Risk report

40.5 Risk profile

UNIQA’s risk profile is very heavily influenced by life insurance and health insurance portfolios in UNIQA Österreich Versicherungen AG. This situation means that market risk plays a central role in UNIQA’s risk profile. The composition of market risk is described in the section “Market and credit risk”.

The group companies in Central Europe operate in the property and casualty segment as well as in the life and health insurance segment.

In the regions of Southeastern (SEE) and Eastern Europe (EE), insurance business is currently conducted primarily in the property and casualty segment.

This structure is important to UNIQA, because it creates a high level of diversification from the life and health insurance lines dominated by the Austrian companies.

The distinctive risk features of the regions are also reflected in the risk profiles determined by using the internal measurement approach.

After every calculation for the life, non-life and composite insurers at UNIQA, benchmark profiles are created and compared with the risk profile for each company. The benchmark profiles show that, for composite insurers, there is a balance between market and actuarial risk. Composite insurers are also in a position to achieve the highest diversification effect.

Market and credit risk

The characteristics of the market and credit risks depend on the structure of the capital investment and allocation of this into the different categories of investment. The table below shows investments classified by asset category.

Asset Allocation

In € thousand

31/12/2017

31/12/2016

Fixed-income securities

16,541,550

16,556,545

Real estate assets

1,236,630

1,356,041

Equity investments and other stocks

855,308

803,721

Equities

604,563

439,657

Time deposits

331,191

579,951

Derivative financial instruments

165,037

135,122

Other investments

110,252

113,703

Loans

33,135

40,033

Total

19,877,666

20,024,773

However, the market and credit risks not only have impact on the value of investments, but also influence the level of actuarial liabilities. Thus, there is – particularly in life insurance – a dependence between the (price) growth of assets and liabilities from insurance contracts. UNIQA manages the income expectations and risks of assets and liabilities arising from insurance contracts as part of the (ALM) process. The objective is to achieve a return on capital that is sustainably higher than the technical liabilities carried forward while retaining the greatest possible security. To do this, assets and liabilities are allocated to different accounting groups.

The following two tables show the main accounting groups generated by the various product categories.

Assets

In € thousand

31/12/2017

31/12/2016

Long-term life insurance contracts with guaranteed interest and profit participation

12,158,962

12,664,450

Long-term unit-linked and index-linked life insurance contracts

5,034,492

4,879,928

Long-term health insurance contracts

3,575,455

3,352,381

Short-term property and casualty insurance contracts

5,036,955

4,755,872

Total

25,805,865

25,652,631

These values refer to the following items:

  • Property, plant and equipment
  • Investment property
  • Financial assets accounted for using the
  • Other investments
  • Unit-linked and index-linked life insurance investments
  • Cash and cash equivalents
Technical provisions and liabilities (net)

In € thousand

31/12/2017

31/12/2016

Long-term life insurance contracts with guaranteed interest and profit participation

11,187,817

11,836,846

Long-term unit-linked and index-linked life insurance contracts

5,019,325

4,846,591

Long-term health insurance contracts

3,038,285

2,880,768

Short-term property and casualty insurance contracts

2,940,919

2,708,379

Total

22,186,347

22,272,584

These values refer to the following items:

  • Technical provisions
  • Technical provisions for unit-linked and index-linked life insurance
  • liabilities (only securities account liabilities from reinsurance ceded)
  • Reinsurers’ share of technical provisions
  • Reinsurers’ share of technical provisions for unit-linked and index-linked life insurance

Interest rate risk

Interest rate risk arises on all statement of financial position asset and liability items whose value fluctuates as a result of changes in risk-free yield curves or associated volatility. Given the high proportion of interest-bearing securities in the investment, interest rate risk forms an important part of market risk. A structural reduction in the interest rate risk has been achieved as a result of the ALM-based investment strategy pursued for several years.

The following table shows the maturity structure of fixed-income securities.

