in equity-accounted consolidated companies, and all financial instruments. They do not include unit-linked and index-linked life insurance investments, which increased by 18.4% in 2010, from EUR 4,628.45 million to EUR 5,478.60 million.

In the area of property and casualty insurance, investments nearly doubled, to EUR 8,217.81 million (+98.8%), as of 31 December 2010. The increase results from the reallocation of investments in connection with the demerger. Investments in the area of life insurance amounted to EUR 18,947.06 million (2009: EUR 20,883.64 million). In the area of health insurance, the Vienna Insurance Group’s investments rose by 13.4% to EUR 994.65 million.

Equity

The Vienna Insurance Group’s capital base rose 8.7%, to EUR 5,029.65 million, in 2010 (2009: EUR 4,628.57 million).

Underwriting provisions

As of 31 December 2010, underwriting provisions amounted to EUR 24,017.84 million. Thus, underwriting provisions of the Vienna Insurance Group were 6.4% higher at the end of 2010 than at the same time the year before.

The mathematical reserve and the provision for outstanding claims are broken down by lines of business and maturities as follows:

Composition mathematical reserve

Maturity structure mathematical reserve

Composition provision for outstanding claims

Maturity structure provision for outstanding claims

For property and casualty insurance, underwriting provisions increased by 8.6%, to EUR 4,638.88 million, compared with 2009. This increase is largely due to provisions for outstanding claims owing to natural disasters. As of 31 December 2010, underwriting provisions in the area of life insurance were up 5.7%, rising to EUR 18,456.68 million, over the prior year. For health insurance, underwriting provisions rose by 8.2%, to EUR 922.28 million.

Unit-linked and index-linked life insurance underwriting provisions also increased, from EUR 4,376.16 million in 2009 to EUR 5,227.93 million, up 19.5%.

RoE (Return on Equity)

RoE describes the ratio between consolidated profits and the Vienna Insurance Group’s total average equity. In 2010 the Group achieved a return on equity (RoE) of 10.5% (2009: 10.0%).

Cash flow

Cash flow from operating activities amounted to EUR 2,094.67 million in 2010, compared to EUR 1,989.65 million in 2009. The cash flow from investing activities was EUR -2,011.94 million (2009: EUR -2,163.16 million). The largest cash flow item from investing activities was the acquisition of securities available for sale. The financing activities of the Vienna Insurance Group resulted in a cash flow of EUR -191.77 million in 2010 (2009: EUR 2.65 million). At 2010 year’s end, the Group’s cash and cash equivalents were at EUR 396.03 million. Overall, the Vienna Insurance Group received interests and dividends of EUR 930.12 million in 2010.