Exposure by term

In € thousand

31/12/2017

31/12/2016

Up to 1 year

1,157,926

1,368,044

More than 1 year up to 3 years

1,920,831

2,123,798

More than 3 years up to 5 years

2,475,017

2,375,886

More than 5 years up to 7 years

2,507,702

2,571,683

More than 7 years up to 10 years

2,846,914

2,424,867

More than 10 years up to 15 years

2,323,211

2,232,827

More than 15 years

3,309,949

3,459,442

Total

16,541,550

16,556,545

In comparison with this, the next table shows the before in health and life insurance and the gross provision for unsettled claims in non-life insurance, broken down into annual brackets. In health and life insurance the breakdown takes place using expected cash flows from the ALM process.

IFRS reserve by expected maturity date

In € thousand

31/12/2017

31/12/2016

Up to 1 year

1,443,546

1,334,940

More than 1 year up to 3 years

1,690,150

2,311,871

More than 3 years up to 5 years

1,124,251

1,434,894

More than 5 years up to 7 years

1,088,078

1,177,977

More than 7 years up to 10 years

1,687,476

1,797,645

More than 10 years up to 15 years

2,383,198

2,307,471

More than 15 years

6,082,316

5,357,720

Total

15,499,016

15,722,518

Due to the particular importance of the ALM process in life insurance, the focus will be placed on this segment. For practical reasons, it is not possible to fully achieve the objective of matching cash flows for assets and liabilities. The of the assets in life insurance is 8.1 years, while for liabilities it is longer. This difference is known as a duration gap and means that changes in interest rates result in different changes in value in the assets and liabilities (interest rate risk). The discount rate that may be used in the costing when new business is written in most UNIQA companies takes into account a maximum discount rate imposed by the relevant local supervisory authority. In all those countries in which the maximum permissible discount rate is not imposed in this way, appropriate prudent, market-based assumptions are made by the actuaries responsible for the calculation. In our core market of Austria, the maximum interest rate beginning 1 January is 0.5 per cent per year. However, the portfolio also includes older contracts with different discount rates. In the relevant markets of the UNIQA Group, these rates amount to as much as 4.0 per cent per year. The following table provides an overview of the average discount rates by region and currency.

Average technical discount rates, core business by region and currency

In per cent

EUR

USD

Local currency

Austria (AT)

2.4

 

 

Central Europe (CE)

3.4

 

3.2

Eastern Europe (EE)

3.6

3.9

3.3

Southeastern Europe (SEE)

2.7

2.1

1.4

Russia (RU)

3.0

2.9

4.0

As these discount rates are guaranteed by the insurance company, the financial risk lies in not being able to generate these returns. Since classic life insurance business predominantly invests in interest-bearing securities, the unpredictability of long-term interest rate trends is the most significant financial risk for a life insurance company. Investment and reinvestment risk arises from the fact that received in the future must be invested to achieve the rate of return guaranteed when a policy is written. However, it is entirely possible that no appropriate securities will be available at the time the premium is received. In the same way, future income must be reinvested to achieve a return equivalent to at least the original discount rate. For this reason, UNIQA has already decided to offer products to its key markets that are only based on a low or zero discount rate. One example of this in Austria is the sale of deferred pension products with a discount rate of 0 per cent.

Spread risk

Spread risk refers to the risk of changes in the price of asset or liability items in the financial statement, as a consequence of changes in credit risk premiums or associated volatility, and under II is ascertained for individual securities in accordance with their rating and . When investing in securities, UNIQA chooses securities with a wide variety of ratings, taking into consideration the potential risks and returns.

The following table shows the credit quality of those fixed-income securities that are neither overdue nor written down, based on their ratings.

Exposure by rating

In € thousand

31/12/2017

31/12/2016

AAA

4,316,755

3,227,227

AA

4,063,019

5,337,798

A

4,042,640

3,766,503

BBB

2,287,377

2,351,805

BB

961,445

1,151,994

B

198,127

124,947

≤ CCC

183,097

232,220

Not rated

489,089

364,052

Total

16,541,550

16,556,545

Equity risk

Equity risk arises from movements in the value of equities and similar investments as a result of fluctuations in international stock markets, and therefore, stems in particular from the asset categories of shares and investments and other interests. The effective equity weighting is controlled by with the selective use of derivative financial instruments.

Currency risk

Foreign currency risk is caused by fluctuations in exchange rates and associated volatility. Given the international nature of the insurance business, UNIQA invests in securities denominated in different currencies, thus following the principle of ensuring matching liabilities with assets in the same currency to cover liabilities at the coverage fund or company level. Despite the selective use of derivative financial instruments for hedging purposes, it is not always possible on cost grounds or from an investment point of view to achieve complete and targeted currency matching between the assets and liabilities. The following table shows a breakdown of assets and liabilities by currency.

Currency risk

In € thousand

31/12/2017

Assets

Provisions and liabilities

EUR

24,868,208

22,547,049

USD

487,254

87,257

CZK

586,717

474,119

HUF

485,880

578,675

PLN

1,167,861

1,011,021

RON

289,729

220,337

Other

858,235

632,036

Total

28,743,885

25,550,494

Currency risk

In € thousand

31/12/2016

Assets

Provisions and liabilities

EUR

29,645,082

27,759,009

USD

738,810

81,978

CZK

525,420

443,214

HUF

450,209

542,874

PLN

944,326

832,182

RON

282,564

209,137

Other

1,052,749

558,000

Total

33,639,160

30,426,394

Concentration risk

UNIQA strives to keep investment concentrations in securities from individual issuers or groups of issuers as low as possible depending on their credit rating.

Liquidity risk

Ongoing liquidity planning takes place in order to ensure that UNIQA is able to meet its payment obligations over the next twelve months.

To cover the obligations, which have a term of more than twelve months, the ALM process uses a maximum, though not complete, maturity match between assets and liabilities. Aside from this, a majority of the securities portfolio is listed in liquid markets and can be sold quickly and without significant markdowns if cash is required.

Regarding private equity investments, there are still remaining payment obligations in the amount of €1.0 million.

Sensitivities

Market and credit risk

and sensitivity analyses are used in particular to measure and manage market and credit risk, in addition to figures from the established market and credit risk models (MCEV, , , etc.)

The following tables show the most important market risks in the form of key sensitivity figures, along with their impact on profit/(loss) and equity. Depending on the measurement principle to be applied, any future losses from the measurement at may result in different fluctuations in profit/(loss) for the period or in other comprehensive income. The key figures are calculated theoretically on the basis of actuarial principles and do not take into consideration any diversification effects between the individual market risks or countermeasures taken in the various market scenarios.

Sensitivities are determined by simulating each scenario for each individual item, with all other parameters remaining constant in each case.

Interest rate risk

In € thousand

31/12/2017

31/12/2016

+100
basis points

–100
basis points1)

+100
basis points

–100
basis points1)

1)

An interest rate floor of 0% is taken into account in the calculation for the interest rate decline scenario.

Government bonds

–768,284

746,481

–755,100

641,797

Corporate bonds (incl. covered)

–372,587

281,189

–333,366

181,071

Other

–28,592

32,926

–28,373

8,757

Total

–1,169,463

1,060,595

–1,116,839

831,625

Spreadrisk

In € thousand

31/12/2017

31/12/2016

 

+100
basis points

 

+100
basis points

Total

 

–1,184,283

 

–1,133,350

Equity risk

In € thousand

31/12/2017

31/12/2016

30%

–30%

30%

–30%

Total

277,757

–247,797

220,730

–173,966

Currency risk

In € thousand

31/12/2017

31/12/2016

10%

–10%

10%

–10%

USD

27,209

–27,209

50,257

–50,261

HUF

16,776

–16,776

22,718

–22,718

RON

14,893

–14,893

17,868

–17,868

CZK

37,314

–37,314

34,196

–34,196

PLN

47,743

–47,743

43,386

–43,386

Other

57,374

–55,908

54,219

–53,228

Total

201,308

–199,842

222,645

–221,659

2017

In € thousand

Interest rate shock
(+100 bp)

Interest rate shock
(–100 bp)

Spread shock
(+100 bp)

Equity shock
(+30%)

Equity shock
(–30%)

Currency shock1)
(+10%)

Currency shock1)
(–10%)

1)

Market value changes that are without impact on the balance sheet include reclassified bonds, in the case of interest rate and spread risk, and real estate in the case of foreign currency risk.

Income statement

–1,235

4,152

–8,842

42,945

–19,012

185,406

–183,941

Equity

–1,168,228

1,056,443

–1,175,441

234,812

–228,785

15,902

–15,902

Total

–1,169,463

1,060,595

–1,184,283

277,757

–247,797

201,308

–199,842

2016

In € thousand

Interest rate shock
(+100 bp)

Interest rate shock
(–100 bp)

Spread shock
(+100 bp)

Equity shock
(+30%)

Equity shock
(–30%)

Currency shock1)
(+10%)

Currency shock1)
(–10%)

1)

Currency shock from land and buildings amounting to €23.2 million (+10%) and €‒23.2 million (‒10%) will not be incurred either on the income statement or in equity, because real estate is recognised at amortised cost and shocks on a fair value basis.

Income statement

–11,262

–7,036

–9,918

35,475

–29,443

184,378

–183,309

Equity

–1,091,855

827,829

–1,105,996

185,254

–144,522

14,671

–14,671

Total

–1,103,117

820,793

–1,115,914

220,730

–173,966

199,049

–197,980

Life insurance

In life insurance the interest rate assumptions are the crucial influencing factor on the liability adequacy test and deferred . The impact of the implied new funds assumption (including reinvestment) is therefore stated below.

If new funds are assumed with a + 100 bp increase, then the resulting net effect (after accounting for deferred ) amounts to €+8.35 million. A –100 bp reduction in this assumption results in a net effect of €–8.41 million. The effects described relate to the changes in along with the impact on the liability adequacy test. The results were determined using the traditional business in Austria which makes up the majority of insurance provision in the Group.

Non-life insurance

Provision for unsettled insurance claims is formed based on reported claims and applying accepted statistical methods. One crucial assumption here is that the pattern of claims observed from the past can be sensibly extrapolated for the future. Additional adjustments need to be made in cases where this assumption is not possible.

The calculation of claim provisions is associated with uncertainty based on the time required to process claims. In addition to the normal chance risk, there are also other factors that may influence the future processing of the claims that have already occurred. In particular, the reserving process for court damages in property and casualty insurance should be mentioned here. A reserve estimate is prepared here for these damages based on expert assessment, although this estimate can be exposed to high levels of volatility specifically with major damage at the start of the process for collecting court costs.

The in property and casualty insurance is a suitable instrument for quantifying the volatility involved in processing. Pursuant to analysis of these model results, it was determined that a deviation of 5 per cent from the basic provision determined may represent a realistic scenario. Based on the current provision for unsettled claims of €2,425 million (excluding additional provisions such as provisions for claim settlement) in the Group on a gross basis, this would mean an increase in claims incurred by €121.2 million.

Health insurance

Health insurance operated on the similar to life technique is now also affected by the period of low interest rates. Since 1 January 2018 only tariffs with the 1 per cent discount rate are being sold. That fact, together with the tariffs sold in 2017 at the discount rate of 1.75 per cent, further reduce the average discount rate.

A reduction in the capital earnings by 100 bp (based on investment results 2017) would reduce the profit from ordinary activities by approx. €32 million.

Actuarial risks

Non-life

The actuarial risk in the non-life segment is broken down into the three risk categories of premium, reserve and catastrophe risk.

Premium risk is defined as the risk that future benefits and expenses in connection with insurance operations will exceed the collected for the insurance concerned. Such a loss may also be caused in insurance operations by exceptionally significant, but rare loss events, known as major claims or shock losses. Appropriate distribution assumptions are made to ensure that these events are also adequately incorporated into risk modelling. Natural disasters represent a further threat from events that are infrequent but that nevertheless cause substantial losses. This risk includes financial losses caused by natural hazards, such as floods, storms, hail or earthquakes. In contrast to major individual claims, insurance companies in this case refer to cumulative losses.

Reserve risk refers to the risk that technical provisions recognised for claims that have already occurred will turn out to be inadequate. The loss in this case is referred to as settlement loss. The claim reserve is calculated using actuarial methods. External factors, such as changes in the amount or frequency of claims, legal decisions, repair and/or handling costs, can lead to differences compared with the estimate.

To counter and actively manage these risks, UNIQA runs a number of processes integrated into its insurance operations. For example, Group guidelines specify that new products may only be launched if they satisfy certain profitability criteria. Major claims and losses from natural disasters are appropriately managed by means of special risk management in the underwriting process (primarily in corporate activities) and by the provision of suitable reinsurance capacity.

In connection with claim reserves, guidelines also specify the procedures to be followed by local units when recognising such reserves in accordance with . A quarterly monitoring system and an internal validation process safeguard the quality of the reserves recognised in the whole of the Group.

An essential element in risk assessment and further risk management is the use of the non-life partial model. This risk model uses stochastic simulations to quantify the risk capital requirement for each risk class at both Company and Group levels. The model also produces further key figures that are then used as part of the risk- and value-based management of the insurance business.

Life

The risk of an individual insurance contract lies in the occurrence of the insured event. The occurrence is considered random and therefore unpredictable. Various risks exist in life insurance, particularly in classic life insurance. The insurance company takes on this risk for a corresponding premium. When calculating the premium, the actuary refers to the following carefully selected calculation principles:

  • Interest: the discount rate is set so low that it can be produced as expected in each year.
  • Mortality: the probabilities of dying are deliberately and carefully calculated for each type of insurance.
  • Costs: these are calculated in such a way that the costs incurred by the policy can be permanently covered by the premium.

Carefully selecting the calculation principles gives rise to well-planned profits, an appropriate amount of which is credited to the policyholders as part of profit participation.

The calculation of the premium is also based on the acceptance of a large, homogenous inventory of independent risks, so that the randomness inherent in an individual insurance contract is balanced out by the law of large numbers.

The following risks exist for a life insurance company:

  • The calculation principles prove to be insufficient despite careful selection.
  • Random fluctuations prove disadvantageous for the insurer.
  • Policyholders exercise certain implicit options to their advantage.

The risks of the insurer can be roughly divided into actuarial and financial risks.

Long-term life insurance contracts with guaranteed interest and profit participation

In € thousand

31/12/2017

31/12/2016

Austria (AT)

10,092,306

10,802,566

Western Europe (WE)

115

–541

Central Europe (CE)

364,428

340,922

Eastern Europe (EE)

37,704

31,117

Southeastern Europe (SEE)

490,533

501,436

Russia (RU)

209,433

167,031

Total

11,194,519

11,842,533

Long-term unit-linked and index-linked life insurance contracts

In € thousand

31/12/2017

31/12/2016

Austria (AT)

4,457,284

4,377,911

Western Europe (WE)

0

0

Central Europe (CE)

554,202

464,667

Eastern Europe (EE)

0

0

Southeastern Europe (SEE)

7,839

4,012

Russia (RU)

0

0

Total

5,019,325

4,846,591

UNIQA’s portfolio consists primarily of long-term insurance contracts. Short-term assurances payable at death play a minor role.

The table below shows the distribution of the premium portfolio by type and region:

Premium portfolio by type

In per cent

Endowment assurance

Life insurance

Pension insurance

 

2017

2016

2017

2016

2017

2016

Austria (AT)

42.1

43.7

9.1

9.4

22.2

19.6

Central Europe (CE)

15.9

16.8

2.5

2.5

0.2

0.2

Eastern Europe (EE)

30.6

46.8

3.2

4.7

0.0

0.0

Southeastern Europe (SEE)

77.4

80.2

8.0

7.0

0.4

0.4

Russia (RU)

98.0

96.8

0.0

0.0

0.0

0.0

Total

42.7

44.6

7.7

7.9

16.7

15.1

Premium portfolio by type

In per cent

Unit-linked and index-linked

Residual debt insurance

Other

 

2017

2016

2017

2016

2017

2016

Austria (AT)

25.5

26.2

0.0

0.0

1.1

1.1

Central Europe (CE)

53.3

57.6

10.1

9.1

18.1

13.7

Eastern Europe (EE)

0.0

0.0

63.7

44.3

2.6

4.2

Southeastern Europe (SEE)

3.1

2.2

0.8

0.6

10.2

9.6

Russia (RU)

0.0

0.0

2.0

3.2

0.0

0.0

Total

26.7

27.6

2.4

1.7

3.8

3.1

Mortality

With respect to assurance involving death risk, premiums are calculated based on an accounting table, implicitly allowing for the safety loading of risk premiums.

Using risk selection (health examinations) means that the mortality probabilities of the portfolio are consistently smaller than those of the overall population. In addition, the gradual improvement of mortality rates means that the real mortality probabilities are consistently smaller than the values shown in the accounting table. Analyses of mortality data carried out at Group level show that, historically, the level of premiums has been sufficient to cover the death benefits.

Due to the large number of lives insured by UNIQA in the Austrian market, the mortality trends are of particular importance here. According to the 2010/2012 mortality table published by Statistics Austria, life expectancy has increased and is over 80 years for new-borns for the first time.

Life expectancy at birth

Mortality table

Men

Women

1970 – 72

66.6

73.7

1980 – 82

69.2

76.4

1990 – 92

72.5

79.0

2000 – 02

75.5

81.5

2010 – 12

78.0

83.3

The reduction in the probability of dying at any given age is causing a huge amount of uncertainty in the annuity business. Improvements in mortality rates as a result of medical progress and changed lifestyles are virtually impossible to extrapolate.

Attempts to predict this effect were made when producing the generation tables. However, such tables only exist for the Austrian population and this data cannot be applied to other countries. In the UNIQA Group, longevity risk relates mainly to the Austrian life insurance companies because very few pension products are sold in the regions covered by the international business.

Homogeneity and independence of insurance risks

An insurance company takes great pains to compose a portfolio of the most homogenous, independent risks possible, in accordance with the classic, deterministic approach to calculating premiums. Because this is virtually impossible in practice, a considerable risk arises for the insurer due to random fluctuations, in particular from the outbreak of epidemic illnesses, as not only could the calculated mortality probabilities prove to be too low, the independence of the risks can also no longer be assumed.

Antiselection

UNIQA’s portfolios contain large quantities of risk insurance policies with a premium adjustment clause, particularly in Austria. This allows the insurer to raise the premiums in case of an (unlikely) worsening of the mortality behaviour. However, this presents the danger of possible antiselection behaviour, meaning that policies for good risks tend to be terminated while worse ones remain in the portfolio.

The right to choose pensions for deferred retirement annuities also results in antiselection. Only those policyholders who feel very healthy choose the annuity payment; all others choose partial or full capital payment. In this way, the pension portfolio tends to consist of mostly healthier people, i.e. from the insurer’s point of view worse risks than the population average.

This phenomenon is countered by corresponding modifications to the retirement mortality tables. A further possibility exists in the requirement that the intention to exercise the right to choose annuity payments must be announced no later than one year in advance of the expiration.

Costs

Besides the risks discussed above, the cost risk must also be mentioned: the insurer guarantees that it will deduct only the calculated costs for the entire term of the policy. The business risk here is that the cost premiums are insufficient (e.g. due to cost increases resulting from inflation).

Health

The health insurance business is operated primarily in Austria (92.4 per cent in Austria). Health insurance outside of Austria has been reduced to approx. 5 per cent through the sale of UNIQA Assicurazioni SpA. As a result, risk management in this line focuses mainly on Austria.

Health insurance is a loss insurance which is calculated under consideration of biometric risks and is operated in Austria according to the “similar to life technique”.

Terminations by the insurer are not possible except in the case of obligation violations by the insured. Premiums must therefore be calculated in such a way that the premiums are sufficient to cover the that generally increase with age, assuming probabilities that remain constant. The probabilities and cost structures can change frequently over time. For this reason, the health insurer has the possibility to adjust the premiums as necessary to reflect the changed calculation principles.

When taking on risks, the existing risk of the individual is also evaluated. If it is established that an illness already exists for which the cost risk is expected to be higher than for the calculated portfolio, then either this illness is excluded from the policy, an adequate risk surcharge is demanded or the risk is not underwritten.

In health insurance, assurance coverage (“aging provision”) is built up through calculation according to “similar to life techniques” and reduced again in later years because this is used to finance an ever larger part of the benefits that increase with age.

The discount rate for this is 3.0, 2.5 or 1.75 per cent. If the discount rate is not achieved by the investment, there are safety margins in the premiums that can be used to cover insufficient investment results. A new circular was published by the Austrian Financial Market Authority (FMA) in July 2017 related to the discount rate in health insurance, stating that the FMA expects that tariffs will only be sold with 1 per cent discount rate as of 1 January 2018. This results in a further improvement of the risk in cases where the investment results are insufficient. The average discount rate at 31 December 2017 was approximately 2.89 per cent.

The legal risks arise primarily from the effects that changes to legislation have on the existing private health insurance business model. This includes, in particular, changes to the legal framework that make it harder or impossible to adapt to changed circumstances or that sharply reduce the income opportunities. Developments in this area are being observed by the insurance association, and attempts will also be made where necessary to react to negative developments from the perspective of the private health insurer.

The premium volume for the health insurance business abroad amounts to approx. €56 million. The health insurance business from Switzerland was transferred to UNIQA Liechtenstein (approx. €14 million) as also applies here in terms of supervisory law instead of the SST (Swiss Test). The remaining premiums are practically divided between all UNIQA insurance companies internationally, but are generally of only minor importance. As UNIQA has no obligations to life-long contracts abroad and the contracts are pre-dominantly one-year contracts, the risk of health insurance similar to property technique must be categorised as somewhat low.

Other risks

Operational risk

Operational risk includes losses that are caused by insufficient or failed internal processes, as well as losses caused by systems, human resources or external events.

Operational risk includes legal risk, but not reputation or strategic risk. Legal risk is the risk of uncertainty due to lawsuits or uncertainty in the applicability or interpretation of contracts, laws or other legal requirements. At UNIQA, legal risks are monitored on an on-going basis and reports made to the Group Management Board. UNIQA’s risk management process also defined the risk process for operational risks in terms of methodology, workflow and responsibilities. The risk manager is responsible for compliance throughout all group companies.

A distinctive feature of operational risk is that it can surface in all processes and departments. This is why operational risk is identified and evaluated in every operational company at a very broad level within UNIQA. Risks are identified with the help of a standardised risk catalogue that is regularly checked for completeness. Scenarios are defined for evaluating these risks; these scenarios are meant to convey the likelihood of occurrence and the possible amount of the claim. The results are then presented in the form of a summarised risk report.

This process is usually conducted twice a year.

Business Continuity Management (BCM)

According to international standards, the UNIQA Group – as a financial service provider – forms part of the critical infrastructure of key importance to the national community. If this infrastructure were to fail or become impaired, it would cause considerable disruption to public safety and security or lead to other drastic consequences.

As a rule, emergencies, crises and disasters are unexpected events for which it is impossible to plan, although systems and processes can be put in place to deal with such events. The systems and processes must then be treated as a special responsibility of management and must be dealt with professionally, efficiently and as quickly as possible.

UNIQA has implemented a BCM system covering the issues of crisis prevention, crisis management and business recovery (including business continuity plans). The UNIQA BCM model is based on international rules and standards and is developed on a continuous basis.

Reputational and strategic risk

Reputational risk describes the risk of loss that arises due to possible damage to the Company’s reputation, a deterioration in prestige, or a negative overall impression due to negative perception by customers, business partners, shareholders or supervisory agencies.

Reputational risks that occur in the course of core processes such as claim processing or advising and service quality are identified, evaluated and managed as operational risks in the group companies.

The most important reputational risks are presented, like the operational risks, in an aggregated form in the risk report.

Group risk management then analyses whether the risk observed in the Group or in another unit may occur, and whether the danger of “contagion” within the Group is possible.

Strategic risk describes the risk that results from management decisions or insufficient implementation of management decisions that may influence current and/or future income or solvency. This includes the risk that arises from management decisions that are inadequate because they ignore a changed business environment.

Like operational and reputational risks, strategic risks are evaluated twice a year. Furthermore, important decisions in various committees, such as the Risk Committee, are reported to the Group Management Board. As outlined in the explanation of the risk management process, the management receives a monthly update regarding the most significant risks in the form of a heat map.

Sustainability risks

Sustainability risks are not currently classified as a separate risk category but are allocated among the existing categories. Up until now, UNIQA has identified potential sustainability risks with the following topics from the materiality analysis: clear evaluation of damage and rapid assistance, process for handling data and new technologies, customer information and financing, complaints management, avoidance of critical investment, employee satisfaction as well as ethics and compliance. UNIQA’s risk identification process is subject to continuous development and will also ascertain in the future whether an identified risk is relevant from a sustainability point of view. According to the definition used by UNIQA this is the case if a risk exists in relation to ecological and/or social aspects of the sustainability topics.

Asset liability management
Management concept whereby decisions related to company assets and the equity and liabilities are coordinated with each other. Strategies related to the assets and the equity and liabilities are formulated, implemented, monitored and revised with this in a continuous process in order to attain the financial objectives given the risk tolerances and restrictions specified.
Equity method
Investment in associates is accounted for using this method. The value assessed corresponds with the Group’s proportional equity in these companies. In the case of shares in companies that prepare their own consolidated financial statements, their Group equity is assessed accordingly in each case. Within the scope of ongoing valuations, this value must be updated to incorporate proportional changes in equity; the pro rate profit on ordinary activities is imputed to the Group results with this.
Reinsurance
An insurance company insures part of its risk via another insurance company.
Insurance provision
Provision in the amount of the existing obligation to pay insurance benefits and reimbursements, predominantly in life and health insurance. The provision is determined using actuarial methods as a balance of the present value of future obligations less the present value of future premiums.
Reinsurance
An insurance company insures part of its risk via another insurance company.
Duration
Duration refers to the weighted average term of an interest rate-sensitive investment or of a portfolio and is a measure of risk for the sensitivity of investments in the event of changes to interest rates.
Premiums
Total premiums written. All premiums from contracts written in the financial year from business acquired by the company directly and as inward reinsurance.
Solvency
An insurance company’s equity base.
Duration
Duration refers to the weighted average term of an interest rate-sensitive investment or of a portfolio and is a measure of risk for the sensitivity of investments in the event of changes to interest rates.
Hedging
Hedging against unwanted changes in exchange rates or prices using an appropriate offsetting item, particularly derivative financial instruments.
Stress test
Stress tests are a special form of scenario analysis. The objective is to provide a quantitative statement on the loss potential for portfolios in the event of extreme market fluctuations.
SCR
Solvency Capital Requirement. The eligible own funds that insurers or reinsurers must hold to enable them to absorb significant losses and give reasonable assurance to policyholders and beneficiaries that payments will be made as they fall due. It is calculated to ensure that all quantifiable risks (such as market risk, credit risk, life underwriting risk) are reliably taken into account. It covers both current operating activities and the new business expected in the subsequent twelve months.
ECR
Economic Capital Requirement. Risk capital requirement that results from the economic capital model.
Fair value
The fair value is the price that would be collected in an ordinary business transaction between market participants for the sale of an asset or that would be paid for transferring a liability.
Acquisition costs
The amount paid to acquire an asset in cash or cash equivalents or the fair value of another form of compensation at the time of acquisition.
Profit participation
Policyholders have a reasonable right under statutory and contractual regulations to the company’s surplus profits generated in life and health insurance. The level of this profit participation is determined again each year.
Deferred acquisition costs
These include the costs of the insurance company incurred in connection with the acquisition of new or the extension of existing contracts. Costs such as acquisition commissions as well as costs for processing applications and risk assessments are some of the items to be recorded here.
(Partial) internal model
Internally generated model developed by the insurance or reinsurance entity concerned and at the instruction of the FMA to calculate the solvency capital requirement or relevant risk modules (on a partial basis).
Premiums
Total premiums written. All premiums from contracts written in the financial year from business acquired by the company directly and as inward reinsurance.
IFRSs
International Financial Reporting Standards. Since 2002 the term IFRSs has applied to the overall concept of standards adopted by the International Accounting Standards Board. Standards already adopted beforehand continue to be referred to as International Accounting Standards (IASs).
Insurance benefits
Total of insurance benefit payments and changes in the claims provision during the financial year in connection with direct insurance and reinsurance contracts (gross). This involves net insurance benefits when reduced by the amount ceded to reinsurance companies. This does not include claims settlement expenses and changes in the provisions for claims settlement expenses.
Insurance provision
Provision in the amount of the existing obligation to pay insurance benefits and reimbursements, predominantly in life and health insurance. The provision is determined using actuarial methods as a balance of the present value of future obligations less the present value of future premiums.
Solvency II
European Union Directive on publication obligations and solvency rules for the equity base of an insurance company.
Solvency
An insurance company’s equity base.